UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
[X] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended June 30, 2014
OR
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 of incorporation or organization) |
|
(I.R.S.
Employer Identification No.) |
2708
Commerce Way, Suite 300, Philadelphia, PA |
|
19154 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(215)
464-7300
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last report)
Securities
registered under Section 12(b) of the Act: None
Securities
registered under Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]
No [X]
Indicate
by check mark whether the issuer (1) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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 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 [ ] (Do not check if a smaller reporting company) |
Smaller
reporting company [X] |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
State
the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price
at which the common equity was sold as of the last business day of the registrant’s most recently completed second fiscal
quarter. $1,000 on December 31, 2013.
The
number of shares of the registrant’s common stock issued and outstanding was 10,781,466 shares as of September 26 2014.
Table
of Contents
FORWARD-LOOKING
STATEMENTS
This
report contains forward-looking statements, i.e. statements related to future, not past, events. The Securities and Exchange Commission
(the “SEC”) encourages companies to disclose forward-looking information so that investors can better understand a
company’s future prospects and make informed investment decisions. This report 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. Factors that could cause our actual results of operations and financial condition to differ materially are discussed
in greater detail under Item 1A – “Risk Factors” of this report.
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.
PART
I
ITEM
1. BUSINESS
Company
Avangard
Capital Group Inc. (“we,” “us,” the “Company,” or “Avangard”) was incorporated
in Nevada on June 13, 2012, and is a provider of nonprime automobile floor plan financing for used car dealers. Our executive
offices are located at 2708 Commerce Way, Philadelphia, Pennsylvania 19154.
We
are 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 currently operate in Pennsylvania, New Jersey and Florida. The Company has suspended financing
new loans while Management and the Board of Directors explore new opportunities and decide on a course of action for the future.
In
furtherance of our expansion into automotive consumer loans, we acquired certain retail installment contract receivables from
our affiliates, AAF and AFG, on March 26, 2013 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.
We
are licensed as a sales finance company by the States of Florida, New Jersey and Pennsylvania. These licenses permit us to expand
our operations to providing financing for auto sales by dealers.
As
discussed in our prospectus dated February 13, 2013 filed with the SEC, we sought to raise up to $30,000,000 by selling 5,000,000
units, with each unit consisting of four shares of our common stock and one redeemable common stock warrant at a public offering
price of $6.00 per unit (the “Offering”). We sold 28,666 units in the Offering for an aggregate offering price of
$171,985. The units are comprised of 114,664 shares of our common stock and 28,666 common stock purchase warrants exercisable
at a price of $2.00 per share. The Offering expired on August 14, 2013.
Recent
Developments
On
June 30, 2014, we filed a certificate of change to our amended and restated articles of incorporation with the Secretary of State
of the State of Nevada in order to effectuate a reverse stock split of our issued and outstanding common stock, par value $0.0001
per share on a 1-for-10 basis (the “Reverse Stock Split”). The Reverse Stock Split became effective with the FINRA
at the open of business on June 30, 2014. We filed a correction to this certificate of change on September 18, 2014 to clarify
the reverse stock split ratio. As a result of the Reverse Stock Split, every 10 shares of our pre-Reverse 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 Split.
We
have suspended financing new loans while management and the Board of Directors explore new opportunities and decide on a course
of action for the future. In addition, our management and Board of Directors are reviewing additional business opportunities in
related businesses.
Throughout
this annual report on Form 10-K, 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.
Auto
Dealer Floor Plan Financing
Historically,
we have targeted the auto dealer financing market, which is comprised primarily of small, independent automotive dealers who purchase
used cars at wholesale auctions. Floor plan financing supports independent used vehicle dealers who purchase vehicles from auctions
and other non-auction methods and facilitate the growth of vehicle sales at auctions. We plan to expand our floor plan financing
agreements with the dealers who meet our underwriting policies. A line of credit provided under these agreements will enable the
dealer to be more competitive in the acquisition of automobiles by providing immediate cash while reducing the amount of paperwork
that could hinder their acquisition of automobiles they plan to resell. Larger, more established financial institutions and lenders
require dealers to enter into borrowing agreements that often exceed their needs. Our approach is to provide financing that is
tailored to the level of business that the dealers conduct. Furthermore, many lenders have themselves exhausted their ability
to lend and do not accept new applications from small independent dealers.
As
part of our financing arrangement, we assess a floor plan fee at the inception of a loan and we collect all accrued fees and interest
when the loan is extended or repaid in full. In addition, we generally hold the title or other evidence of ownership to all vehicles
which are floor planned. Typical loan terms are 30 to 90 days, each with a possible loan extension. For an additional fee, a loan
extension allows the dealer to extend the duration of the loan beyond the original term for another 30 to 90 days if the dealer
makes payment towards principal and pays accrued interest and fees.
We
entered into the auto dealer financing market with the purchase of floor plan receivables from Avangard Auto Finance, Inc., a
related party (“AAF”), for $151,979, the face value of the receivables plus accrued interest as of June 13, 2012 when
we completed the purchase. The floor plan receivables included a Floor Plan Agreement, Demand Promissory Note, Business Line of
Credit Agreement, Surety Agreement and Confessions of Judgment entered into with Autosource Enterprises, Inc., an unaffiliated
third party.
Our
primary floor plan customer defaulted on its 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 9 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 vehicles which were subject to financing. Since we are unable to determine the exact amount
of ultimate losses, on March 31, 2014 we recorded a reserve for uncollectible receivables of $115,000. As of June 30, 2014 we
recovered $32,665 of floor plan receivables through the sale of repossessed autos.
Automotive
Consumer Loans
Historically,
we intended to expand our business by purchasing retail automotive installment sale and lease contracts and consumer installment
loans secured by automobiles or other motor vehicles, through dealerships in our target markets. These products were expected
to include financing for the purchase of new and used vehicles, as well as refinancing of existing motor vehicle loans. The dealer
who originated a loan would be able to customize its product features, such as interest rate, loan amount, and loan terms, enabling
it to lend to customers with a wide range of credit profiles. We planned to service, administer and make collections on our consumer
loan receivables that we purchased from dealers, or to delegate some or all of our loan servicing duties to sub-contractors who
are in the business of performing such duties.
On
March 26, 2013, we acquired certain retail installment contract receivables from AAF and 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. 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
addition, we received approval and were licensed as a sales finance company by the States of Florida, New Jersey and Pennsylvania
in 2013. These licenses permit us to expand our operations to providing financing for auto sales by dealers
Government
Regulation
Our
lending business operates in a highly regulated environment under various federal and state consumer protection and other laws,
rules and regulations, including the federal Truth in Lending Act, the federal Equal Credit Opportunity Act, the federal Fair
Credit Reporting Act, the federal Fair Debt Collection Practices Act, the federal Gramm-Leach-Bliley Act and the federal Telemarketing
and Consumer Fraud and Abuse Prevention Act. This business is subject to laws relating to discrimination in extending credit,
use of credit reports, privacy matters, disclosure of credit terms and correction of billing errors. It is also subject to certain
regulations and legislation that limit its operations in certain jurisdictions. For example, limitations may be placed on the
amount of interest or fees that a loan may bear, the amount that may be borrowed, the types of actions that may be taken to collect
or foreclose upon delinquent loans, or the information about a customer that may be shared.
Some
of the other more significant regulations that we are subject to include:
Privacy
– The Gramm-Leach-Bliley Act imposes additional obligations on us to safeguard the information we maintain on our customers
and permits customers to “opt-out” of information sharing with third parties. Regulations have been enacted by several
agencies that establish obligations to safeguard information. In addition, several states have enacted even more stringent privacy
legislation. If a variety of inconsistent state privacy rules or requirements are enacted, our compliance costs could increase
substantially. In addition, we are required to manage, use, and store personally identifiable information, principally customers’
confidential personal and financial data, in the course of our business. We depend on our IT networks and systems, and those of
third parties, to process, store, and transmit that information. In the past, consumer finance companies have been targeted for
sophisticated cyber attacks. A security breach involving our files and infrastructure could lead to unauthorized disclosure of
confidential information. We take numerous measures to ensure the security of our hardware and software systems as well as customer
information.
Fair
Credit Reporting Act – The Fair Credit Reporting Act provides a national legal standard for lenders to share information
with affiliates and certain third parties and to provide firm offers of credit to consumers. In late 2003, the Fair and Accurate
Credit Transactions Act was enacted, making this preemption of conflicting state and local laws permanent. The Fair Credit Reporting
Act was also amended to place further restrictions on the use of information sharing between affiliates, to provide new disclosures
to consumers when risk-based pricing is used in the credit decision, and to help protect consumers from identity theft. All of
these new provisions impose additional regulatory and compliance costs on us.
We
presently believe that we are in substantial compliance with all governmental regulations applicable to our current business.
We employ a number of external resources to assist us in complying with our regulatory obligations. These external resources include
outside lawyers, law firms and consultants.
Competition
We
primarily provide short-term dealer floor plan financing of wholesale vehicles to independent vehicle dealers in North America.
At the national level, our competition includes specialty lenders, banks and financial institutions such as Western Funding, Inc.
At the local level, we face competition from banks and credit unions who may offer floor plan financing to local auction customers
such as Manheim Auto Auction and American Credit Acceptance. Such entities typically service only one or a small number of auctions.
Some
of our industry competitors who operate whole car auctions on a national scale may endeavor to capture a larger portion of the
floor plan financing market. In all of our markets, we face direct competition from bank and non-bank lenders who provide non-prime
financing for automobile dealers. Certain of these lenders are larger than we are and have greater financial resources than we
do. We believe we can compete effectively with our competitors on the basis of favorable collateral valuations that enable dealers
to purchaser a wider variety of inventory, higher quality of service, convenience of payment, scope of services offered and historical
and consistent commitment to the sector. There is no assurance, however, that our ability to market products and services successfully
will not be impacted by competition that now exists or may later develop.
Employees
We
currently have one full-time employee.
Research
and Development
We
do not currently have a budget specifically allocated for research and development purposes.
ITEM
1A. RISK FACTORS
The
risk factors in this section describe the material risks to our business, prospects, results of operations, financial condition
or cash flows, and should be considered carefully. In addition, these factors could cause our actual results to differ materially
from those projected in any forward-looking statements made in this Annual Report on Form 10-K. Investors should not place undue
reliance on any such forward-looking statements. Any statements that are not historical facts and that express, or involve discussions
as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the
use of words or phrases such as “will likely result,” “are expected to,” “will continue,”
“is anticipated,” “estimated,” “intends,” “plans,” “believes” and
“projects”) may be forward-looking and may involve estimates and uncertainties which could cause actual results to
differ materially from those expressed in the 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.
