UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
Or
[ ] TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________
to ______________
Commission file number: 333-184682
AVANGARD
CAPITAL GROUP INC. |
(Exact name of registrant as specified in its charter) |
Nevada |
|
45-5507359 |
(State or other jurisdiction |
|
(IRS Employer |
of incorporation) |
|
Identification No.) |
2708 Commerce Way Suite 300, Philadelphia PA |
|
19154 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (215) 464-7300 |
|
Not Applicable. |
(Former name or former address, if changed since last report) |
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act
Large accelerated filer |
[ ] |
|
Accelerated filer |
[ ] |
|
|
|
|
|
Non-accelerated filer |
[ ] |
|
Smaller reporting company |
[X] |
(Do not check if smaller reporting company) |
|
|
|
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
As of May 18, 2015 there
were 10,781,466 shares issued and outstanding of Registrant’s Common Stock.
TABLE OF CONTENTS
PART 1 - FINANCIAL
INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVANGARD
CAPITAL GROUP, INC.
CONDENSED BALANCE
SHEETS
(unaudited)
| |
March 31, 2015 | | |
June 30, 2014 | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 20,576 | | |
$ | 424,272 | |
Floor plan financing receivable, net of allowance for uncollectable accounts | |
| - | | |
| 81,259 | |
Used car inventory | |
| 6,825 | | |
| | |
Related party receivable | |
| - | | |
| 7,000 | |
Total current assets | |
| 27,401 | | |
| 512,531 | |
Property and equipment, net | |
| 2,932 | | |
| 3,331 | |
Total assets | |
$ | 30,333 | | |
$ | 515,862 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
| 11,745 | | |
| 24,176 | |
Due to related party | |
| 33,138 | | |
| - | |
Total current liabilities | |
$ | 44,883 | | |
$ | 24,176 | |
| |
| | | |
| | |
Stockholders’ equity (deficit) | |
| | | |
| | |
Convertible Preferred Stock Series A, $0.0001 par value, 300,000,000 authorized, 585,000 issued
and outstanding at March 31, 2015 and 905,000 issued and outstanding at June 30, 2014 | |
| 58 | | |
| 90 | |
Common stock, $0.0001 par value, 100,000,000 authorized; Class A, 10,781,466 shares issued and
outstanding at March 31, 2015 and 1,013,466 shares at June 30, 2014 | |
| 1,078 | | |
| 101 | |
Additional paid in capital | |
| 787,837 | | |
| 1,107,805 | |
Accumulated deficit | |
| (803,523 | ) | |
| (616,310 | ) |
Total stockholders’ (deficit) equity | |
| (14,550 | ) | |
| 491,686 | |
Total liabilities and stockholders’ equity | |
$ | 30,333 | | |
$ | 515,862 | |
The accompanying notes
are an integral part of these condensed financial statements.
AVANGARD
CAPITAL GROUP, INC.
CONDENSED STATEMENTS
OF OPERATIONS
(unaudited)
| |
For the Three Months Ended
March 31, | | |
For the Nine Months Ended
March 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
REVENUE | |
| | | |
| | | |
| | | |
| | |
Fee revenue | |
$ | - | | |
$ | 151 | | |
$ | - | | |
$ | 25,709 | |
Interest revenue | |
| - | | |
| 3,302 | | |
| - | | |
| 27,236 | |
Total revenue | |
| - | | |
| 3,453 | | |
| - | | |
| 52,945 | |
| |
| | | |
| | | |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative | |
| 78,114 | | |
| 126,720 | | |
| 180,515 | | |
| 389,873 | |
Bad debt expense | |
| 33,378 | | |
| 141,591 | | |
| 33,378 | | |
| 141,591 | |
Total operating expenses | |
| 111,492 | | |
| 268,311 | | |
| 213,893 | | |
| 531,464 | |
| |
| | | |
| | | |
| | | |
| | |
(Loss) from operations | |
| (111,492 | ) | |
| (264,858 | ) | |
| (213,893 | ) | |
| (478,519 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income | |
| | | |
| | | |
| | | |
| | |
Realized gain on marketable securities | |
| - | | |
| - | | |
| - | | |
$ | 58,091 | |
Other income (inventory recovery) | |
| - | | |
| - | | |
| 26,355 | | |
| | |
Interest and dividend income | |
| 26 | | |
| 1,289 | | |
| 325 | | |
| 6,642 | |
Total other income | |
| 26 | | |
| 1,289 | | |
| 26,680 | | |
| 64,733 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (111,466 | ) | |
$ | (263,569 | ) | |
$ | (187,213 | ) | |
$ | (413,786 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share attributable to common shareholders - basic and diluted | |
$ | (0.01 | ) | |
$ | (0.26 | ) | |
$ | (0.02 | ) | |
$ | (0.41 | ) |
Weighted average number of common shares used in computation - basic and diluted | |
| 10,781,466 | | |
| 1,013,466 | | |
| 10,424,970 | | |
| 1,013,466 | |
The accompanying notes
are an integral part of these condensed financial statements.
