UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2016

 

Or

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ______________

 

Commission file number: 333-184682

 

AVANGARD CAPITAL GROUP INC.

(Exact name of registrant as specified in its charter)

 

Nevada		45-5507359
(State or other jurisdiction		(IRS Employer
of incorporation)		Identification No.)

 

2708 Commerce Way Suite 300, Philadelphia PA		19154
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (215) 464-7300

 

Not Applicable.

(Former name or former address, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

 

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]
(Do not check if smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [  ] No [X]

 

As of May 23, 2016 there were 5,983,137 shares issued and outstanding of Registrant’s Common Stock.

 

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	F-1
	Condensed Balance Sheets as of March 31, 2016 and June 30, 2015 (unaudited)	F-1
	Condensed Statements of Operations for the Three and Nine Months Ended March 31, 2016 and 2015 (unaudited)	F-2
	Condensed Statements of Cash Flows for the Nine Months Ended March 31, 2016 and 2015 (unaudited)	F-3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3	Quantitative and Qualitative Disclosures About Market Risk	5
Item 4	Controls and Procedures	5
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	6
Item 1A	Risk Factors	6
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	6
Item 3	Defaults Upon Senior Securities	6
Item 4	Mine Safety Disclosures	6
Item 5	Other Information	6
Item 6	Exhibits	6
Signatures		7

 

 

PART 1 - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

AVANGARD CAPITAL GROUP, INC.

CONDENSED BALANCE SHEETS

(unaudited)

 

		March 31, 2016				June 30, 2015
ASSETS
Current assets:
Cash		$	846			$	784
Related party receivable			5,025				5,024
Total current assets			5,871				5,808
Property and equipment, net			2,399				2,799
Total assets		$	8,270			$	8,607
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses		$	30,393			$	25,350
Accounts payable - related parties			35,095				-
Due to related party			35,000				25,000
Total current liabilities			100,488				50,350
Stockholders’ equity (deficit)
Convertible Preferred Stock Series A, $0.0001 par value, 300,000,000 authorized, 585,000 issued and outstanding at March 31, 2016 and June 30, 2015			58				58
Common stock, $0.0001 par value, 100,000,000 authorized; Class A, 10,781,466 shares issued and outstanding at March 31, 2016 and June 30, 2015			1,078				1,078
Additional paid in capital			787,837				787,837
Accumulated deficit			(881,191	)			(830,716	)
Total stockholders’ equity			(92,218	)			(41,743	)
Total liabilities and stockholders’ equity (deficit)		$	8,270			$	8,607

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

AVANGARD CAPITAL GROUP, INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

 

		For the Three Months Ended March 31,								For the Nine Months Ended March 31,
		2016				2015				2016				2015
REVENUE
Fee revenue		$	-			$	-			$	-			$	-
Total revenue			-				-				-				-
OPERATING EXPENSES
Selling, general and administrative			20,158				78,114				50,476				180,515
Bad debt expense			-				33,378				-				33,378
Total operating expenses			20,158				111,492				50,476				213,893
(Loss) from operations			(20,158	)			(111,492	)			(50,476	)			(213,893	)
Other income
Other income			-				-				-				26,355
Interest and dividend income			-				26				-				325
Total other income			-				26				-				26,680
Net loss		$	(20,158	)		$	(111,466	)		$	(50,476	)		$	(187,213	)
Net loss per share attributable to common shareholders - basic and diluted		$	(0.00	)		$	(0.01	)		$	(0.00	)		$	(0.02	)
Weighted average number of common shares used in computation - basic and diluted			10,781,466				10,781,466				10,781,466				10,424,970

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

AVANGARD CAPITAL GROUP, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

 

		For the Nine Months Ended March 31,
		2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)		$	(50,476	)		$	(187,213	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			399				399
Other income (inventory recovery)			-				(26,355	)
Changes in operating assets and liabilities:
Used car inventory			-				100,789
Related party receivable							7,000
Due to related party			10,000				33,138
Accounts payable and accrued expenses			5,043				(12,431	)
Accounts payable - related parties			35,095				-
NET CASH PROVIDED (USED IN) OPERATING ACTIVITIES			62				(84,673	)
CASH FLOWS FROM FINANCING ACTIVITIES
Stock subscription received			-				977
Redemption of preferred stock			-				(320,000	)
NET CASH USED IN FINANCING ACTIVITIES			-				(319,023	)
Net increase (decrease) in cash			62				(403,696	)
Cash, beginning of the period			784				424,272
Cash, at end of the period		$	846			$	20,576

 

The accompanying notes are an integral part of these condensed financial statements.