RISK
FACTORS ASSOCIATED WITH OUR BUSINESS
Because
we have a limited operating history, we may not be able to successfully manage our business or achieve profitability.
We
were formed in June 2012 and only have one floor plan financing agreement that we acquired in June 2012 and retail installment
contract receivables we acquired in March 2013. As a result, we have a limited operating history upon which a potential investor
can evaluate our prospects and the potential value of our common stock. The likelihood of our success must be considered in light
of the expenses, complications and delays frequently encountered in connection with the establishment and expansion of a new business
and the competitive environment in which we will operate. We have little market penetration and successes to date, and may never
reach profitability. No additional relevant operating history exists upon which an evaluation of our performance can be made.
Our performance must be considered in light of the risks, expenses and difficulties frequently encountered in establishing new
products and markets in the evolving, highly competitive non-prime loan industry. If we cannot successfully manage our business,
we may not be able to generate future profits and may not be able to support our operations.
The
terms of the agreements to acquire the floor plan financing agreement and retail installment contract receivables from our affiliates,
was not arrived at as a result of arm’s-length negotiations and no independent verification of its value was obtained.
Mr.
Alan Gulko, our former President, Chief Executive Officer and a director, and Simon Friedman, our corporate secretary and a director
are principal owners of the entities that own AAF and AFG. While the agreements between our Company and the sellers to acquire
these assets were approved by our Board of Directors, which at the time we acquired these assets, was entirely comprised of Messrs.
Gulko and Friedman, neither of who are independent directors, the agreements were not negotiated on an arm’s-length basis
as a result of Messrs. Gulko and Friedman’s interest in the sellers. While the agreements to acquire these assets were approved
by our Board of Directors, there are no assurances that the terms of the agreements are as favorable to us as they might have
been had the assets been obtained in arm’s-length negotiations with unrelated third parties supported by an independent
verification of their value.
We
have scaled back our expansion plans, and suspended financing new loans while management and the Board of Directors explore new
opportunities and decide on a course of action for the future.
We
have scaled back our expansion plans as previously contemplated in our prospectus dated February 13, 2013 filed with the SEC,
as the amount we raised in that offering was not sufficient to fully fund those plans. In addition, we have suspended financing
new loans while management and the Board of Directors explore new opportunities and decide on a course of action for the future.
Also, in light of the departure of Alan Gulko, our then Chief Executive Officer and director, in December 2013, our management
and Board of Directors are reviewing additional business opportunities in related businesses without Mr. Gulko’s participation.
Furthermore,
we did not raise our targeted minimum of $30,000,000 in the Offering that would have allowed us to complete $2,500,000 of floor
plan financing transactions to achieve a profitable level of sustainable operations. While we believe that we have adequate working
capital to sustain our operations and scaled back expansion plans over the next 12 months, if our plans or assumptions change,
or prove to be inaccurate because of unanticipated expenses or difficulties or otherwise, we may be required to seek additional
financing or may be required to curtail our expansion plans further. Such financing may include the issuance of additional shares
of common stock and/or the incurrence of debt financing. There can be no assurance that any additional financing will be available
to us on acceptable terms or at all. Any additional equity financing will dilute the interests of our then existing stockholders.
We
are highly dependent on future financing from our Chief Executive Officer, majority stockholder and director, Mr. Simon Friedman,
to fund our expansion as we were unable to raise a sufficient amount of capital in our recent offering.
Although
we believe we have sufficient working capital to operate our business over the next 12 months, we will be dependent upon our existing
stockholders for future financing as we were unable to raise a sufficient amount in the Offering to execute our previous growth
plans. At the present time, there is no agreement between Mr. Friedman and our Company to provide any additional funding to us
nor do we have any plans to seek additional capital from them or anyone else to fund our previous growth plans. We have no indication
that Mr. Friedman would refuse to lend or invest additional funds in our Company if we should ask. It would be very difficult
to find a financing source to replace Mr. Friedman if he elected not to lend or invest any additional amounts in our Company.
The loss of Mr. Friedman’s future funding could have a material adverse effect on our business.
We
may have difficulty managing growth in our business.
Because
of our small size, growth in accordance with our business plans, if achieved, will place a significant strain on our financial,
technical, operational and management resources. As we expand our activities and increase the size of our floor plan financing
agreements and other product lines, we plan to utilize computer systems and technology to minimize our labor costs. Despite these
efforts, there will be additional demands on our financial, technical and management resources. The failure to implement administrative,
operating and financial control systems and software or the occurrence of unexpected expansion difficulties, including the recruitment
and retention of experienced personnel, talent and consultants, could have a material adverse effect on our business, financial
condition and results of operations and our ability to timely execute our business plan.
We
may not be able to obtain adequate financing to continue our operations.
Failure
to generate operating cash flow or to obtain additional financing could result in substantial dilution of our property interests,
or delay or cause indefinite postponement of further expansion of our product lines. We will require significant additional capital
to fund our future activities. Our failure to find the financial resources necessary to fund our planned activities and service
our debt and other obligations could adversely affect our business.
As
an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities
Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we are permitted to
rely on exemptions from certain disclosure requirements.
We
qualify as an emerging growth company under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions
from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| ● | have
an auditor report on our internal controls over financial reporting pursuant to Section
404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); |
| | |
| ● | comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial statements (i.e.,
an auditor discussion and analysis); |
| | |
| ● | submit
certain executive compensation matters to stockholder advisory votes, such as “say-on-pay”
and “say-on-frequency;” and |
| | |
| ● | disclose
certain executive compensation related items such as the correlation between executive
compensation and performance and comparisons of the Chief Executive Officer’s compensation
to median employee compensation. |
In
addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other
words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial
statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We
will remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year
in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer”
as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur
if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of
our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three year period.
Until
such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may be more volatile.
We
have established preferred stock which can be designated by our directors without stockholder approval and have established Series
A Convertible Preferred Stock, which gives the holders super voting power over our common stockholders.
We
have 300,000,000 shares of preferred stock authorized, and we have designated 150,000,000 of these shares as Series A Convertible
Preferred Stock. As of September 26, 2014, we have 905,000 shares of Series A Convertible Preferred Stock issued and outstanding.
Each share of our Series A Convertible Preferred Stock is entitled to three votes on stockholder matters. Additional shares of
our preferred stock may be issued from time to time in one or more series, each of which shall have distinctive designation or
title as shall be determined by our Board of Directors, prior to the issuance of any shares thereof. The preferred stock shall
have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions thereof as adopted by our Board of Directors. Because the
Board of Directors is able to designate the powers and preferences of the preferred stock without the vote of a majority of our
stockholders, our stockholders will have no control over what designations and preferences our preferred stock will have. As a
result, our stockholders may have less control over the designations and preferences of the preferred stock and our operations.
Our
Chief Executive Officer and a director can exercise voting control over corporate decisions.
Simon
Friedman, our Chief Executive Officer and a director, and the other members of our Board of Directors beneficially own 92.5% of
our total voting securities. As a result, these stockholders exercise control in determining the outcome of all corporate transactions
or other matters, including the election of directors, mergers, consolidations, the sale of all or substantially all of our assets,
and also the power to prevent or cause a change in control. The interests of our controlling stockholders may differ from the
interests of the other stockholders and thus result in corporate decisions that are adverse to other stockholders.
We
may experience write-offs for losses and defaults, which could adversely affect our financial condition and operating results.
It
will be common for us to recognize losses resulting from the inability of certain customers to repay their loans and the insufficient
realizable value of the collateral securing such loans. Additional losses will occur in the future and may occur at a rate greater
than we have experienced to date. If these losses were to occur in significant amounts, our financial position, liquidity, and
results of operations would be adversely affected, possibly to a material degree.
Changes
in interest rates could have an adverse impact on our business. For example:
| ● | rising
interest rates will increase our borrowing costs; |
| | |
| ● | rising
interest rates may reduce our consumer automotive financing volume by influencing customers
to pay cash for, as opposed to financing vehicles; and |
| | |
| ● | a
significant decrease in interest rates could increase the rate at which loans are prepaid. |
Our
business may be adversely affected if more burdensome government regulations were enacted.
Our
operations are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and
regulations. In most states in which we operate, a consumer credit regulatory agency regulates and enforces laws relating to consumer
lenders and sales finance companies such as us. These rules and regulations generally provide for licensing as a sales finance
company or consumer lender or lessor, limitations on the amount, duration and charges, including interest rates, for various categories
of loans, requirements as to the form and content of finance contracts and other documentation, and restrictions on collection
practices and creditors’ rights. In certain states, we are subject to periodic examination by state regulatory authorities.
Some states in which we operate do not require special licensing or provide extensive regulation of our business.
We
are also subject to extensive federal regulation, including the Truth in Lending Act, the Equal Credit Opportunity Act and the
Fair Credit Reporting Act. These laws require us to provide certain disclosures to prospective borrowers and lessees and protect
against discriminatory lending and leasing practices and unfair credit practices. The principal disclosures required under the
Truth in Lending Act include the terms of repayment, the total finance charge and the annual percentage rate charged on each contract
or loan and the lease terms to lessees of personal property. The Equal Credit Opportunity Act prohibits creditors from discriminating
against credit applicants on the basis of race, color, religion, national origin, sex, age or marital status. According to Regulation
B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights
and advise consumers whose credit applications are not approved of the reasons for the rejection. In addition, the credit scoring
system used by us must comply with the requirements for such a system as set forth in the Equal Credit Opportunity Act and Regulation
B. The Fair Credit Reporting Act requires us to provide certain information to consumers whose credit applications are not approved
on the basis of a report obtained from a consumer reporting agency and to respond to consumers who inquire regarding any adverse
reporting submitted by us to the consumer reporting agencies. Additionally, we are subject to the Gramm-Leach-Bliley Act, which
requires us to maintain the privacy of certain consumer data in our possession and to periodically communicate with consumers
on privacy matters. We are also subject to the Servicemembers Civil Relief Act of 2003, which requires us, in most circumstances,
to reduce the interest rate charged to customers who have subsequently joined, enlisted, been inducted or called to active military
duty. The dealers who originate automobile finance contracts and leases purchased by us also must comply with both state and federal
credit and trade practice statutes and regulations. Failure of the dealers to comply with these statutes and regulations could
result in consumers having rights of rescission and other remedies that could have an adverse effect on us.