AVANGARD
CAPITAL GROUP, INC.
CONDENSED STATEMENTS
OF COMPREHENSIVE LOSS
(unaudited)
| |
For the Three Months Ended
March 31, | | |
For the Nine Months Ended
March 31, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Net loss | |
$ | (111,466 | ) | |
$ | (263,569 | ) | |
$ | (187,213 | ) | |
$ | (413,786 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income | |
| | | |
| | | |
| | | |
| | |
Net change in unrealized gain on marketable securities | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | (24,225 | ) |
| |
| | | |
| | | |
| | | |
| | |
Total comprehensive loss | |
$ | (111,466 | ) | |
$ | (263,569 | ) | |
$ | (187,213 | ) | |
$ | (438,011 | ) |
The accompanying notes
are an integral part of these condensed financial statements.
AVANGARD
CAPITAL GROUP, INC.
CONDENSED STATEMENTS
OF CASH FLOWS
(unaudited)
| |
For the Nine Months Ended March 31, | |
| |
2015 | | |
2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net (loss) | |
$ | (187,213 | ) | |
$ | (413,786 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 399 | | |
| 399 | |
Gain on sale of marketable securities | |
| - | | |
| (58,091 | ) |
Other Income (Inventory Recovery) | |
| (26,355 | ) | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Provision for doubtful accounts | |
| - | | |
| 141,591 | |
Used car inventory | |
| 100,789 | | |
| (3,621 | ) |
Used car auto financing portfolio | |
| - | | |
| 48,868 | |
Fees receivable | |
| - | | |
| 11,218 | |
Interest receivable | |
| - | | |
| 9,807 | |
Related party receivable | |
| 7,000 | | |
| (2,325 | ) |
Other assets | |
| - | | |
| 2,980 | |
Due to related party | |
| 33,138 | | |
| - | |
Accounts payable and accrued expenses | |
| (12,431 | ) | |
| (2,891 | ) |
NET CASH USED IN OPERATING ACTIVITIES | |
| (84,673 | ) | |
| (265,851 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of marketable securities | |
| - | | |
| (34,369 | ) |
Sale of marketable securities | |
| - | | |
| 446,438 | |
NET CASH PROVIDED BY INVESTING ACTIVITES | |
| - | | |
| 412,069 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Stock subscription received | |
| 977 | | |
| 135,996 | |
Redemption of preferred stock | |
| (320,000 | ) | |
| - | |
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | |
| (319,023 | ) | |
| 135,996 | |
| |
| | | |
| | |
Net (decrease) increase in cash | |
| (403,696 | ) | |
| 282,214 | |
| |
| | | |
| | |
Cash, beginning of the period | |
| 424,272 | | |
| 164,049 | |
Cash, at end of the period | |
$ | 20,576 | | |
$ | 446,263 | |
The accompanying notes
are an integral part of these condensed financial statements.
AVANGARD
CAPITAL GROUP, INC.
NOTES TO UNAUDITED
CONDENSED FINANCIAL STATEMENTS
March 31, 2015
NOTE 1 - NATURE OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Organization and
Description of Business Avangard Capital Group, Inc., a Nevada corporation is referred to in this report as “we”,
“us”, “our”, “ACG”, the “Company” or “Avangard Capital Group.”
We were incorporated
June 13, 2012 under the laws of the State of Nevada. Our executive offices are located at 2708 Commerce Way, Suite 300, Philadelphia,
PA 19154.
We were an independent
auto sales finance company that provides floor plan financing for independent used car dealers based on the value of collateral
(the car) as determined by us using the automobile industry’s nationally-recognized valuation sources. We maintain licenses
to operate in the states of [New Jersey, Pennsylvania and Florida]. We commenced business June 22, 2012 with the purchase of all
floor plan receivables from Avangard Auto Finance, Inc. (“AAF”), an affiliate. Pursuant to an Assignment Agreement
with AAF dated June 13, 2012, we acquired AAF’s floor plan financing portfolio for $151,979, the face value of the contracts
plus accrued interest and fees at that time.
