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EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - American Retail Group, Inc. | f10q0611ex31i_ameriretail.htm |
EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT - American Retail Group, Inc. | f10q0611ex32i_ameriretail.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 2011
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission File Number: 333-146758
AMERICAN RETAIL GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada
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13-1869744
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(State or other jurisdiction of incorporation)
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(IRS Employer Identification Number)
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c/o Primary Capital LLC
80 Wall Street, 5th Floor
New York, New York 10005
(Address of principal executive offices)
(212) 300-0070
(Registrant’s telephone number, including area code)
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 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 ¨ 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 ¨
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Accelerated filer ¨
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Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). x Yes ¨ No
As of September 14, 2011, there were outstanding 28,930,000 shares of the registrant’s common stock, par value $.001.
TABLE OF CONTENTS
Page
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PART I Financial Information
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Item 1.
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Financial Statements.
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Condensed Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010
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F-1
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Condensed Statements of Operations for the six and three months ended June 30, 2011 and 2010 (Unaudited)
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F-2 | |||
Condensed Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (Unaudited)
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F-3 | |||
Notes to Condensed Financial Statements (Unaudited)
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F-4 | |||
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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2 | ||
Item 4T.
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Controls and Procedures
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4 | ||
PART II Other Information
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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6 | ||
Item 3.
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Default upon Senior Securities
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6 | ||
Item 6.
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Exhibits.
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6 | ||
Signatures
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7 | |||
Exhibits/Certifications
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PART I-FINANCIAL INFORMATION
AMERICAN RETAIL GROUP, INC.
CONDENSED BALANCE SHEETS
June 30,
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December 31,
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|||||||
2011
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2010
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(Unaudited)
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ASSETS:
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Cash and cash equivalents
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$ | 48 | $ | 470,521 | ||||
TOTAL ASSETS
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$ | 48 | $ | 470,521 | ||||
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
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CURRENT LIABILITIES:
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Accounts payable and accrued expenses
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$ | - | $ | 16,691 | ||||
Notes Payable
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1,201,000 | 1,301,000 | ||||||
Total current liabilities
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1,201,000 | 1,317,691 | ||||||
Total liabilities
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1,201,000 | 1,317,691 | ||||||
STOCKHOLDERS' (DEFICIT)
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Preferred stock, $.001 par value, 10,000,000 shares authorized;
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-0- shares issued and outstanding
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- | - | ||||||
Common stock, $.001 par value, 200,000,000 shares authorized;
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20,801,603 and 101,924 shares issued and outstanding at June 30, 2011
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and December 31, 2010 respectively
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20,802 | 802 | ||||||
Additional paid-in capital
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45,597 | 220,712 | ||||||
Accumulated Deficit
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(1,267,351 | ) | (1,068,684 | ) | ||||
Total stockholders' (deficit)
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(1,200,952 | ) | (847,170 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)
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$ | 48 | $ | 470,521 |
The accompanying notes are an integral part of these consolidated financial statements.