 

 

AVANGARD CAPITAL GROUP, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

March 31, 2016

 

NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Description of Business Avangard Capital Group, Inc., a Nevada corporation is referred to in this report as “we”, “us”, “our”, “ACG”, the “Company” or “Avangard Capital Group.”

 

We were incorporated June 13, 2012 under the laws of the State of Nevada. Our executive offices are located at 2708 Commerce Way, Suite 300, Philadelphia, PA 19154.

 

We were an independent auto sales finance company that provides floor plan financing for independent used car dealers based on the value of collateral (the car) as determined by us using the automobile industry’s nationally-recognized valuation sources. We currently maintain licenses to operate in the states of New Jersey, Pennsylvania and Florida. We commenced business June 22, 2012 with the purchase of all floor plan receivables from Avangard Auto Finance, Inc. (“AAF”), an affiliate. Pursuant to an Assignment Agreement with AAF dated June 13, 2012, we acquired AAF’s floor plan financing portfolio for $151,979, the face value of the contracts plus accrued interest and fees at that time.

 

In January 2013 we received approval and were licensed by the States of Florida and New Jersey as a Sales Finance Company. In February 2013, we were licensed in the Commonwealth of Pennsylvania as a Sales Finance Company. These licenses permitted us to expand our operations to providing financing for auto sales by dealers. We have not commenced operations in Florida or New Jersey as we are evaluating the feasibility of expanding into these markets. In addition, we have suspended financing new loans as we explore alternative opportunities for our future growth.

 

On March 26, 2013 we acquired certain retail installment contract receivables from AAF and Avangard Financial Group, Inc., a related party (“AFG”) for $102,250. The receivables consisted of an aggregate principal balance of approximately $141,868 for current loans receivables and approximately $323,449 for non-current loans receivables. We recovered our initial investment and earned approximately 20% in interest on the investment.

 

On February 19, 2014 we transferred all remaining loans receivable to AAF as we determined that the outstanding balances were either uncollectible or difficult to collect and the Company did not believe that pursuing further collection efforts was a good use of the Company’s resources.

 

During the year ended June 30, 2015 we had repossessed 18 of 21 vehicles subject to the floor plan security arrangement. We recovered $123,425 of floor plan receivables through the sale of repossessed autos.

 

At March 31, 2016 we have no inventory of repossessed autos.

 

Interim Financial Statements

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed financial statements included in this document have been prepared on the same basis as the annual financial statements, and in our opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the nine months ended March 31, 2016 are not necessarily indicative of the results expected for the full year or for any subsequent interim periods. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes to those statements included in our Annual Report on Form 10-K for the period ended June 30, 2015 filed with the SEC on October 13, 2015.

 

Use of Estimates

 

We use estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include highly liquid investments with an original maturity of three months or less when purchased.

 

 

Revenue Recognition

 

Interest income from floor plan financing receivable is recognized using the interest method. Accrual of income on finance receivables is suspended when a contract is contractually delinquent for ninety (90) days or more. The accrual is resumed when the contract becomes contractually current and past due interest is recognized at that time.

 

Origination Fees are recognized for services provided during the loan origination process at the point in time the loan is funded.

 

The Company accounts for its investment in floor plan financing receivables using the interest method, under ASC 310 pools of accounts are established based on certain common risk criteria. Each pool is recorded at cost and is accounted for as a single unit for the recognition of income, principal payments and loss provision.

 

During the quarter ended March 31, 2016 the Company had no revenue.

 

Floor Plan Financing Receivable

 

Floor plan financing receivable consists of purchased automobiles, which were assigned to us upon acquisition. The titles to the automobiles, which serve as security for the payment of the purchased contracts, are held by us.

 

As of March 31, 2016 there are no floor plan financing receivables.

 

We perform periodic evaluations of the adequacy of the allowance for losses taking into consideration the past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, as well as recovery potential of any underlying collateral, personal guarantees and current economic conditions. Any increases in the allowance for losses subsequent to the acquisition of the contract are charged to earnings.

 

Our primary floor plan customer defaulted on their agreement in February 2014. The floor plan agreement carried personal guarantees and confessions of judgment, in addition to first lien on all vehicles subject to the floor plan agreement. In March 2014, the customer filed for bankruptcy protection under Chapter 11 of the Federal Bankruptcy Code. We repossessed 18 of the 21 vehicles subject to the floor plan agreement from the debtor prior to its Chapter 11 filing. As of March 31, 2016 we recovered $123,425 of floor plan receivables through the sale of repossessed autos. We continue to pursue guarantors of the agreement through the Federal bankruptcy Courts. However, we are unable to determine the amount, if any, that we may recover.