In January 2013 we received
approval and were licensed by the States of Florida and New Jersey as a Sales Finance Company. In February 2013, we were licensed
in the Commonwealth of Pennsylvania as a Sales Finance Company. These licenses permit us to expand our operations to providing
financing for auto sales by dealers. We have not commenced operations in Florida or New Jersey as we are evaluating the feasibility
of expanding into these markets. In addition, we have suspended financing new loans as we explore alternative opportunities for
our future growth.
On March 26, 2013 we
acquired certain retail installment contract receivables from AAF and Avangard Financial Group, Inc., a related party (“AFG”)
for $102,250. The receivables consisted of an aggregate principal balance of approximately $141,868 for current loans receivables
and approximately $323,449 for non-current loans receivables. We recovered our initial investment and earned approximately 20%
in interest on the investment.
On February 19, 2014
we transferred all remaining loans receivable to AAF as we determined that the outstanding balances were either uncollectible
or difficult to collect and the Company did not believe that pursuing further collection efforts was a good use of the Company’s
resources.
During the nine months
ended March 31, 2015 we repossessed 18 vehicles. Of the 18 vehicles we repossessed we sold 14 vehicles at auction for a total
of $116,600, less $3,958 selling costs and $31,811 repair costs.
At March 31, 2015 our
inventory consisted of one vehicle with a value of $6,825.
Interim Financial Statements
The accompanying unaudited
condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”) and in conformity with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and the related
rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note
disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant
to such rules and regulations. However, we believe that the disclosures included in these financial statements are adequate to
make the information presented not misleading. The unaudited condensed financial statements included in this document have been
prepared on the same basis as the annual financial statements, and in our opinion reflect all adjustments, which include normal
recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements.
The results for the nine months ended March 31, 2015 are not necessarily indicative of the results expected for the full year
or for any subsequent interim periods. These unaudited condensed financial statements should be read in conjunction with the audited
financial statements and the notes to those statements included in our Annual Report on Form 10-K for the period ended June 30,
2014 filed with the SEC on September 30, 2014.
Use of Estimates
We use estimates and
assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from
those estimates.
Cash and Cash Equivalents
Cash and cash equivalents
include highly liquid investments with an original maturity of three month or less when purchased.
Revenue Recognition
Interest income from
floor plan financing receivable is recognized using the interest method. Accrual of income on finance receivables is suspended
when a contract is contractually delinquent for ninety (90) days or more. The accrual is resumed when the contract becomes contractually
current and past due interest is recognized at that time.
Origination Fees are
recognized for services provided during the loan origination process at the point in time the loan is funded.
The Company accounts
for its investment in floor plan financing receivables using the interest method, under ASC 310 pools of accounts are established
based on certain common risk criteria. Each pool is recorded at cost and is accounted for as a single unit for the recognition
of income, principal payments and loss provision.
The Company accounts
for its investment in retail installment contract receivables it acquired on March 26, 2013 using the cost recovery method as
the Company’s collections on this particular pool of accounts cannot be reasonably predicted. Under the cost recovery method,
no income is recognized until the cost of the retail installment contract receivables portfolio has been fully recovered. This
pool of accounts can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections.
In this case, all cash collections are recognized as revenue when received.
Floor Plan Financing Receivable
Floor plan financing
receivable consists of purchased automobiles, which were assigned to us upon acquisition. The titles to the automobiles, which
serve as security for the payment of the purchased contracts, are held by us.
As of March 31, 2015 there are no floor plan
financing receivables.
We perform periodic evaluations
of the adequacy of the allowance for losses taking into consideration the past loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral,
as well as recovery potential of any underlying collateral, personal guarantees and current economic conditions. Any increases
in the allowance for losses subsequent to the acquisition of the contract are charged to earnings.
Our primary floor plan
customer defaulted on their agreement in February 2014. The floor plan agreement carried personal guarantees and confessions of
judgment, in addition to first lien on all vehicles subject to the floor plan agreement. In March 2014, the customer filed for
bankruptcy protection under Chapter 11 of the Federal Bankruptcy Code. We repossessed 18 of the 21 vehicles subject to the floor
plan agreement from the debtor prior to its Chapter 11 filing. Additionally, there is a question of the legality of the debtor’s
sale of four (4) vehicles which were subject to financing. Since we are unable to determine the exact amount of ultimate losses,
on March 31, 2014 we provided a reserve for uncollectible receivables of $115,000.