We
believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance
with all applicable local, state and federal regulations. There can be no assurance; however, that we will be able to maintain
all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse
effect on our operations. Further, the adoption of additional, or the revision of existing, rules and regulations could have a
material adverse effect on our business.
Compliance
with applicable law is costly and can affect operating results. Compliance also requires forms, processes, procedures, controls
and the infrastructure to support these requirements, and may create operational constraints. Laws in the financial services industry
are designed primarily for the protection of consumers. The failure to comply with these laws could result in significant statutory
civil and criminal penalties, monetary damages, attorneys’ fees and costs, possible revocation of licenses and damage to
reputation, brand and valued customer relationships.
We
are exposed to credit risk, which could affect our profitability and financial condition.
We
are subject to credit risk resulting from defaults in payment or performance by debtors responsible for payments of the loans.
There can be no assurances that our monitoring of our credit risk as it impacts the value of these assets and our efforts to mitigate
credit risk through our risk-based pricing and loss mitigation strategies are or will be sufficient to prevent an adverse effect
on our profitability and financial condition.
If
we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results. As
a result, current and potential stockholders could lose confidence in our financial reporting which, in turn, could harm our business
and the trading price of our common stock.
We
are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley
Act, adopted rules requiring every public company to include a management report on such company’s internal control over
financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s
internal control over financial reporting. Our management has concluded that our internal control over our financial reporting
are not effective as a result of (i) a lack of sufficient qualified accounting personnel with a level of accounting expertise
and an adequate supervisory review structure that is commensurate with the Company’s financial reporting requirements, and
(ii) inadequate segregation of duties. For a detailed description of the deficiencies, see “Item 9A—Controls and Procedures.”
Our
reporting obligations as a public company place a significant strain on our management, operational and financial resources and
systems, and we expect this to continue for the foreseeable future. Effective internal controls are necessary for us to produce
reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective
internal controls could result in the loss of investor confidence in the reliability of our financial statements, which in turn
could harm our business and negatively impact the trading price of our common stock. Furthermore, we anticipate that we will continue
to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and
other requirements of the Sarbanes-Oxley Act. As of September 15, 2014, we do not have an estimate of the costs to the Company
of compliance with the Sarbanes-Oxley Act.
We
are aware we must strengthen, assess and test our system of internal controls to provide the basis for our SEC reports. The process
of strengthening our internal controls and complying with Section 404 is expensive and time consuming, and requires significant
management attention. Furthermore, as we grow our business, our internal controls will become more complex and will require significantly
more resources to ensure our internal controls overall remain effective. Failure to implement required new or improved controls,
or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting
obligations.
RISK
FACTORS RELATING TO OUR SECURITIES
We
do not meet the criteria to list our securities on an exchange such as The NASDAQ Stock Market and our common stock and warrants
are illiquid and may be difficult to sell.
There
is no market for our common stock at this time and there is no assurance that any market will develop for our common stock. We
plan to have our common stock quoted on the Over-The-Counter Bulletin Board when the distribution and potential market for the
stock would permit such quotation, although there is no assurance that we will be able to accomplish this. Generally, securities
that are quoted on the Over-The-Counter Bulletin Board lack liquidity and analyst coverage. This may result in lower prices for
our common stock than might otherwise be obtained if we met the criteria to list our securities on a larger or more established
exchange, such as The NASDAQ Capital Market, and could also result in a larger spread between the bid and asked prices for our
common stock.
In
addition, if there is only limited trading activity in our common stock, we may not be able to have these securities qualify for
quotation on the Over-The-Counter Bulletin Board. The relatively small trading volume would likely make it difficult for our stockholders
to sell their common stock as, and when, they choose. As a result, investors may not always be able to resell shares of our common
stock publicly at the time and prices that they feel are fair or appropriate.
The
application of the “penny stock” rules could adversely affect the market price of our common stock and increase your
transaction costs to sell those shares.
The
SEC has adopted rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:
|
● |
that a broker or dealer approve a person’s
account for transactions in penny stocks, and |
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|
|
|
● |
the broker or dealer receives from
the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
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|
In order to approve a person’s
account for transactions in penny stocks, the broker or dealer must: |
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|
● |
obtain financial information and investment
experience objectives of the person, and |
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|
● |
make a reasonable determination that
the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny stocks. |
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form:
|
● |
sets forth the basis on which the broker
or dealer made the suitability determination and |
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● |
that the broker or dealer received
a signed, written agreement from the investor prior to the transaction. |
Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
The
application of Rule 144 creates some investment risk to potential investors; for example, existing stockholders may be able to
rely on Rule 144 to sell some of their holdings, driving down the price of the shares you purchased.
Pursuant
to Rule 144 promulgated under the Securities Act, a person who has beneficially owned restricted shares of our common stock for
at least six months may sell his or her securities if: (i) such person is not deemed to have been one of our affiliates at the
time of, or at any time during the three months preceding, a sale, (ii) we are subject to the Exchange Act periodic reporting
requirements for at least 90 days before the sale, and (iii) if the sale occurs prior to satisfaction of a one-year holding period,
we provide current information at the time of sale.
Persons
who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time
of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person
would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either
of the following:
|
● |
1% of the total number of securities
of the same class then outstanding (1,013,466 shares of common stock as of the date of this annual report on Form 10-K); or |
|
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|
● |
the average weekly trading volume of
such securities during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale; |
provided,
in each case, that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale.
Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.
GENERAL
RISK STATEMENT
Based
on all of the foregoing, we believe it is possible for future revenue, expenses and operating results to vary significantly from
quarter to quarter and year to year. As a result, quarter-to-quarter and year-to-year comparisons of operating results are not
necessarily meaningful or indicative of future performance. Furthermore, we believe that it is possible that in any given quarter
or fiscal year our operating results could differ from the expectations of public market analysts or investors.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
Our executive offices
are 2708 Commerce Way, Philadelphia, PA 19154, where we rent approximately 2,000 square feet of office space from Commerce Way,
LP, a related party, at a monthly rental of $2,500 on a month-to-month basis. We believe our current space is adequate for our
operations at this time.
ITEM
3. LEGAL PROCEEDINGS
We are not presently a
party to any material litigation, nor to the knowledge of management, is any litigation threatened against us that may materially
affect us.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Information
Our common stock is quoted
on the OTC Pink tier of the OTC Markets Group under the symbol “AVGC”. There have been no reported sales of our stock
since approval of our quotation on the OTC Pink by the Financial Industry Regulatory Authority (“FINRA”). There can
be no assurance that a liquid market for our common stock will ever develop. Consequently, investors may not be able to liquidate
their investments and should be prepared to hold the common stock for an indefinite period of time.
(b) Stockholders
As of September 15, 2014,
there were 27 stockholders of record of our common stock, and approximately 2 record holders of our Series A Convertible Preferred
Stock. None of our shares are held in street name.
(c) Dividends
The Company has not declared
or paid, nor has it any present intention to pay, cash dividends on its common stock or Series A Convertible Preferred Stock.
Accordingly, it is unlikely the Company will declare any cash dividends in the foreseeable future.
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable to a smaller
reporting company.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are 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 currently operate in Pennsylvania, New Jersey and Florida. The Company has suspended financing new loans
while Management and the Board of Directors explore new opportunities and decide on a course of action for the future. In addition,
our management and Board of Directors are reviewing additional business opportunities in related businesses.
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.
As discussed in our prospectus
dated February 13, 2013 filed with the SEC, we sought to raise up to $30,000,000 by selling 5,000,000 units, with each unit consisting
of four shares of our common stock and one redeemable common stock warrant at a public offering price of $6.00 per unit (the “Offering”).
We sold 28,666 units in the Offering for an aggregate offering price of $171,985. The units are comprised of 114,664 shares of
our common stock and 28,666 common stock purchase warrants exercisable at a price of $2.00 per share. The Offering expired on
August 14, 2013.
Recent Developments
On June 30, 2014, we filed
a certificate of change to our amended and restated articles of incorporation with the Secretary of State of the State of Nevada
in order to effectuate a 1-for-10 Reverse Stock Split of our issued and outstanding common stock. We filed a correction to this
certificate of change on September 18, 2014 to clarify the reverse stock split ratio. 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 annual report on Form
10-K, each instance which 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.
The net result for the
fiscal year ended June 30, 2014 was a loss of $488,299, compared to a loss of $129,381 for the prior fiscal year.
We define our accounting
periods as follows:
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“fiscal
2013” - July 1, 2012 through June 30, 2013 |
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|
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“fiscal
2014” - July 1, 2013 through June 30, 2014 |
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|
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“fiscal
2015” - July 1, 2014 through June 30, 2015 |
RESULTS OF OPERATIONS
Revenue
Total revenue decreased
$18,105 to $52,282 for the fiscal year ended June 30, 2014 compared to $70,997 for the fiscal year ended June 30, 2013 primarily
as a result of decreases in fee revenue derived from floor plan financing receivables as our sole customer ceased operations when
it filed for bankruptcy protection. See “Business—Auto Dealer Floor Plan Financing.”
Operating Expenses
Total operating expenses
increased $394,627 to $605,935 for the fiscal year ended June 30, 2014 compared to the fiscal year ended June 30, 2013. This increase
is primarily a result of a $141,591 provision for doubtful accounts related to uncollectible receivables discussed above and a
$253,036 increase in selling, general and administrative expenses.
For the fiscal year ended
June 30, 2014, our operating expenses were comprised primarily of $225,705 related to legal, accounting and SEC compliance costs,
$43,510 in business development expenses, $20,890 for computer related services and software, and $30,000 for rent, other occupancy
costs of $39,037, wages and related expenses of $58,862, Florida office expense of $12,242 and other office expenses of $60,269.
Other Income
Other income is comprised
of interest, dividends and realized gains from the sale of marketable securities. Other income increased to $64,744 for the fiscal
year ended June 30, 2014 as compared to $10,930 for the fiscal year ended June 30, 2013 as a result of dividends and gain from
the sale of all of our remaining marketable securities. The Company realized a gain of $59,554 and $6,308 from the sale of the
Company’s marketable securities during the fiscal years ended June 30, 2014 and June 30, 2013, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability
of an enterprise to generate adequate amounts of cash to meet its cash requirements
As of June 30, 2014, our
working capital amounted to $491,686, a decrease of $376,629, as compared to $868,214 as of June 30, 2013. Working capital included
primarily cash and cash equivalents of $424,272, floor plan financing receivables of $81,259, net of an allowance for uncollectible
accounts of $115,000, and related party receivable of $7,000.