F-1
AMERICAN RETAIL GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months
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Six Months
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Three Months
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Three Months
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Ended
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Ended
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Ended
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Ended
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June 30, 2011
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June 30, 2010
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June 30, 2011
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June 30, 2010
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OPERATING EXPENSES:
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Depreciation expense
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- | - | - | - | ||||||||||||
General and administrative expenses
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128,782 | - | 668 | - | ||||||||||||
Officer's salaries
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- | 10,000 | - | 5,000 | ||||||||||||
Professional fees
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- | 28,394 | - | 16,852 | ||||||||||||
Total operating expenses
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128,782 | 38,394 | 668 | 21,852 | ||||||||||||
(LOSS) FROM OPERATIONS
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(128,782 | ) | (38,394 | ) | (668 | ) | (21,852 | ) | ||||||||
OTHER INCOME (EXPENSE)
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Interest expense
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(59,885 | ) | (4,917 | ) | (29,943 | ) | (2,614 | ) | ||||||||
TOTAL OTHER INCOME (EXPENSE)
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(59,885 | ) | (4,917 | ) | (29,943 | ) | (2,614 | ) | ||||||||
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
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(188,667 | ) | (43,311 | ) | (30,611 | ) | (24,466 | ) | ||||||||
BASIC LOSS PER COMMON SHARE
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$ | (0.02 | ) | $ | (0.63 | ) | $ | (0.001 | ) | $ | (0.36 | ) | ||||
WEIGHTED AVERAGE SHARES OUTSTANDING
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11,141,753 | 68,653 | 20,801,603 | 68,653 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-2
AMERICAN RETAIL GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Month Ended
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Six Month Ended
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June 30, 2011
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June 30, 2010
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CASH FLOW FROM OPERATING ACTIVITIES
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Net (loss)
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$ | (188,667 | ) | $ | (43,311 | ) | ||
Adjustments to reconcile net loss to net cash
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(used in) operating activities:
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Changes in assets and liabilities
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Increase (Decrease) in accounts payable and accrued expenses
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(16,691 | ) | 20,000 | |||||
Increase in accrued interest
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- | 4,917 | ||||||
Total adjustments
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(16,691 | ) | 24,917 | |||||
Net cash used in operating activities
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(205,358 | ) | (18,394 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES:
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Acquisition of subsidiary
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(225,000 | ) | - | |||||
Net cash used in investing activities
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(225,000 | ) | - | |||||
CASH FLOWS FROM FINANCING ACTIVITIES:
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Capital contribution
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59,885 | 15,000 | ||||||
Repayment of Notes Payable
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(100,000 | ) | - | |||||
Net cash provided by financing activities
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(40,115 | ) | 15,000 | |||||
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
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(470,473 | ) | (3,394 | ) | ||||
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
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470,521 | 4,051 | ||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD
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$ | 48 | $ | 657 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
AMERICAN RETAIL GROUP, INC.
NOTES TO CODENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2011
(UNAUDITED)
Note 1 - Organization and Operations
American Retail Group, Inc., formerly known as Resource Acquisition Group, Inc. (the “Company”), is a Nevada corporation organized on January 27, 1934.
Effective February 11, 2011 the Company acquired 100% of the stock of American Retail Group, Inc., a Nevada corporation (“ARG”), which at that time owned 100% of the outstanding equity of TOO “SM Market Retail” (“SM Market”), a limited liability company organized under the laws of Kazakhstan (the “2011 Share Exchange”). Pursuant to the share exchange agreement, on February 11, 2011, stockholders of ARG transferred 100% of the outstanding shares of its common stock held by them, in exchange for an aggregate of 20,000,000 newly issued shares of the Company’s
common stock. The shares of common stock of the Company acquired by the stockholders of ARG constituted approximately 96.1% of the Company’s issued and outstanding common stock after giving effect to the 2011 Share Exchange.
American Retail Group, Inc. was incorporated in Las Vegas, Nevada on February 16, 2010. Effective March 10, 2010, the Company consummated a share exchange with the owners of SM Market (the “2010 Share Exchange”). As a result of the share exchange, ARG acquired all of the outstanding equity of SM Market in exchange for issuance of 12,000,000 shares of its common stock (the “Shares”).
Effective April 1, 2011, ARG merged with and into the Company. In connection with the merger the name of the Company was changed from Resource Acquisition Group, Inc. to American Retail Group, Inc.
On July 22, 2011, the Company and the former owners of SM Market entered into a Rescission Agreement whereby the parties agreed to rescind the 2010 Share Exchange and to release each other from any potential claims (the “Rescission”). The parties have determined that it is in their best interest to rescind the 2010 Share Exchange and unwind the transaction. Under the Rescission Agreement, all outstanding equity of SM Market was to be returned to the former owners of SM Market and the Shares were to be returned to the Company. In connection
with the rescission of the 2010 Share Exchange, El Investment Corp. agreed to return to the Company for cancellation 11,201,603 shares of common stock held by it. The Rescission was completed on September 2, 2011.
As a result of the Rescission, the Company ceased to be engaged in the supermarket business in Kazakhstan and returned to be a shell company as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. At this time, the Company’s purpose is to seek, investigate, and if such investigation warrants, acquire an interest in business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of an Exchange Act registered corporation. The Company will not restrict its search to any specific business, industry, or geographical location and the Company may
participate in a business venture of virtually any kind or nature.