Inventory
During the quarter ended
March 31, 2015 we repossessed an additional 4 vehicles. Of the 18 vehicles we repossessed during the nine months ended March 31,
2015 we sold 14 vehicles at auction for a total recovery of $116,600, less $3,958 selling costs and $31,811 repair costs. The
value of the floor plan receivables related to the vehicles sold was $123,550.
At March 31, 2015 of
the remaining 4 vehicles, 1 was sold in April 2015 for $6,825, and the remaining 3 vehicles are considered unsellable. Two vehicles
were damaged to the extent that repairs were more costly than the value of the cars; one vehicle is being withheld from sale pending
a court determination as to whether the vehicle was properly repossessed from a consumer. The carrying value of the 3 vehicles
that are considered unsellable in inventory was $33,378. Since any recovery is doubtful the inventory value of the unsellable
vehicles was charged to bad debts.
Management has determined
the proceeds from the sale of the remaining vehicles, if any, cannot be reasonable predicted.
Comprehensive Income
Comprehensive income
consists of two components, net income and other comprehensive income. Other comprehensive income refers to revenue, expenses,
gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other
comprehensive income consists of unrealized gains on marketable securities categorized as available-for-sale.
Concentrations of Credit Risk
The Company’s assets
exposed to credit risk are cash and finance and interest receivables.
For the nine months ended
March 31, 2015, the company had no revenue. For the nine months ended March 31, 2014 one significant customer accounted for 100%
for both revenue and accounts receivable.
The Company maintains
its cash balances in Federal Deposit Insurance Corporation (“FDIC”) insured financial institutions. At times, cash
balances may exceed the maximum insurance offered by FDIC.
Property and Equipment
Fixed assets are recorded
at their historical cost upon acquisition or cost of construction. The assets are depreciated using the straight-line method over
their statutory lives. The fixed asset categories and their estimated lives are as follows:
Office Equipment 5 years
Income Taxes
We account for income
taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating loss
for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income
taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the nine
months ended March 31, 2015
NOTE 2 - INCOME TAXES
The net deferred tax
asset consists of the following:
| |
March 31, 2015 | | |
June 30, 2014 | |
Deferred Tax Asset | |
$ | 326,177 | | |
$ | 250,181 | |
Less: Valuation Allowance | |
| (326,177 | ) | |
| (250,181 | ) |
Net Deferred Tax Assets | |
$ | - | | |
$ | - | |
As of March 31, 2014,
the Company has net operating loss carry forwards of $829,879 that can be utilized to offset future taxable income for Federal
and State income tax purposes through 2024, generating a maximum deferred tax benefit of $326,177 by applying Federal and State
statutory tax rates. The Company applied a 100% valuation reserve against the deferred tax benefit, as the realization of the
benefit is not certain.
The following tax years
remain subject to examination by the respective tax jurisdictions.
|
|
Fiscal Years ending
June 30, |
Internal Revenue Service |
|
2012 - 2014 |
Commonwealth of Pennsylvania |
|
2012 - 2014 |
NOTE 3 - COMMON AND PREFERRED STOCK
On June 20, 2014 the
Board of Directors authorized the completion of the Reverse Stock Split, and effective as of June 30, 2014, we completed a reverse
stock split of our issued and outstanding common stock on a 1 for 10 basis (the “Reverse Stock Split”) . Throughout
this quarterly report on Form 10-Q, each instance that refers to a number of shares of our common stock refers to the number of
shares of common stock after giving effect to the Reverse Stock Split, unless otherwise indicated. No fractional shares of common
stock were issued as a result of the Reverse Stock Split.
As of March 31, 2015
we are authorized to issue 100,000,000 shares of $0.0001 par value common stock of which 10,781,466 are issued and outstanding.
On July 10, 2014, the
Company agreed to issue to Friedman Financial Group, LLC, a related party, 9,250,000 shares of the Company’s Common Stock
in exchange for $925. Simon Friedman, the Company’s CEO and Chairman of the Board, has voting and dispositive control over
securities held by Friedman Financial Group, LLC.
On July 10, 2014, the
Company agreed to issue to Jerry Kindrachuk 500,000 shares of the Company’s Common Stock in exchange for $50.
On July 10, 2014, the
Company agreed to issue to Arkady “Eric” Rayz, a member of the Company’s Board of Directors, 9,000 shares of
its Common Stock in exchange for services that were valued at $1.
On July 10, 2014, the
Company agreed to issue to Robert Cornaglia, a member of the Company’s Board of Directors, 9,000 shares of its Common Stock
in exchange for services that were valued at $1.