 

Inventory

 

As of March 31, 2016 the Company has no inventory.

 

Concentrations of Credit Risk

  

The Company maintains its cash balances in Federal Deposit Insurance Corporation (“FDIC”) insured financial institutions.

 

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 a 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 nine months ended March 31, 2016.

 

 

NOTE 2 - GOING CONCERN

 

The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. During the nine months ended March 31, 2016 the Company recognized sales revenue of $-0- and incurred a net loss of $50,476. As of March 31, 2016 the Company had an accumulated deficit of $881,191. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company’s planned business. If the Company is unable to obtain adequate capital, it could be forced to cease operations. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from significant shareholders sufficient to meet its operating expenses and seeking equity and/or debt financing from third parties. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 3 - INCOME TAXES

 

The net deferred tax asset consists of the following:

 

		March 31, 2016				June 30, 2015
Deferred Tax Asset		$	357,705			$	314,841
Less: Valuation Allowance			(357,705	)			(314,841	)
Net Deferred Tax Assets		$	-			$	-

 

As of March 31, 2016, the Company has net operating loss carry forwards of $881,191 that can be utilized to offset future taxable income for Federal and State income tax purposes through 2025, generating a maximum deferred tax benefit of $357,705 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 - 2015
Commonwealth of Pennsylvania			2012 - 2015

 

NOTE 4 - LOAN FROM SHAREHOLDER

 

On May 1, 2015, the Company entered into a loan agreement with a major shareholder to obtain financing up to $50,000. Advances under the agreement are non-interest bearing and due on demand. At March 31, 2016, the amount due to the shareholder was $35,000, and unused amount representing availability to borrow was $15,000. Debt is secured by common stock of Avangard Capital Group, Inc.

 

NOTE 5 - COMMON AND PREFERRED STOCK

 

Common Stock Purchase Warrants

 

A summary of the status of our outstanding common stock purchase warrants granted as of March 31, 2016 and changes during the period is as follows:

 

		Shares				Weighted
		Underlying				Average
		Warrants				exercise price
Outstanding and exercisable at June 30, 2015			2,867			$	2.00
Expired warrants			(2,867	)			-
Outstanding and exercisable at March 31, 2016			-			$	0.00

 

As of March 31, 2016 all warrants have expired.

 

 

NOTE 6 - LOSS PER SHARE

 

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. The Company’s potential dilutive shares, which include convertible preferred shares and shares issuable upon exercise of the Warrants, have not been included in the computation of diluted net loss per share as the result would be antidilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. All potential common shares have been excluded from the computation of the dilutive net loss per share for the period presented because the effect would have been antidilutive. Such potential common shares consist of the following:

 

		March 31, 2016				March 31, 2015
Convertible preferred stock			1,755,000				1,755,000
Warrants attached to units sold			-				2,867

 

NOTE 7 - RELATED PARTY TRANSACTIONS

 

We entered into a lease agreement for office space with Commerce Way, LLC (“CWL”). CWL is owned by DJS Investments, LLC and SELF, LP. SELF, LP is a shareholder of Friedman Financial Group, who is a principal shareholder of our Company. The lease requires monthly payments, commencing August 1, 2012, of $2,500 on a month-to-month basis. No security deposit was required. The Company suspended financing new loans and terminated the lease with Commerce Way, LLC. Effective January 2015 the Company resumed paying $2,500 per month rent on a month-to-month basis. For the quarter ended September 30, 2015 CWL did not charge the Company for use of the facilities. No rent was accrued or paid during the first quarter ended September 30, 2015. In October 2015 the Company resumed using the premises while it pursues other business opportunities. As a result the Company accrued $2,500 monthly rent expense. Rent expense for the nine months ended March 31, 2016 and 2015 was $15,000 and $7,500 respectively.

 

On July 22, 2015, in a matter before the courts of Pennsylvania unrelated to Avangard Capital Group, Mr. Gulko, former officer and director of the Company agreed to a Stipulation and Consent Order with Avangard Auto Finance, Inc., a related party. The order settled claims by Avangard Auto Finance, Inc. against Mr. Gulko and his companies. In settlement of all claims Mr. Gulko agreed to relinquish all ownership of 490,000 shares of Common Stock and 48,237 shares of Series A Convertible Preferred Stock. Avangard Auto Finance assigned the shares received in settlement to Friedman Financial Group, LLC on August 21, 2015.

 

Amounts due from related parties represent legal expenses paid by the Company that are related to cases involving Avangard Auto Finance, Inc. and Commerce Way LLC.