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 for the fiscal year ended June 30, 2014 was $287,842, which primarily reflected an increase in net
loss, partially offset by an increase in a non-cash reserve for floor plan financing receivable, used car auto financing portfolio,
fees and interest receivables related to the floor plan and a gain on sale of marketable securities. Floor plan financing receivables
decreased by $141,591 for the fiscal year ended June 30, 2014 compared to a decrease of $38,255 in floor plan financing receivables
for the nine months ended March 31, 2013. The reduction is due primarily to the provision for uncollectible accounts of $115,000.
We collected $48,868 in used car auto financing receivable during the fiscal year ended June 30, 2014 compared to $0 for the fiscal
year ended June 30, 2013. Accounts payable and accrued expenses decreased by $182 for the fiscal year ended June 30, 2014 compared
to an increase of $2,594 for the fiscal year ended June 30, 2013. Operating cash flow was also decreased by an increase in related
party receivables of $7,000.
Net cash provided by investing
activities for the fiscal year ended June 30, 2014 was $412,069, from the net proceeds of the sale of marketable securities.
Net cash provided by financing
activities for the fiscal year ended June 30, 2014 was $135,996, primarily from subscriptions received in connection with the
sale of common stock. Net cash provided by financing activities for the fiscal year ended June 30, 2013 was $780,451 stemming
from the sale of Series A Convertible Preferred Stock.
Cash Requirements
Our future capital requirements
will depend on numerous factors related to 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 which would restrict our operations.
Although we anticipate
a reduction in revenues as a result of the default and bankruptcy of our primary floor plan customer, we have adequate resources
to operate at a minimal level while we pursue recovery of our floor plan receivable balance, and explore new opportunities.
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 June 30, 2014 we have no off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller
reporting companies.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial
Statements and Financial Statement Schedules appearing on pages F-1 through F-12 of this annual report on Form 10-K.
Index
to Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and
Stockholders of Avangard
Capital Group, Inc.
We have
audited the accompanying balance sheets of Avangard Capital Group, Inc. as of June 30, 2014 and 2013, and the related statements
of operations, comprehensive loss, changes in stockholders’ equity and cash flows for each of the years ended June 30, 2014
and 2013. Avangard Capital Group, Inc.’s management is responsible for these financial statements. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Avangard
Capital Group, Inc. as of June 30, 2014 and 2013, and the results of its operations and its cash flows for each of the years ended
June 30, 2014 and 2013, in conformity with accounting principles generally accepted in the United States of America.
/s/
Friedman LLP |
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Marlton, New Jersey |
|
September 30, 2014 |
|
AVANGARD
CAPITAL GROUP, INC.
BALANCE SHEETS
| |
June 30, 2014 | | |
June 30, 2013 | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 424,272 | | |
$ | 164,049 | |
Marketable securities | |
| - | | |
| 378,203 | |
Floor plan financing receivable | |
| 196,259 | | |
| 252,220 | |
Allowance for uncollectable account | |
| (115,000 | ) | |
| | |
Used car auto finance receivables | |
| - | | |
| 48,868 | |
Fees receivable | |
| - | | |
| 11,218 | |
Interest receivable | |
| - | | |
| 9,807 | |
Due from related parties | |
| 7,000 | | |
| 2,980 | |
Total current assets | |
| 512,530 | | |
| 867,345 | |
| |
| | | |
| | |
Property and equipment, net | |
| 3,331 | | |
| 3,863 | |
| |
| | | |
| | |
Total assets | |
$ | 515,862 | | |
$ | 871,208 | |
| |
| | | |
| | |
LIABILITIES AND
STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 3,176 | | |
$ | 2,994 | |
Other liabilities | |
| 21,000 | | |
| - | |
Total current liabilities | |
$ | 24,176 | | |
$ | 2,994 | |
| |
| | | |
| | |
Stockholders’ equity | |
| | | |
| | |
Convertible Preferred Stock Series A, $0.0001 par value,
300,000,000 authorized, 905,000 issued and outstanding; | |
| 90 | | |
| 90 | |
Common stock, $0.0001 par value, 100,000,000 authorized; Class A, 1,013,466 shares issued and
outstanding | |
| 101 | | |
| 101 | |
Additional paid in capital | |
| 1,107,805 | | |
| 1,107,805 | |
Stock subscription receivable | |
| - | | |
| (135,996 | ) |
Accumulated other comprehensive income | |
| - | | |
| 24,225 | |
Accumulated deficit | |
| (616,310 | ) | |
| (128,011 | ) |
Total stockholders’ equity | |
| 491,686 | | |
| 868,214 | |
Total liabilities and stockholders’ equity | |
$ | 515,862 | | |
$ | 871,208 | |
The accompanying notes
are an integral part of these financial statements.
AVANGARD
CAPITAL GROUP, INC.
STATEMENTS OF OPERATIONS
| |
For the Years Ended June 30, | |
| |
2014 | | |
2013 | |
REVENUE | |
| | | |
| | |
Fee revenue | |
$ | 25,709 | | |
$ | 39,335 | |
Interest revenue | |
| 27,183 | | |
| 31,662 | |
Total revenue | |
| 52,892 | | |
| 70,997 | |
| |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | |
Selling, general and administrative | |
| 605,935 | | |
| 211,308 | |
Total operating expenses | |
| 605,935 | | |
| 211,308 | |
| |
| | | |
| | |
Loss from operations | |
| (553,043 | ) | |
| (140,311 | ) |
| |
| | | |
| | |
Other income | |
| | | |
| | |
Realized gain on marketable securities | |
| 58,091 | | |
| 6,308 | |
Interest and dividend income | |
| 6,653 | | |
| 4,622 | |
Total other income | |
| 64,744 | | |
| 10,930 | |
| |
| | | |
| | |
Net loss | |
$ | (488,299 | ) | |
$ | (129,381 | ) |
| |
| | | |
| | |
Net loss per share attributable to common shareholders - basic and diluted | |
$ | (0.48 | ) | |
$ | (0.13 | ) |
Weighted average number of common shares used in computation - basic and diluted | |
| 1,013,466 | | |
| 1,000,677 | |
The accompanying notes
are an integral part of these financial statements.
AVANGARD
CAPITAL GROUP, INC.
STATEMENTS OF OTHER
COMPREHENSIVE LOSS
| |
For the Years Ended June
30, | |
| |
2014 | | |
2013 | |
Net loss | |
$ | (488,299 | ) | |
$ | (129,381 | ) |
| |
| | | |
| | |
Other comprehensive income | |
| | | |
| | |
Unrealized gain on marketable securities | |
| - | | |
| 24,225 | |
| |
| | | |
| | |
Total comprehensive loss | |
$ | (488,299 | ) | |
$ | (105,156 | ) |
The accompanying notes
are an integral part of these financial statements.
AVANGARD CAPITAL GROUP,
INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
| |
| | |
| | |
| | |
| | |
| | |
Accumulated | | |
| | |
Accumulated | | |
| |
| |
| | |
| | |
| | |
| | |
Additional | | |
Other | | |
Preferred | | |
Retained | | |
Total | |
| |
Preferred Stock | | |
Common Stock | | |
Paid in | | |
Comprehensive | | |
Stock | | |
Earnings | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Income | | |
Subscription | | |
(Deficit) | | |
Equity | |
Balance, June 30, 2012 | |
| 905,000 | | |
$ | 90 | | |
| 1,000,000 | | |
$ | 1,000 | | |
$ | 904,910 | | |
| | | |
$ | (744,451 | ) | |
$ | 1,370 | | |
$ | 162,919 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Convertible preferred stock subscription received | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 744,451 | | |
| | | |
| 744,451 | |
Issue of common stock | |
| | | |
| | | |
| 2,000 | | |
| 2 | | |
| 29,998 | | |
| | | |
| | | |
| | | |
| 30,000 | |
Sale of common stock | |
| | | |
| | | |
| 11,466 | | |
| 11 | | |
| 171,985 | | |
| | | |
| (135,996 | ) | |
| | | |
| 36,000 | |
Net loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (129,381 | ) | |
| (129,381 | ) |
Unrealized gain on marketable securities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 24,225 | | |
| | | |
| | | |
| 24,225 | |
Balance, June 30, 2013 | |
| 905,000 | | |
$ | 90 | | |
| 1,013,466 | | |
$ | 1,013 | | |
$ | 1,106,893 | | |
$ | 24,225 | | |
$ | (135,996 | ) | |
$ | (128,011 | ) | |
$ | 868,214 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock subscription received | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 135,996 | | |
| | | |
| 135,996 | |
Net loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (488,299 | ) | |
| (488,299 | ) |
Unrealized gain on marketable securities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (24,225 | ) | |
| | | |
| - | | |
| (24,225 | ) |
Balance June 30, 2014 | |
| 905,000 | | |
$ | 90 | | |
| 1,013,466 | | |
$ | 101 | | |
| 1,107,805 | | |
| 0 | | |
| - | | |
$ | (616,310 | ) | |
$ | 491,686 | |
The accompanying notes
are an integral part of these financial statements.
AVANGARD
CAPITAL GROUP, INC.