We are authorized to
issue 300,000,000 shares of $0.0001 par value Convertible Preferred Stock Series A. On December 29, 2014 the Board of Directors
approved the redemption of 320,000 shares of Convertible Preferred Stock Series A at $1.00 per share. As of March 31, 2015 and
June 30, 2014 the Company had issued and outstanding 585,000 and 905,000 shares of Convertible Preferred Stock Series A respectively.
Common Stock Purchase Warrants
A summary of the status
of our outstanding common stock purchase warrants granted as of March 31, 2015 and changes during the period is as follows:
| |
Shares | | |
Weighted | |
| |
Underlying | | |
Average | |
| |
Warrants | | |
exercise
price | |
Outstanding and exercisable at June 30, 2014 | |
| 2,867 | | |
$ | 0.20 | |
Additions | |
| - | | |
| - | |
Outstanding and exercisable at March 31, 2015 | |
| 2,867 | | |
$ | 0.20 | |
The following information
applies to all warrants outstanding and exercisable at March 31, 2015:
Number of Warrants | | |
| | |
|
outstanding and | | |
| | |
Remaining contractual |
exercisable | | |
Exercise
Price | | |
life
(Years) |
2,867 | | |
$ | 0.20 | | |
0.63 |
NOTE 4 - LOSS PER SHARE
Basic net loss per share
is computed by dividing net loss by the weighted average number of common shares outstanding for the period. The Company’s
potential dilutive shares, which include convertible preferred shares and shares issuable upon exercise of the Warrants, have
not been included in the computation of diluted net loss per share as the result would be antidilutive. Such potentially dilutive
shares are excluded when the effect would be to reduce net loss per share. All potential common shares have been excluded from
the computation of the dilutive net loss per share for the period presented because the effect would have been antidilutive. Such
potential common shares consist of the following:
| |
March
31, 2015 | | |
March
31, 2014 | |
Convertible preferred stock | |
| 175,500 | | |
| 271,500 | |
Warrants attached to units sold | |
| 2,867 | | |
| 2,867 | |
NOTE 5 - RELATED PARTY TRANSACTIONS
We entered into a lease
agreement for office space with Commerce Way, LLC (“CWL”). CWL is owned by DJS Investments, LLC and SELF, LP. SELF,
LP is a shareholder of Friedman Financial Group, who is a principal shareholder of our company. The lease requires monthly payments,
commencing August 1, 2012, of $2,500 on a month to month basis. No security deposit was required. The company suspended operations
and terminated the lease with Commerce Way, LLC. Effective January 2015 the company resumed paying $2,500 per month rent on a
month to month basis. Rent expense for the nine months ended March 31, 2015 and 2014 was $7,500 and $22,500 respectively.
On March 26, 2013 we
entered into a Retail Installment Contract Receivable Purchase Agreement (the “Purchase Agreement”) with Avangard
Auto Finance, Inc. and Avangard Financial Group, Inc. (the “Sellers”), both of whom are our affiliates. Under the
terms of the Purchase Agreement, we agreed to pay the Sellers $102,250 (the “Purchase Price”) to purchase certain
of their retail installment contract receivables as of the date of the agreement. These amounts included an aggregate principal
balance of approximately $141,868 for current loans receivables (the “Current Loans”) and an aggregate principal balance
of approximately $323,449 for non-current loans receivables (the “Non-Current Loans”). The Sellers guaranteed to us
that we will recover no less than 70% of the aggregate amount of the Current Loans. If we recover less than 70% of the aggregate
amount of the Current Loans, the Sellers shall pay the difference to us upon demand. On February 19, 2014 we transferred all remaining
loans receivable to AAF as we determined that the outstanding balances were either uncollectible or difficult to collect and the
Company did not believe that pursuing further collection efforts was a good use of the Company’s resources.
On July 10, 2014,
the Board of Directors accepted Subscription Agreements for the purchase of 9,768,000 shares of Common Stock at par value $0.0001
per share. Friedman Financial Group, LLC, a related party and the majority shareholder, subscribed for 9,250,000 shares of Common
Stock. Corporate Board Members Eric Rayz and Robert Cornaglia subscribed to 9,000 shares of Common Stock each, and Jerry Kindrachuk,
the financial consultant to the Company subscribed to purchase 500,000 shares of common Stock.
Friedman’s Financial
Group, a related party, provides service to the Company by using their license to participate in automobile auctions. Friedman’s
Financial Group sells cars repossessed by the Company at auction and remits the proceeds to the Company. Friedman’s financial
Group also provided services related to market development and new markets. During the quarter ended March 31, 2015 Friedman’s
Financial Group were reimbursed $18,838 for expenditures on the Company’s behalf.