 

Officers and related parties of our Company provide certain administrative duties at no charge. At March 31, 2016, the Company had accounts payable to Friedman Financial Group of $14,941 for reimbursable expenses incurred on behalf of the Company.

 

Accounts payable to Commerce Way Office Complex were $20,154 and $0 at March 31, 2016 and June 30, 2015 respectively.

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES

 

From time to time, the Company is a defendant in various lawsuits incident to the ordinary course of business. It is not possible to determine, with any precision, the probable outcome of the amount of any liability not covered by commercial insurance policies. Additionally, on September 1, 2015, the major shareholder entered into an indemnity agreement with the Company to indemnity the Company of any liability arising from judgments related to repossessed vehicles.

 

NOTE 9 – SUBSEQUENT EVENTS

 

In March 2016, but effective April 11, 2016, the Board of Directors authorized the redemption of 4,798,329 shares of common stock for $480.

 

In March 2016 but effective on April 11, 2016, the Board of Directors approved the redemption of 585,000 shares of Convertible Preferred Stock Series A for $220,000 evidenced by a Note Payable to Friedman Financial Group, LLC.

 

On March 21, 2016 the Company received an offer to acquire 90% of the Company’s common stock by acquiring 53,650,000 shares of newly issued common stock for $270,000. The effective date shall be determined pending a vote by the Board of Directors. The proceeds will be used by the Company to retire the Company’s debt, including the Note Payable to Friedman Financial Group for the redemption of 585,000 shares of Convertible Preferred Stock Series A.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results

 

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. A list of factors that could cause our actual results of operations and financial condition to differ materially is set forth below, and these factors are discussed in greater detail under the “Risk Factors” section of our Annual Report on Form 10-K as filed with the SEC on October 13, 2015:

 

●	Our limited operating history and ability to achieve profitability.
●	Our ability to assure that related party transactions are fair to our company.
●	Our ability to manage growth in our business.
●	Our dependence on one floor plan financing agreement.
●	The impact of the volatility in the worldwide credit and equity markets.
●	The departure of our CEO, director and principal financial officer has increased our dependence on the services provided by Simon Friedman, Chairman of the Board of Directors and interim CEO, who can exercise disproportionate voting control over corporate decisions.
●	The super voting power of our interim CEO and director who holds shares of the Series A Convertible Preferred Stock.
●	Write-Offs for losses and defaults on our floor plan receivables.
●	The impact of changes in interest rates.
●	Increased costs as a result of becoming a reporting company.
●	Our ability to maintain an effective system of internal controls over financial reporting.
●	The affects on our stock price as a result of sales of our common stock by existing shareholders pursuant to Rule 144.

 

We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

OVERVIEW

 

We were an independent auto sales finance company that provided floor plan financing and auto financing for independent used car dealers. The loans made were based on the value of collateral (the car) as determined by us using the automobile industry’s nationally-recognized valuation sources. We maintain our licenses to operate in Pennsylvania, New Jersey and Florida. The Company has suspended financing new loans while Management and the Board of Directors explore alternative opportunities for our future growth including consideration of an offer to acquire a controlling interest in the company as discussed below.

 

 

Recent Developments

 

In March 2016, but effective April 11, 2016, the Board of Directors authorized the redemption of 4,798,329 shares of common stock for $480.

 

In March 2016 but effective on April 11, 2016, the Board of Directors approved the redemption of 585,000 shares of Convertible Preferred Stock Series A for $220,000 evidenced by a Note Payable to Friedman Financial Group, LLC.

 

On March 21, 2016 the Company received an offer to acquire 90% of the Company’s common stock by acquiring 53,650,000 shares of newly issued common stock for $270,000. The effective date shall be determined pending a vote by the Board of Directors. The proceeds will be used by the Company to retire the Company’s debt, including the Note Payable to Friedman Financial Group for the redemption of 585,000 shares of Convertible Preferred Stock Series A.

 

We define our accounting periods as follows:

 

	●	“fiscal 2013” - July 1, 2012 through June 30, 2013
	●	“fiscal 2014” - July 1, 2013 through June 30, 2014
	●	“fiscal 2015” - July 1, 2014 through June 30, 2015
	●	“fiscal 2016” - July 1, 2015 through June 30, 2016

 

RESULTS OF OPERATIONS

 

Revenue

 

Since the Company has not financed new loans since June 2014 it has $0 revenue for the three and nine months ended March 31, 2016 and 2015.