STATEMENTS
OF CASH FLOWS
| |
For the Years Ended June 30, | |
| |
2014 | | |
2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net loss | |
$ | (488,299 | ) | |
$ | (129,381 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation | |
| 532 | | |
| 133 | |
Non-cash compensation to directors | |
| | | |
| 30,000 | |
Gain on sale of marketable securities | |
| (58,091 | ) | |
| (6,308 | ) |
Provision for doubtful accounts | |
| 115,000 | | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
| |
| | | |
| | |
Floor plan financing receivable | |
| 55,961 | | |
| (111,330 | ) |
Acquisition of used car auto financing portfolio | |
| - | | |
| (102,250 | ) |
Used car auto financing portfolio | |
| 48,868 | | |
| 53,382 | |
Fees receivable | |
| 11,218 | | |
| (10,095 | ) |
Interest receivable | |
| 9,807 | | |
| (9,197 | ) |
Due from related parties | |
| (4,020 | ) | |
| (2,980 | ) |
Accounts payable and accrued expenses | |
| 182 | | |
| 2,594 | |
Other liabilities | |
| 21,000 | | |
| - | |
NET CASH USED IN OPERATING ACTIVITIES | |
| (287,842 | ) | |
| (285,432 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of property and equipment | |
| - | | |
| (3,996 | ) |
Purchase of marketable securities | |
| (34,369 | ) | |
| (700,000 | ) |
Proceeds from sales of marketable securities | |
| 446,438 | | |
| 352,330 | |
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | |
| 412,069 | | |
| (351,666 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Convertible preferred stock subscription received | |
| | | |
| 744,451 | |
Common stock subscription received | |
| 135,996 | | |
| 36,000 | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | |
| 135,996 | | |
| 780,451 | |
| |
| | | |
| | |
Net increase in cash | |
| 260,223 | | |
| 143,353 | |
| |
| | | |
| | |
Cash, beginning of year | |
| 164,049 | | |
| 20,696 | |
Cash, at end of year | |
$ | 424,272 | | |
$ | 164,049 | |
| |
| | | |
| | |
Supplemental Schedule of non-cash activities Unrealized gain on marketable securities | |
$ | - | | |
$ | 24,225 | |
The accompanying notes
are an integral part of these financial statements.
AVANGARD
CAPITAL GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
June
30, 2014
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
are 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 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.
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.
The
Company has suspended financing new loans while Management and the Board of Directors explore new opportunities and decide on
a course of action for the future.
Basis
of Presentation
The
company has recast the presentation of share and per share data in the financial statements to reflect the reverse stock split
as described more fully in Note 5.
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
All
cash and cash equivalents are invested in highly liquid money market accounts.
Fair
Value of Financial Instruments
The
fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than a forced sale or liquidation. Significant differences can arise between the fair value and
carrying amount of financial instruments that are recognized at historical cost amounts. The carrying value of cash, floor plan
financing receivable, and accounts payable approximate the fair value because of the short maturity of those instruments.
The
accounting standards regarding fair value of financial instruments and related fair value measurements define fair value, establish
a three-level valuation hierarchy for disclosures of fair value measurement, and enhance disclosure requirements for fair value
measures.
AVANGARD
CAPITAL GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
June
30, 2014
The
three levels are defined as follows:
Level
1: |
inputs
to the valuation methodology are quoted prices (unadjusted) 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, 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 are unobservable and significant to the fair value measurement. |
Marketable
securities were measured at fair value using Level 1 inputs derived from quoted prices in active markets. In December 2013 the
company converted 100% of their Marketable Securities to cash and cash equivalents.
Marketable
Securities
Our
marketable equity securities are classified and accounted for as available-for-sale and reported at fair value. Unrealized gains
and losses related to changes in the fair value of securities are recognized in accumulated other comprehensive income, net of
tax in our balance sheets. Changes in the fair value of available-for sale securities impact our net income only when such securities
are sold or other-than-temporary impairment is recognized. Realized gains and losses on the sale of securities are determined
by specific identification of each security’s cost basis. Management determines the appropriate classification of its investments
at the time of purchase and re-evaluates the available-for-sale designations as of each balance sheet date.
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.
Floor
plan financing receivable that we intend and have the ability to hold for the foreseeable future, or until maturities of payoff
are reported at their outstanding gross contractual balances, net of allowance for losses and unearned finance revenue. Unearned
finance revenue consists of unearned interest and discounts realized on contract purchases.
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 9 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. As of June 30, 2013 no
provision for losses had been made. As of June 30, 2014 we recovered $32,665 of floor plan receivables through the sale of repossessed
autos.
AVANGARD
CAPITAL GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
June
30, 2014
Used
Car Auto Financing
On
March 26, 2013, we acquired a portfolio of consumer automobile loans from Avangard Auto Finance, Inc., (“AAF”), a
related party.
The
Company is an indirect lender from a legal perspective, meaning the loan is originated by the dealer and immediately assigned
to the Company. Typically, the loan is purchased from the dealer. The disbursement to the dealer is calculated using our guidelines
as to the value of the automobile. The amount advanced against the collateral is 85% of the “Black Book” liquidation
value of the car. From time to time we will have automobiles in inventory as a result of repossessions due to non-payment. Our
policy is to issue a repossession order after 15 days delinquency of the loan.
As
of the date of acquisition, the entire Used Car Auto Financing Portfolio’s collection could not be reasonably predicted
by the Company; therefore the modified cost recovery method has been utilized to account for the pool of loans. As of March 31,
2014 the Company recovered its entire investment in the loan portfolio. As of June 30, 2014, we collected 100% of the aggregate
amount of the Company paid to acquire this 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.
Stock-based
Compensation
We
account for stock-based compensation by applying a fair-value-based measurement method to account for share-based payment transactions
with employees and directors. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares
of our common stock instead of settling such obligations with cash payments.
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.
The
company wrote off as uncollectible fees and interest receivable of $9,433 and $7,912 respectively as uncollectible due to the
bankruptcy of our customer.
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. The Company maintains cash not necessary for operating
expenses in money market accounts and certificates of deposit.
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 fiscal year ended June 30, 2014.
AVANGARD
CAPITAL GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
June
30, 2014
NOTE
2 - MARKETABLE SECURITIES AND CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME
Marketable
Securities
Marketable
equity securities purchased during the current fiscal year were classified and accounted for as available-for-sale. As of June
30, 2014 all marketable equity securities were converted to cash and cash equivalents.
We
recognized $58,091 in net realized gains during the year ended June 30, 2014. Realized gains on the sale of the securities are
determined by specific identification of each security’s cost basis.
Changes
in Accumulated Other Comprehensive Income:
The
following table shows the accumulated other comprehensive income balance as of June 30, 2014:
| |
Unrealized Gain on
Marketable Securities | |
Balance at June 30, 2013 | |
$ | 24,225 | |
Other comprehensive income before reclassifications | |
| (12,146 | ) |
Net current-period other comprehensive income | |
| 12,079 | |
Amounts reclassified from accumulated other comprehensive income | |
| (12,079 | ) |
Balance at June 30, 2014 | |
$ | - | |
NOTE
3 - INCOME TAXES
The
provision for income taxes consists of the following:
| |
June 30, 2014 | | |
June 30, 2013 | |
Deferred Tax Asset | |
$ | 250,181 | | |
$ | 52,695 | |
Less: Valuation Allowance | |
| (250,181 | ) | |
| (52,695 | ) |
Net Deferred Tax Assets | |
$ | - | | |
$ | - | |
As
of June 30, 2014, the Company has net operating loss carry forwards of $616,310 that can be utilized to offset future taxable
income for Federal and State income tax purposes through 2034, generating a maximum deferred tax benefit of $250,181 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
- 2013 | |
Commonwealth of Pennsylvania | |
| 2012
- 2013 | |
NOTE
4 - USED CAR AUTO FINANCE RECEIVABLES
Changes
in used car auto finance receivables are as follows:
| |
Cost
Recovery | |
Acquisition of auto financing receivables | |
$ | 102,250 | |
Net cash collections | |
| (102,250 | ) |
Ending balance | |
$ | 0 | |
AVANGARD
CAPITAL GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
June
30, 2014
NOTE
5 - COMMON AND PREFERRED STOCK
On
June 20, 2014 the Board of Directors authorized the Corporation to complete the Reverse Stock Split and that such Reverse Stock
Split of 1 share of Common Stock for 10 share of outstanding Common Stock.
As
of June 30, 2014 we are authorized to issue 100,000,000 shares of $0.0001 par value common stock of which, after the stock split,
1,134,466 shares have been issued and are outstanding, designated Class A at June 30, 2014. As of June 30, 2013 we were authorized
to issue 100,000,000 shares of $0.0001 par value stock of which 1,013,466 had been issued and outstanding. A total of 11,466 shares
of the Company’s common stock were issued during the year ended June 30, 2013 in connection with the sale of 28,666 Units
in the Offering discussed below. The Company received proceeds of $171,985 in connection with the sale of the Units of which,
$135,996 was a subscription receivable at June 30, 2013 and was subsequently collected on July 5, 2013.
We
are authorized to issue 300,000,000 shares of $0.0001 par value Convertible Preferred Stock Series A of which 905,000 shares have
been issued and outstanding at June 30, 2014 and June 30, 2013, respectively. The terms of the Series A Convertible Preferred
Stock provide that each share of Series A Convertible Preferred Stock is entitled to receive cumulative annual dividends at the
rate of 4.5% per year. Each share of Series A Convertible Preferred Stock is convertible into three (3) shares of our Common Stock,
and the holder thereof is entitled to vote shares of Series A Convertible Preferred Stock held as common stock in accordance with
the number of shares of common stock into which such preferred shares are convertible. The shares of Series A Convertible Preferred
Stock are entitled to receive prior and in preference to any distribution of any of the assets or surplus funds of the Company
to the holders of common stock and any other series or class of preferred stock which is junior to the Series A Convertible Preferred
Stock, the sum of $1.00 per share of Series A Convertible Preferred Stock, plus accrued dividends.
Offering
of Securities
On
February 13, 2013, our Registration Statement on Form S-1 was declared effective by the SEC whereby we offered 5,000,000 units
(the “Offering”), each unit consisting of four tenths of one share of our common stock and one redeemable common stock
warrant (a “Warrant”) at a public offering price of $6.00 per unit (a “Unit”). The Warrants became exercisable
and separately transferable from the shares 30 calendar days after February 13, 2013. At any time thereafter until three years
following February 13, 2013, subject to earlier redemption, each Warrant entitles the holder to purchase one tenth of a share
of our common stock at an exercise price of $2.00 (133% of the per share price of the common stock included in the Units), subject
to adjustment. The Warrants are subject to redemption for $0.0001 per Warrant upon 30 days prior written notice, provided that
the last sale price of our common stock equals or exceeds $3.00 (150% of the Warrant exercise price), subject to adjustment, for
10 consecutive trading days. As of June 30, 2014, 28,666 units have been sold and no warrants have been exercised. The Offering
expired on August 14, 2013.