Joseph Friedman &
Sons, a related party provides administrative and consulting services for the Company. During the nine months ended March 31,
2015 Joseph Friedman & Sons provided $17,779 in reimbursable services.
Effective as of December
29, 2014, the Company redeemed 320,000 shares of Convertible Preferred Stock Series A held by Friedman Financial Group, LLC at
$1.00 per share. In addition, the Company has offered DJS Investments, LLC (“DJS”) the right to redeem 17,909 shares
of Preferred Stock Series A it holds at $1.00 per share. This offer may be revoked by the Company at any time prior to acceptance
by DJS.
The Company has entered
into a financing agreement with Simon Friedman, the Company’s Chief Executive Officer and Director, to provide a line of
credit sufficient to finance corporate expenses while the Company pursues new business opportunities. The line of credit has a
current limit of $30,000, payable on demand at no interest. As of March 31, 2015 the amount due under this financing agreement
is $33,138.
Officers and related
parties of our company provide certain administrative expenses at no charge.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Note Regarding Forward-Looking
Information and Factors That May Affect Future Results
This report contains
forward-looking statements regarding our business, financial condition, results of operations and prospects. The Securities and
Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s
future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q and other written and oral statements
that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s
plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by
using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,”
“plan,” “believe,” “will” and similar expressions in connection with any discussion of future
operating or financial performance. In particular, these include statements relating to future actions, future performance or
results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial
results. A list of factors that could cause our actual results of operations and financial condition to differ materially is set
forth below, and these factors are discussed in greater detail under the “Risk Factors” section of our Annual Report
on Form 10-K as filed with the SEC on September 30, 2014:
● |
Our limited operating history and ability to achieve profitability. |
|
|
● |
Our ability to assure that related party transactions are fair to our company. |
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● |
Our ability to manage growth in our business. |
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● |
The impact of the volatility in the worldwide credit and equity markets. |
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● |
The departure of our CEO, director and principal financial officer has increased our dependence
on the services provided by Simon Friedman, Chairman of the Board of Directors and interim CEO, who can exercise disproportionate
voting control over corporate decisions. |
|
|
● |
The super voting power of our interim CEO and director who holds shares of the Series A Convertible
Preferred Stock. |
|
|
● |
Write-Offs for losses and defaults on our floor plan receivables. |
|
|
● |
The impact of changes in interest rates. |
|
|
● |
Increased costs as a result of becoming a reporting company. |
|
|
● |
Our ability to maintain an effective system of internal controls over financial reporting. |
|
|
● |
The affects on our stock price as a result of sales of our common stock by existing shareholders
pursuant to Rule 144. |
We caution that the factors
described herein and other factors could cause our actual results of operations and financial condition to differ materially from
those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking
statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake
no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement
is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to
time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on
our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
OVERVIEW
We were an independent
auto sales finance company that provides floor plan financing and auto financing for independent used car dealers. The loans made
are based on the value of collateral (the car) as determined by us using the automobile industry’s nationally-recognized
valuation sources. We maintain our licenses to operate in Pennsylvania, New Jersey and Florida. The Company has suspended financing
new loans while Management and the Board of Directors explore strategic alternatives including, but not limited to, possible sale
of a controlling interest in the company to allow for our future growth.
On March 26, 2013, we
acquired certain retail installment contract receivables from our affiliates, AAF and AFG, for $102,250. The receivables consisted
of an aggregate principal balance of approximately $141,868 for current loan receivables and approximately $323,449 for non-current
loan receivables. The sellers guaranteed to us that we will recover no less than 70% of the aggregate amount of the current loans.
If we recover less than 70% of that amount, the sellers agreed to pay the difference to us upon demand. In 2014, we recovered
our entire investment in the loan portfolio and collected 100% of the aggregate amount paid by the Company to acquire the loan
portfolio. On February 19, 2014, we transferred all remaining loans receivable to AAF, as we determined that the outstanding balances
were either uncollectible or difficult to collect and the Company did not believe that pursuing further collection efforts was
a good use of the Company’s resources.
Recent Developments
Effective June 30, 2014,
we amended and restated our articles of incorporation in order to effectuate a 1-for-10 Reverse Stock Split of our issued and
outstanding common stock. As a result of the Reverse Stock Split, every 10 shares of our pre-Reverse Stock Split common stock
was combined and reclassified into one share of our common stock. No fractional shares of common stock were issued as a result
of the Reverse Stock Split. Throughout this quarterly report on Form 10-Q, each instance that refers to a number of shares of
our common stock, refers to the number of shares of common stock after giving effect to the Reverse Stock Split, unless otherwise
indicated.