 

Operating Expenses

 

Total selling, general and administrative expenses decreased $57,956 to $20,158 for the three months ended March 31, 2016 compared to the three months ended March 31, 2015. Total selling, general and administrative expenses decreased $130,039 to $50,476 for the nine months ended March 31, 2016 compared to the nine months ended March 31, 2015. These decreases are primarily a result of temporary suspension of purchasing loans and a bad debt expense of $33,378 for the quarter ended March 31, 2015.

 

For the three months ended March 31, 2016 our expenses were comprised primarily of rent and utilities of $10,418, Professional fees of $7,726, and office related expenses of $2,014. For the nine months ended March 31, 2016 our expenses comprised primarily of $25,322 related to legal, accounting and SEC compliance costs, $20,268 for rent and utilities, and $4,930 for office expenses. For the three months ended March 31, 2015 our expenses were comprised primarily of $49,447 related to legal, accounting and SEC compliance costs, $3,684 for office expenses, $11,280 for occupancy expenses $5,328 for auto repossession services, and $8,376 for travel. For the nine months ended March 31, 2015 our expenses were comprised primarily of $112,683 related to legal, accounting and SEC compliance costs, $15,757 in office expenses, $11,280 for occupancy expenses $21,633 for auto repossession services, $4,506 for wages and benefits, and $14,657 for travel and entertainment.

 

Other Income

 

Other income is comprised of interest income and income from disposition of repossessed cars. During the three and nine months ended March 31, 2016 the Company had $0 other income. During the three and nine months ended March 31, 2015 the Company had other income of $26 and $26,680 respectively. The Company realized a gain of $26,355 from repossessing inventory during the nine months ended March 31, 2015.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of March 31, 2016 our working capital deficit amounted to $94,617. The Company has entered into a financing agreement with Friedman Financial Group, a related party, to provide a line of credit sufficient to finance corporate expenses while the Company pursues new business opportunities. The line of credit has a current limit of $50,000, payable on demand at no interest.

 

 

Cash Requirements

 

Our future capital requirements will depend on management’s ability to develop new lines of business.

 

We do not currently have any contractual restrictions on our ability to incur debt and, accordingly we could incur significant amounts of indebtedness to finance operations. Any such indebtedness could contain covenants that would restrict our operations.

 

Although we experienced a reduction in revenues as a result of the default and bankruptcy of our primary floor plan customer, we have adequate resources committed by current shareholders to operate at a minimal level while we pursue 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 March 31, 2016 we have no off-balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable to smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, who is also our Principal Financial and Accounting Officer, to allow timely decisions regarding required disclosure. Management, with the participation of our CEO who is also our Principal Financial and Accounting Officer performed an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2016. Based on that evaluation, our management, including our CEO who is also our Principal Financial and Accounting Officer concluded that our disclosure controls and procedures were ineffective as of March 31, 2016.

 

In addition, management identified the following material weakness and significant deficiencies in its assessment of the effectiveness of internal control over financial reporting as of March 31, 2016:

 

●	Material Weakness - The Company did not maintain effective controls over certain aspects of the financial reporting process because we lacked a sufficient complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate with the Company’s financial reporting requirements.
●	Significant Deficiencies - Inadequate segregation of duties.

 

We expect to be materially dependent upon a third party to provide us with accounting consulting services for the foreseeable future. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses and significant deficiencies in our disclosure controls and procedures and internal control over financial reporting will not result in errors in our financial statements which could lead to a restatement of those financial statements.

 

Our management, including our Chief Executive Officer and our Principal Financial and Accounting Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

 

Changes in Internal Control

 

There were no changes identified in connection with our internal control over financial reporting during the nine months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

The Company is pursuing all legal remedies to collect floor plan receivables and interest and penalties from our principal customer who is under the protection of the Federal Bankruptcy Court. We have instituted collection subject to personal guarantees issued by principal owners of the bankrupt party.

 

ITEM 1A. RISK FACTORS

 

Not applicable to smaller reporting companies.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable

 

ITEM 5. OTHER INFORMATION.

 

None

 

ITEM 6. EXHIBITS.

 

Exhibit No.		Description
31.1		Section 302 Certificate of Chief Executive Officer.*
31.2		Section 302 Certificate of Principal Financial and Accounting Officer.*
32.1		Section 906 Certificate of Chief Executive Officer and Principal Financial and Accounting Officer*

 

*	Filed herewith.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	AVANGARD CAPITAL GROUP, INC.
Date: May 23, 2016	By:	/s/ Simon Friedman
		Simon Friedman
		Chairman and Chief Executive Officer
		(Principal Executive Officer and Principal Financial and Accounting Officer)