Common
Stock Purchase Warrants
A
summary of the status of our outstanding common stock purchase warrants granted as of March 31, 2014 and changes during the period
is as follows:
| |
Shares | | |
Weighted | |
| |
Underlying | | |
Average | |
| |
Warrants | | |
exercise price | |
Outstanding and exercisable at June 30, 2013 | |
| 2,867 | | |
$ | 2.00 | |
Additions | |
| - | | |
| - | |
Outstanding and exercisable at June 30, 2014 | |
| 2,867 | | |
$ | 2.00 | |
The
following information applies to all warrants outstanding and exercisable at June 30, 2014
Number of Warrants | |
| | |
|
outstanding and | |
| | |
Remaining contractual |
exercisable | |
Exercise Price | | |
life (Years) |
2,867 | |
$ | 2.00 | | |
1.58 |
AVANGARD
CAPITAL GROUP, INC.
NOTES
TO FINANCIAL STATEMENTS
June
30, 2014
NOTE
6 - SHARE-BASED COMPENSATION
We
account for stock-based compensation by applying a fair-value-based measurement method to account for share-based payment transactions
with employees and directors. We recognized $0 and $30,000 for the fiscal years ended June 30, 2014 and 2013, respectively, of
compensation expense due to issuance of 2,000 shares to two newly elected Board members at $1.50 per share.
NOTE
7 - 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:
| |
June 30, 2014 | | |
June 30, 2013 | |
Convertible preferred stock | |
| 271,500 | | |
| 2,715,000 | |
Warrants attached to units sold | |
| 2,867 | | |
| 2,867 | |
NOTE
8 - 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. Rent
expense for the Year ended June 30, 2014 and 2013 was $30,000 and $30,000 respectively.
On
March 26, 2013 we entered into an 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.
Officers
and related parties of our company provide certain administrative expenses at no charge.
Other
current assets of $7,000 reflects a temporary loan to Avangard Auto Finance, a related party. The loan was fully repaid in July
2014.
NOTE
9 - SUBSEQUENT EVENTS
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 which 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 which were valued at $1.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management conducted an evaluation, with the participation of our Chief Executive Officer, who is our principal executive officer
and our principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of the end of the period covered by this annual report on Form 10-K. Based upon that
evaluation, our Chief Executive Officer concluded that as a result of the material weakness and significant deficiencies in our
internal control over financial reporting described below, our disclosure controls and procedures were not effective, as of June
30, 2014.
Management’s
Annual Report on Internal Control over Financial Reporting
Management
is responsible for the preparation of our financial statements and related information. Management uses its best judgment to ensure
that the financial statements present fairly, in material respects, our financial position and results of operations in conformity
with generally accepted accounting principles.
Management
is responsible for establishing and maintaining adequate internal control over financial reporting as defined in the Exchange
Act. These internal controls are designed to provide reasonable assurance that the reported financial information is presented
fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable.
There are inherent limitations in the effectiveness of any system of internal controls including the possibility of human error
and overriding of controls. Consequently, an ineffective internal control system can only provide reasonable, not absolute, assurance
with respect to reporting financial information.
Our
internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that, in reasonable
detail, accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary
for preparation of our financial statements in accordance with generally accepted accounting principles and that the receipts
and expenditures of Company assets are made in accordance with our management and directors authorization; and (iii) provide reasonable
assurance regarding the prevention of or timely detection of unauthorized acquisition, use or disposition of assets that could
have a material effect on our financial statements.
Under
the supervision of management, including our Chief Executive Officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”) published in 1992 and subsequent guidance prepared
by COSO specifically for smaller public companies. Based on that evaluation, our management concluded that our internal control
over financial reporting was not effective as of June 30, 2014 for the reasons discussed below.
A
significant deficiency is a deficiency, or combination of deficiencies in internal control over financial reporting, that adversely
affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with
generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s
financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control.
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there
is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be
prevented or detected on a timely basis.
Management
identified the following material weakness and significant deficiencies in its assessment of the effectiveness of internal control
over financial reporting as of June 30, 2014:
|
● |
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. generally accepted accounting principles,
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, 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.
This
annual report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management’s report on internal control over financial reporting is not subject to attestation
by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report
in this annual report on Form 10-K.
Changes
in Internal Controls over Financial Reporting
There
have been no changes in our internal control over financial reporting during the quarter ended June 30, 2014 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
We
filed a Certificate of Change pursuant to Section 78.209 of the Nevada Revised Statutes (the “Certificate of Change”)
with the Secretary of State of the State of Nevada to effect a one (1)-for-ten (10) reverse stock split (the “Reverse Split”)
of the authorized and issued and outstanding shares of its common stock, par value $0.0001 per share (the “Common Stock”).
Pursuant to the Certificate of Change, the Reverse Split became effective June 30, 2014 (the “Effective Time”). We
filed a correction to this certificate of change on September 18, 2014 to clarify the reverse stock split ratio.
The
Reverse Split was approved by our Board of Directors without shareholder approval, in accordance with the authority conferred
by Section 78.207 of the Nevada Revised Statutes. At the Effective Time, the Company’s Articles of Incorporation were also
deemed amended and the authorized number of shares of Common Stock decreased from 1,000,000,000 shares to 100,000,000 shares.
Pursuant
to the Certificate of Change, holders of the Common Stock are deemed to hold one (1) post-split share of Common Stock for every
ten (10) shares of our issued and outstanding Common Stock held immediately prior to the Effective Time. No fractional shares
of the Common Stock will be issued in connection with the Reverse Split. Stockholders who are entitled to a fractional post-split
share will receive, in lieu thereof, one (1) whole post-split share.
The
Common Stock will be listed under a new CUSIP number, 05350D 205.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set
forth below are the names and ages of our directors and executive officers, as well as certain biographical information.
Name |
|
Age |
|
Positions
and Offices Held |
Simon Friedman |
|
67 |
|
Chief Executive
Officer, Secretary and Director |
Arkady “Eric”
Rayz |
|
38 |
|
Director |
Robert A.
Cornaglia, CPA |
|
47 |
|
Director |
Our
directors are appointed for a one-year term to hold office until the next annual meeting of our stockholders and until their successors
have been duly elected and qualified, or until removed from office in accordance with our bylaws. There are no agreements with
respect to the election of directors. We compensated our directors who are not employees of our Company for service on our Board
of Directors and any committee thereof by granting to each of Messrs. Cornaglia and Rayz 10,000 shares of our unregistered common
stock. Our Board of Directors appoints officers annually and each executive officer serves at the discretion of our Board of Directors.
We have a standing audit committee comprised of Robert Cornaglia and Eric Rayz.
Simon
Friedman
Mr.
Friedman has served as our Chief Executive Officer since December 2013, and as our corporate secretary and a director since our
inception in June 2012. From 1983 to 1992 and since 1999, Mr. Friedman has been the President of Joseph Friedman & Sons, a
family run cigarette distribution business and the founder and general manager of Friedman Financial Group, LLC (“Friedman
Financial”), which provides business consulting and advisory services related to the former Soviet Union. From 1992 to 1998
Mr. Friedman was the general manager of operations in Ukraine for British American Tobacco, an importer and wholesale distributor
of cigarettes and other tobacco products. From 1979 to 1982, Mr. Friedman was a Manager of Estimating and Planning for Lavelle
Aircraft Company in Philadelphia, Pennsylvania. In 1979, Mr. Friedman immigrated to the United States. Mr. Friedman holds degrees
in civil and aeronautical engineering from the College of Construction Engineering of Arvno, Ukraine. His entrepreneurial business
activities began in 1983, with the purchase of his first cigarette business. In 2006, Mr. Friedman entered into the automobile
financing business.
As
a co-founder, officer and director of our Company, Mr. Friedman brings our Board his considerable experience in operating a variety
of businesses, which qualifies him to continue to serve as a director of our Company.
Arkady
“Eric” Rayz
Mr.
Rayz is a summa cum laude and Phi Beta Kappa graduate of Temple University. As an undergraduate, Mr. Rayz was a recipient of the
H. Thomas and Dorothy Willits Hallowell Scholarship and Temple University President’s Scholar Award. Mr. Rayz obtained his
Juris Doctorate from the James E. Beasley School of Law of Temple University, where he was a staff member and editor of the Temple
International and Comparative Law Journal. Mr. Rayz served a two-year term as a Staff Attorney for Justice Sandra Schultz Newman
of the Supreme Court of Pennsylvania and has co-authored an article entitled “Capital Sentencing: The Effect of Adding Aggravators
to Death Penalty Statutes in Pennsylvania” that appeared in the University of Pittsburgh Law Review. Mr. Rayz has broad
experience in handling matters in federal and state courts. He is admitted to practice in the Commonwealth of Pennsylvania and
the State of New York, before the U.S. District Court for the Eastern District of Pennsylvania, the U.S. Court of Appeals for
the Third Judicial Circuit, and the United States Supreme Court. Since 2005, Mr. Rayz has been a co-managing member of Kalikhman
& Rayz, LLC, where he advises clients on transactional and litigation matters, involving corporate governance, business financing,
commercial disputes, and real estate transfers. In 2012, Mr. Rayz was appointed judge pro tempore by the Philadelphia County Court
of Common Pleas. In the same year, Mr. Rayz received the honor of being named a “Top Lawyer” by Main Line Today Magazine.
In 2012 and 2013, Mr. Rayz was named a Pennsylvania Super Lawyer Rising Star® by the Super Lawyers Magazine and Philadelphia
Magazine.
We
believe that the experience of Mr. Rayz as a lawyer qualifies him to serve as a director of our Company.
Robert
A. Cornaglia, CPA
Mr.
Cornaglia, is a partner in the accounting firm, Raible, Cornaglia, Wenstrom & Raible, LLC located in Mt. Laurel, NJ. Mr. Cornaglia’s
practice mainly consists of advising closely-held businesses on financial reporting and tax compliance. Prior to joining the Firm
as a partner in 2005, Mr. Cornaglia was the Chief Financial Officer for a privately held 65-unit Philadelphia-based retail financial
services company. Mr. Cornaglia earned his Bachelor of Science in Business Administration from Drexel University in 1989 and was
licensed as a certified public accountant in 1995.
We
believe that the experience of Mr. Cornaglia as an accountant and former chief financial officer qualifies him to serve as a director
of our Company and a member of the audit committee.
Committees
of our Board of Directors
Our
securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and we are
not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include
“independent” directors, nor are we required to establish or maintain an audit committee or other committee of our
Board of Directors.