We define our accounting
periods as follows:
|
● |
“fiscal 2013” - July 1, 2012 through June 30, 2013 |
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● |
“fiscal 2014” - July 1, 2013 through June 30, 2014 |
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● |
“fiscal 2015” - July 1, 2014 through June 30, 2015 |
RESULTS OF OPERATIONS
Revenue
Since the Company suspended
operations in June 2014 it has $0 revenue for the three and nine months ended March 31, 2015 compared to $3,453 and $52,945 for
the three and nine months ended March 31, 2014 respectively.
Operating Expenses
Total selling, general
and administrative expenses decreased $48,606 to $78,114 for the three months ended March 31, 2015 compared to the three months
ended March 31, 2014. Total operating expenses decreased $317,571 to $213,893 for the nine months ended March 31, 2015. This decrease
is primarily a result of a reduction in selling, general and administrative expenses associated with our suspension of financing
new loans.
For the three months
ended March 31, 2015 our expenses were comprised primarily of 49,447 related to legal, accounting and SEC compliance costs, $3,684
in office expenses, $11,280 for occupancy expenses, $5,328 for auto repossession services, $8,376 for travel. For the nine months
ended March 31, 2015 our expenses were comprised primarily of $112,683 related to legal, accounting and SEC compliance costs,
$15,757, for office expenses, $11,280 for occupancy expenses, $21,633 for auto repossession services, $4,506 for wages and benefits,
and $14,657 for travel and entertainment.
Other Income
Other income is comprised
of interest, dividends and realized gains from the sale of marketable securities. Total other income decreased to $26 for the
three months ended March 31, 2015 as compared to $1,289 for the three months ended March 31, 2014 as a result of the decreased
cash resources due to suspension of activities. For the nine months ended March 31, 2015 other income decreased to $26,680 from
$64,733 for the nine months ended March 31, 2014 mostly due to a reduction in income from investments.
Net Loss
Our net loss decreased
$152,103 to $111,466 for the three months ended March 31, 2015 compared to the same period in 2014. In addition, our net loss
decreased $226,573 to $187,213 for the nine months ended March 31, 2015 compared to the same period in 2014. These decreases are
a result of a reduction in our operating expenses and revenue as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability
of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of March 31, 2015 our working
capital deficit amounted to $17,482, a decrease of $505,837 as compared to $488,355 as of June 30, 2014. The Company has entered
into a financing agreement with Simon Friedman, our Chief Executive Officer and Director, to provide a line of credit sufficient
to finance corporate expenses while the Company pursues new business opportunities. The line of credit has a current limit of
$30,000, payable on demand at no interest.
During the nine months
ended March 31, 2015 we repossessed 18 vehicles. Of the 18 vehicles we sold 14 vehicles at auction for a total of $116,600, less
$3,959 in selling costs and $31,811 repair costs.
At March 31, 2015 one
vehicle is held for sale in inventory and the three remaining vehicles are considered unsellable.
We financed operations
through cash flows from financing activities transactions and to a lesser extent, cash generated from our operations. Net cash
used in operating activities was $84,673 and $265,851 for the nine months ended March 31, 2015 and 2014 respectively,
Net cash provided by
investing activities was $0 and $412,069 for the nine months ended March 31, 2015 and 2014 respectively.
Net cash used in financing
activities for the nine months ended March 31, 2015 was $319,023; $320,000 paid for the redemption of 320,000 shares of Convertible
Preferred Stock Series A, and the receipt of $977 stock subscription receivable. Net cash provided by financing activities for
the nine months ended March 31, 2014 was $135,996 stemming from the sale of Convertible Preferred Stock Series A.
Cash Requirements
Our future capital requirements
will depend on management’s ability to develop new lines of business.
We do not currently have
any contractual restrictions on our ability to incur debt and, accordingly we could incur significant amounts of indebtedness
to finance operations. Any such indebtedness could contain covenants that would restrict our operations.
Although we experienced
a reduction in revenues as a result of the default and bankruptcy of our primary floor plan customer, we have adequate resources
committed by current shareholders to operate at a minimal level as we have suspended financing new loans while we explore strategic
alternatives.
Off-Balance Sheet Arrangements
Under SEC regulations,
we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors. As of March 31, 2015 we have no off-balance sheet arrangements.
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller
reporting companies.
ITEM 4. CONTROLS AND
PROCEDURES.