We
have established an audit committee, however. The audit committee reviews our accounting, auditing, financial reporting, and internal
control functions and selects our independent auditors. The audit committee is comprised of Robert Cornaglia, CPA and Eric Rayz,
Esq. We have not made a determination as to whether Messrs. Cornaglia or Rayz is considered independent.
The
Board does not have standing compensation or nominating committees. The Board does not believe a compensation or nominating committee
is necessary based on the size of our Company, the current levels of compensation to corporate officers and the beneficial ownership
by two stockholders of more than 90% of our outstanding common stock. The Board will consider establishing compensation and nominating
committees at the appropriate time.
The
entire Board of Directors participates in the consideration of compensation issues and of director nominees. Candidates for director
nominees are reviewed in the context of the current composition of the Board and the Company’s operating requirements and
the long-term interests of its stockholders. In conducting this assessment, the Board of Directors considers skills, diversity,
age, and such other factors as it deems appropriate given the current needs of the Board and the Company, to maintain a balance
of knowledge, experience and capability.
The
Board’s process for identifying and evaluating nominees for director, including nominees recommended by stockholders, will
involve compiling names of potentially eligible candidates, conducting background and reference checks, conducting interviews
with the candidate and others (as schedules permit), meeting to consider and approve the final candidates and, as appropriate,
preparing an analysis with regard to particular recommended candidates.
Through
their own business activities and experiences each of directors have come to understand that in today’s business environment,
providing floor plan financing for independent used car dealers and consumer auto financing, along with other related efforts,
are the keys to building an auto sales finance company. The directors will seek out individuals with relevant experience to operate
and build our current and proposed business activities.
Compensation
Committee Interlocks and Insider Participation
Our
Board of Directors does not have, and has not had, a compensation committee. None of our executive officers serves as a member
of the board of directors or compensation committee of any entity which has one or more executive officers serving as a member
of our Board of Directors.
Director
Compensation
Mr.
Friedman performed director services without compensation during the fiscal year ended June 30, 2014.
Messrs.
Rayz and Cornaglia, members of the Board of Directors, each received 1,000 unregistered shares of our common stock as compensation
for their service as members of the Board of Directors. The shares were valued at $0.15 per share. In addition, Mr. Cornaglia
provided certain consulting services to the Company during fiscal 2013, for which he was paid approximately $2,000. In addition,
on July 10, 2014, Messrs. Rayz and Cornaglia each received 9,000 unregistered shares of our common stock as compensation for their
service as members of the Board of Directors. Each 9,000 share issuance was valued at $1.00. There is no other compensation being
considered at this time.
Compliance
with Section 16(a) of the Exchange Act
Since
none of our securities has been registered pursuant to Section 12(b) or 12(g) of the Exchange Act, our officers and directors
and persons who own more than 10% of our common stock are not required to file Section 16(a) beneficial ownership reports.
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth certain compensation information for each person who served as our principal executive officer during
the fiscal year ended June 30, 2014, regardless of the compensation level. Compensation information is shown for the fiscal years
ended June 30, 2014 and 2013:
2014
SUMMARY COMPENSATION TABLE
Name and Principal Position | |
Fiscal
Year | | |
Salary
($) | | |
Option
Awards | | |
All Other
Compensation
($) | | |
Total
($) | |
Simon Friedman, | |
| 2014 | | |
| - | | |
| - | | |
| - | | |
| - | |
Chief Executive Officer (1) | |
| 2013 | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Alan Gulko, | |
| 2014 | | |
| 10,916 | | |
| - | | |
| - | | |
| 10,916 | |
Former Chief Executive Officer (2) | |
| 2013 | | |
| 1,084 | | |
| - | | |
| - | | |
| 1,084 | |
(1) |
Mr. Friedman was
appointed Chief Executive Officer on December 11, 2013. |
(2) |
Mr. Gulko ceased
to be Chief Executive Officer on December 11, 2013. |
Employment
Agreements with Executive Officers
Effective
June 15, 2013, the Company entered into an employment agreement for an initial term of three years with Alan Gulko, our former
Chief Executive Officer. The agreement provided for a base salary of $26,000 per year ($2,167 per month) and for an annual incentive
payment based on the Company’s adjusted net profits (prior to provisions for taxes or refunds thereof, extraordinary gains
and losses or executive incentive payments). In addition, Mr. Gulko was entitled to 15 paid vacation days per year, sick leave
in accordance with established Company policy, group medical and life insurance, an automobile at a price not to exceed $50,000
or $500 per month, and participation in any Company-sponsored pension and profit-sharing plan. Pursuant to the terms of the employment
agreement, the Company could terminate Mr. Gulko’s employment during the initial three-year term of the agreement, in which
case it would be required to pay Mr. Gulko the remainder of the base salary owed for the balance of the initial term, plus an
amount equal to 12 months of his base salary, with no incentive payment or any other compensation. If terminated by the Company
after the initial term of the agreement, the Company would be required to pay Mr. Gulko a payment equal to six months of his base
salary. Pursuant to the terms of the employment agreement, Mr. Gulko could terminate the agreement on at least 30 days’
notice, and the Company would, in that case, be required only to pay Mr. Gulko’s base salary up to the date of termination
set forth in Mr. Gulko’s notice.
Mr.
Gulko resigned as Chief Executive Officer on December 11, 2013. Accordingly, Mr. Gulko’s employment agreement was terminated.
Mr. Friedman has served as our Chief Executive Officer since Mr. Gulko’s resignation on December 11, 2013. As of September
15, 2014, the Company has not entered into an employment agreement with Mr. Friedman.
Outstanding
Equity Awards at Fiscal Year-End
No
executive officer received any equity awards, or holds exercisable or unexercisable options, as of June 30, 2014.
Long-Term
Incentive Plans
There
are no arrangements or plans in which the Company would provide pension, retirement or similar benefits for directors or executive
officers.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The
following tables set forth certain information, as of September 15, 2014, with respect to the beneficial ownership of our common
stock and our Series A Convertible Preferred Stock by (i) any holder of more than 5% of our common stock, (ii) each of our executive
officers and directors, and (iii) our directors and executive officers as a group. The percentage of shares beneficially owned
is based upon (a) 10,781,466 shares of common stock outstanding, (b) 905,000 shares of Series A Convertible Preferred Stock outstanding
as of September 15, 2014, and (c) 2,867 outstanding warrants to purchase shares of common stock. Holders of Series A Convertible
Preferred Stock are entitled to vote on all matters with the common stockholders, voting together as one class. Each share of
Series A Convertible Preferred Stock is entitled to three votes.
On
June 30, 2014, we filed a certificate of change to our amended and restated articles of incorporation with the Secretary of State
of the State of Nevada 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. All references
to shares of our common stock in the table below, as well as elsewhere in this annual report on Form 10-K, refer to the number
of shares of common stock after giving effect to the Reverse Stock Split (unless otherwise indicated).
A
person is a “beneficial owner” of a security if that person has or shares voting or investment power over the security
or if he or she has the right to acquire beneficial ownership within 60 days. All outstanding shares of Series A Convertible Preferred
Stock are convertible within 60 days, and all outstanding warrants are exercisable within 60 days. Unless otherwise noted, these
persons, to our knowledge, have sole voting and investment power over the shares listed.
Convertible
Preferred Stock Series A | |
| |
Amount
and Nature | | |
| |
| |
of
Beneficial | | |
Percent
of Class | |
Name
of Beneficial Owner | |
Ownership | | |
(1) | |
Simon Friedman (2) | |
| 856,763 | | |
| 94.7 | % |
Alan Gulko (3) | |
| 48,237 | | |
| 5.3 | % |
| |
| | | |
| | |
All Officers and Directors as a Group (2 persons) | |
| 905,000 | | |
| 100 | % |
|
(1) |
Based
on 905,000 shares of Series A Convertible Preferred Stock outstanding. |
|
|
|
|
(2) |
The
number of shares beneficially owned by Mr. Friedman, our interim Chief Executive Officer and a Director, represents 856,763
shares of Series A Convertible Preferred Stock owned by Friedman Financial Group, LLC (“Friedman Financial”).
Mr. Friedman has voting and dispositive control over securities held by Friedman Financial. |
|
|
|
|
(3) |
Mr.
Gulko ceased to be an executive officer and director as of December 13, 2013. The number of shares beneficially owned by Mr.
Gulko represents 48,237 shares of Series A Convertible Preferred Stock owned by DJS Investments, LLC (“DJS Investments”).
Mr. Gulko has voting and dispositive control over securities held by DJS Investments. |
Common
Stock | |
| |
Amount
and Nature | | |
| |
| |
of
Beneficial | | |
Percent
of Class | |
Name
of Beneficial Owner | |
Ownership | | |
(1) | |
Simon
Friedman (2) | |
| 12,330,289 | | |
| 92.3 | % |
Alan Gulko
(3) | |
| 634,711 | | |
| 5.8 | % |
Arkady Rayz | |
| 10,000 | | |
| 0.1 | % |
Robert A.
Cornaglia, CPA | |
| 10,000 | | |
| 0.1 | % |
All Executive
Officers and Directors as a Group (3 persons) | |
| 13,256,500 | | |
| 98.3 | % |
| |
| | | |
| | |
5% or more
owners: | |
| | | |
| | |
Friedman Financial
Group, LLC | |
| 10,117,925 | | |
| 96.2 | % |
(1) |
Based
on 10,781,466 shares outstanding of common stock outstanding and 2,715,000 shares of our common stock giving effect to the
conversion of the 905,000 shares of Series A Convertible Preferred Stock currently outstanding. |
|
|
(2) |
The
number of shares owned by Mr. Friedman, our interim Chief Executive Officer and a Director, includes 9,760,000 shares of common
stock held of record by Friedman Financial Group, LLC and 2,570,289 shares of common stock giving effect to the conversion
of the 856,763 shares of Series A Convertible Preferred Stock currently outstanding and owned by Freidman Financial Group,
LLC as such shares have voting rights. Mr. Friedman has voting and dispositive control over securities held by Friedman Financial
Group, LLC. |
|
|
(3) |
Mr.
Gulko ceased to be an executive officer and director on December 13, 2013. The number of shares beneficially owned by Mr.
Gulko represents 490,000 shares of common stock held of record by DJS Investments and 144,711 shares of common stock, giving
effect to the conversion of the 48,237 shares of Series A Convertible Preferred Stock owned by DJS Investments. Mr. Gulko
has voting and dispositive control over securities held by DJS Investments. DJS Investments’ address is 3439 Colonial
Circle, Huntingdon Valley, PA 19006. |
|
|
(4) |
Friedman
Financial’s address is 2708 Commerce Way, Philadelphia, PA 19154. |
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
List
of Related Parties
We
have specified the following persons and entities as related parties:
|
● |
Avangard
Auto Finance, Inc., a Pennsylvania corporation company (“AAF”), is owned 60% by Friedman Financial. |
|
|
|
|
● |
Avangard
Financial Group, Inc., a Nevada corporation (“AFG”) is owned by 51% by Friedman Financial. Friedman Financial
is a principal stockholder of our Company of which 3% is owned by Simon Friedman. |
|
|
|
|
● |
Simon
Friedman owns 3% of Friedman Financial, a principal stockholder of our Company. |
|
|
|
|
● |
Commerce
Way, LLC, a PA limited liability company, (“Commerce Way”), is owned 70% by SELF, LP. SELF, LP is a shareholder
of Friedman Financial Group. |
|
|
|
|
● |
Friedman
Financial Group, LLC, a Delaware limited liability company (“Friedman Financial”), is a principal shareholder
of our company of which 3% is owned by Simon Friedman. |
Related
Party Transactions
We
lease approximately 2,000 square feet of office space from Commerce Way , LLC at a monthly rental of $2,500 on a month-to-month
basis.
Officers
of our Company provide certain administrative services at no charge.
On
March 26, 2013, we acquired a portfolio of consumer automobile loans from AAF and AFG for $102,250. The receivables included an
aggregate principal balance of approximately $141,868 as of the date of acquisition (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 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.
Related
party receivable of $7,000 reflects a temporary loan to Avangard Auto Finance, a related party. The loan was fully repaid in July
2014.
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 which 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 which were valued at $1.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The
following table shows the fees that were billed for the audit and other services provided by Friedman LLP for the fiscal years
ended June 30, 2014 and 2013.
| |
2014 | | |
2013 | |
Audit Fees | |
| 40,000 | | |
$ | 62,000 | |
Audit-Related Fees | |
| 4,000 | | |
| | |
Tax Fees | |
| 1,500 | | |
| | |
All Other Fees | |
| 1,000 | | |
| | |
Total | |
| 46,500 | | |
$ | 62,000 | |
Audit
Fees — This category includes the audit of our annual financial statements, review of financial statements included
in our quarterly reports on Form 10-Q and services that are normally provided by the independent registered public accounting
firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters
that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related
Fees — This category consists of assurance and related services by the independent registered public accounting firm
that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under
“Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence
with the SEC and other accounting consulting.
Tax
Fees — This category consists of professional services rendered by our independent registered public accounting firm
for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and
technical tax advice.
All
Other Fees — This category consists of fees for other miscellaneous items.
Our
Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting
firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees
are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval
by the designated member is disclosed to the entire Board at the next meeting.
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
|
1. |
Financial
Statements |
|
|
|
|
|
The
financial statements and report of independent registered public accounting firm are included on pages F-1 through F-12. |
|
|
|
|
2. |
Financial
Statement Schedules |
|
|
|
|
|
All
schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the
related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the
financial statements included herein. |
|
|
|
|
3. |
Exhibits
(including those incorporated by reference). |
Exhibit
No. |
|
Description |
|
|
|
3.1(a) |
|
Articles
of Incorporation, filed June 13, 2012 (Incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1
filed on November 11, 2012). |
|
|
|
3.1(b) |
|
Amended
and Restated Articles of Incorporation including Series A preferred stock designation (Incorporated by reference to Exhibit
3.1(a) of the Registration Statement on Form S-1 filed on November 11, 2012). |
|
|
|
3.1(c)* |
|
Certificate
of Change filed on June 26, 2014. |
|
|
|
3.1(d)* |
|
Certificate
of Correction filed on September 18, 2014. |
|
|
|
3.2 |
|
Bylaws
of Avangard Capital Group Inc. (Incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-1 filed on
November 11, 2012). |
|
|
|
4.1 |
|
Specimen
Common Stock Certificate (Incorporated by reference to Exhibit 4.1 of the Registration Statement on Form S-1 filed on November
11, 2012). |
|
|
|
4.1(a) |
|
Specimen
Preferred Stock Certificate (Incorporated by reference to Exhibit 4.1(a) of the Registration Statement on Form S-1 filed on
November 11, 2012). |
|
|
|
4.2 |
|
Form
of Warrant Agreement (Incorporated by reference to Exhibit 4.3 of the Registration Statement on Form S-1/A (Amendment No.
1) filed on December 31, 2012). |
|
|
|
4.3 |
|
Form
of Unit Certificate (Incorporated by reference to Exhibit 4.4 of the Registration Statement on Form S-1 filed on November
11, 2012). |
|
|
|
4.4 |
|
Series
A Preferred Stock Subscription Agreement (Incorporated by reference to Exhibit 4.5 of the Registration Statement on Form S-1/A
(Amendment No. 1) filed on December 31, 2012). |
|
|
|
4.5 |
|
Unit
Subscription Agreement (Incorporated by reference to Exhibit 4.6 of the Registration Statement on Form S-1/A (Amendment No.
3) filed on February 11, 2012). |
|
|
|
10.1 |
|
Assignment
Agreement between Avangard Capital Group Inc. and Avangard Auto Finance, Inc. dated June 13, 2012 (Incorporated by reference
to Exhibit 10.1 of the Registration Statement on Form S-1/A (Amendment No. 1) filed on December 31, 2012). |
10.2 |
|
Floor
Plan Agreement with Autosource Enterprises, Inc. (Incorporated by reference to Exhibit 10.2 of the Registration Statement
on Form S-1/A (Amendment No. 1) filed on December 31, 2012). |
|
|
|
10.3 |
|
Demand
Promissory Note with Autosource Enterprises, Inc. (Incorporated by reference to Exhibit 10.3 of the Registration Statement
on Form S-1 filed on November 11, 2012). |
|
|
|
10.4 |
|
Business
Line of Credit Agreement with Autosource Enterprises, Inc. (Incorporated by reference to Exhibit 10.4 of the Registration
Statement on Form S-1 filed on November 11, 2012). |
|
|
|
10.5 |
|
Surety
Agreement with Autosource Enterprises, Inc. (Incorporated by reference to Exhibit 10.5 of the Registration Statement on Form
S-1 filed on November 11, 2012). |
|
|
|
10.6 |
|
Confessions
of Judgment with Autosource Enterprises, Inc. (Incorporated by reference to Exhibit 10.6 of the Registration Statement on
Form S-1 filed on November 11, 2012). |
|
|
|
10.7 |
|
Lease
Agreement between Avangard Capital Group, Inc. and Commerce Way, LP, dated June 15, 2012 (Incorporated by reference to Exhibit
10.7 of the Registration Statement on Form S-1/A (Amendment No. 1) filed on December 31, 2012). |
|
|
|
10.8+ |
|
Employment
Agreement between Avangard Capital Group, Inc. and Alan Gulko dated June 15, 2013. |
|
|
|
14.1 |
|
Avangard
Auto Finance, Inc. Code of Business Conduct and Ethics (Incorporated by reference to Exhibit 99.1 of the Registration Statement
on Form S-1 filed on November 11, 2012). |
|
|
|
24.1* |
|
Power
of Attorney (included on signature page). |
|
|
|
31.1* |
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Section
302 Certificate of Chief Executive Officer. |
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31.2* |
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Section
302 Certificate of Principal Financial and Accounting Officer. |
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32.1* |
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Section
906 Certificate of Chief Executive Officer and Principal Financial and Accounting Officer. |
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101.INS** |
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XBRL
Instance Document |
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101.SCH** |
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XBRL
Taxonomy Extension Schema Document |
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101.CAL** |
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XBRL
Taxonomy Extension Calculation Linkbase Document |
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101.DEF** |
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XBRL
Taxonomy Extension Definition Linkbase Document |
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101.LAB** |
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XBRL
Taxonomy Extension Label Linkbase Document |
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101.PRE** |
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XBRL
Taxonomy Extension Presentation Linkbase Document |
+ |
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Management
contract or compensatory plan or arrangement. |
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* |
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Filed
herewith. |
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** |
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XBRL
(Extensible Business Reporting Language) information is furnished and not filed or a part of this Annual Report on Form 10-K
for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18
of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
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Avangard
Capital Group, Inc. |
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Date:
September 30, 2014 |
By:
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/s/
Simon Friedman |
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Simon Friedman,
Chief Executive Officer |
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Simon Friedman as his true
and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to the annual report, which amendments may make such changes
in the annual report as the attorney-in-fact deems appropriate and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorney-in-fact
and agent or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature |
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Title |
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Date |
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Chief
Executive Officer and Director |
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/s/
Simon Friedman |
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(principal
executive officer and principal financial |
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Simon
Friedman |
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and
accounting officer) |
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September
30, 2014 |
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/s/
Arkady “Eric” Rayz |
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Arkady
“Eric” Rayz |
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Director |
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September
30, 2014 |
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/s/
Robert A. Cornaglia |
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Robert
A. Cornaglia |
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Director |
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September
30, 2014 |
Exhibit
31.1
Rule
13a-14(a)/15d-14(a) Certification
I,
Simon Friedman, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended June 30, 2014 of Avangard Capital Group, Inc.;
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 under which such statements were 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, including its consolidated subsidiaries, 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: September
30, 2014 |
/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 Annual Report on Form 10-K for the fiscal year ended June 30, 2014 of Avangard Capital Group, Inc.;
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 under which such statements were 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, including its consolidated subsidiaries, 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: September 30, 2014 |
/s/ Simon
Friedman |
|
Simon Friedman |
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Chief Executive Officer (principal financial and accounting officer) |
Exhibit 32.1
Section
1350 Certification
In connection with the Annual
Report on Form 10-K of Avangard Capital Group, Inc. (the “Company”) for the fiscal year ended June 30, 2014 as filed
with the Securities and Exchange Commission (the “Report”), I, Simon Friedman, Chief Executive 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: September 30, 2014 |
/s/ Simon Friedman |
|
Simon Friedman |
|
Chief Executive Officer
(principal executive officer, principal
financial and accounting officer) |
This certification
accompanies this Annual Report on Form 10-K 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.
Avangard Capital (GM) (USOTC:AVGC)
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