Evaluation of Disclosure Controls and
Procedures
We maintain disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)
that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is
recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required
to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including
our Chief Executive Officer, or CEO, who is also our Principal Financial and Accounting Officer, to allow timely decisions regarding
required disclosure. Management, with the participation of our CEO who is also our Principal Financial and Accounting Officer
performed an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2015. Based on that evaluation,
our management, including our CEO who is also our Principal Financial and Accounting Officer concluded that our disclosure controls
and procedures were ineffective as of March 31, 2015.
In addition, management
identified the following material weakness and significant deficiencies in its assessment of the effectiveness of internal control
over financial reporting as of March 31, 2015:
● |
Material Weakness - The Company did not maintain effective controls over certain
aspects of the financial reporting process because we lacked a sufficient complement of personnel with a level of accounting
expertise and an adequate supervisory review structure that is commensurate with the Company’s financial reporting requirements. |
|
|
● |
Significant Deficiencies - Inadequate segregation of duties. |
We expect to be materially
dependent upon a third party to provide us with accounting consulting services for the foreseeable future. Until such time as
we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses
and significant deficiencies in our disclosure controls and procedures and internal control over financial reporting will not
result in errors in our financial statements which could lead to a restatement of those financial statements.
Our management, including
our Chief Executive Officer and our Principal Financial and Accounting Officer, does not expect that our disclosure controls and
procedures or our internal controls 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. 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. Due to 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.
Changes in Internal Control
There were no changes
identified in connection with our internal control over financial reporting during the three months ended March 31, 2015 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.
The Company is pursuing
all legal remedies to collect floor plan receivables and interest and penalties from our principal customer who is under the protection
of the Federal Bankruptcy Court. We have instituted collection subject to personal guarantees issued by principal owners of the
bankrupt party. The Bankruptcy Judge has lifted the restriction on liquidating repossessed autos and we have taken possession
of such autos as discussed in this Quarterly Report.
ITEM 1A. RISK FACTORS.
Not applicable to smaller
reporting companies.
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.
Exhibit
No. |
|
Description |
|
|
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31.1 |
|
Section 302 Certificate of Chief Executive Officer.* |
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31.2 |
|
Section 302 Certificate of Principal Financial and Accounting Officer.* |
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32.1 |
|
Section 906 Certificate of Chief Executive Officer and Principal Financial and Accounting
Officer.* |
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101.INS |
|
XBRL INSTANCE DOCUMENT * |
|
|
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101.SCH |
|
XBRL TAXONOMY EXTENSION SCHEMA * |
|
|
|
101.CAL |
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE * |
|
|
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101.DEF |
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE * |
|
|
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101.LAB |
|
XBRL TAXONOMY EXTENSION LABEL LINKBASE * |
|
|
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101.PRE |
|
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE * |
* Filed herewith.
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
AVANGARD CAPITAL GROUP, INC. |
|
|
|
Date: May 20, 2015 |
By: |
/s/ Simon Friedman |
|
|
Simon Friedman |
|
|
Chairman and Chief Executive Officer |
|
|
(Principal Executive Officer and Principal Financial and Accounting Officer) |
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification
I, Simon Friedman, certify that:
1. I have reviewed this Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2015 of Avangard Capital Group, Inc. (the “registrant”);
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f))
for the registrant and have:
a. Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. Designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report
any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether
or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: May 20, 2015 |
/s/ Simon Friedman |
|
Simon Friedman |
|
Chief Executive Officer |
|
(Principal Executive Officer) |
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification
I, Simon Friedman, certify that:
1. I have reviewed this Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2015 of Avangard Capital Group, Inc. (the “registrant”);
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f))
for the registrant and have:
a. Designed such disclosure
controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b. Designed such internal
control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness
of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report
any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying
officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the Audit Committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies
and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether
or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: May 20, 2015 |
/s/ Simon Friedman |
|
Simon Friedman |
|
Principal Financial and Accounting Officer |
Exhibit 32.1
Section 1350 Certification
In connection with the
Quarterly Report on Form 10-Q of Avangard Capital Group, Inc., (the “Company”) for the quarterly period ended March
31, 2015 as filed with the Securities and Exchange Commission (the “Report”), I, Simon Friedman, Chief Executive Officer
of the Company and Principal Financial and Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1. The Report fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained
in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: May 20, 2015 |
/s/ Simon Friedman |
|
Simon Friedman |
|
Chairman, President, Chief Executive Officer |
|
and Principal Financial and Accounting Officer |
This certification accompanies this Quarterly
Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such
Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of
1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
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