Note 2 – Summary of Significant Accounting Policies
Going Concern
As shown in the accompanying financial statements, the Company had limited cash, a deficit working capital, an accumulated deficit, a total deficit, and a net loss through June 30, 2011, which raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s future success is dependent upon, among other things, its ability to raise additional capital or to secure a future business combination. There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations. Management believes they can raise the appropriate funds needed to support their business plan and acquire an operating company with positive cash flow.
F-4
AMERICAN RETAIL GROUP, INC.
NOTES TO CODENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2011
(UNAUDITED)
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amount and classification of liabilities that might be necessary in the event the Company cannot continue in existence. Management intends to seek new capital from owners and related parties to provide needed funds.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.
It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in time deposits and all highly liquid investments with original maturities of three months or less.
Fair Value of Financial Instruments
The Company follows FASB ASC 825-10-50-10 “Financial Instruments-Overall-Disclosure” for its financial instruments. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, prepayments and other current assets, accounts payable, customer deposits, taxes payable, accrued expenses and other current liabilities, approximate their fair values
because of the short maturity of these instruments.
Revenue Recognition
The Company follows the guidance of the United States Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 101 “Revenue Recognition” (“SAB No. 101”), as amended by SAB No. 104 (“SAB No. 104”) for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned less estimated future doubtful accounts.
Income Taxes
The Company accounts for income taxes under FASB ASC 740 “Income Taxes.” Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. There are no deferred tax assets or liabilities at the balance sheet date.
F-5
AMERICAN RETAIL GROUP, INC.
NOTES TO CODENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2011
(UNAUDITED)
Basic and Diluted Loss Per Share
Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB Accounting Standards Codification No. 260, “Earnings per Share.”
Recent Pronouncements
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S GAAP and IFRS” (“ASU 2011-04”). ASU 2011-04 defines fair value, clarifies a framework to measure fair value, and requires specific disclosures of fair value measurements. The guidance will be effective for interim and annual reporting periods beginning after January 1, 2012 and is required to be applied retrospectively. The Company does not believe the adoption of ASU 2011-04 will have a material impact on its financial
statements.
Note 3 – Convertible Notes Payable
On July 12, 2010, the Company issued to certain investors 10% secured convertible bridge notes in the aggregate principal amount of $1,201,000, equal to the cash proceeds. The maturity date of the notes is January 12, 2012. Interest is accrued on the principal balance outstanding at a rate of 10% per annum from June 30, 2010. Accrued interest is payable on December 9, 2010, June 9, 2011 and on any conversion or payment date as applicable. The notes may not be prepaid.
The Company accrued interest on the convertible notes in the amount of $29,983 and $59,885 for the three and six month ended June 30, 2011. There was no interest accrued on the bridge notes for the same periods ended June 30, 2010.
The Company’s obligations under the bridge notes were guaranteed by Oxenuk Equity Fund Corp. under a limited recourse guaranty, which was secured by a pledge of 6 million shares of the Company’s common stock, held by Oxenuk Equity Fund, for the benefit of the holders of the notes.
Event of Default
Under the terms of the notes, an event of default means any one of the following events:
·
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The Company’s failure to pay to the Holder any amount of principal, interest, or other amounts when due and as due under the note;
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·
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The Company or subsidiary commences any applicable bankruptcy proceeding, or is adjudicated insolvent or bankrupt, or any order of relief to this effect is entered, or the Company fails to pay any of its debts as they become due, or the Company restructures its debts;
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·
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The Company or subsidiary defaults in any of its obligations under any other debenture or mortgage, credit agreement or other facility in an amount exceeding $50,000;
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·
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The Company or its subsidiary shall incur any indebtedness that is pari passu with or senior in priority to the note.
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During the time that the notes are outstanding, if any event of default has occurred, 150% of the full unpaid principal amounts of this note, together with accrued and unpaid interest, become immediately due and payable in cash.
During the continuance of default, the following remedies will be available to the holder:
·
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The interest rate on all amounts due to the holder will be 15% per annum from the date of default until full repayment occurs;
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·
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Within 3 business days after the occurrence of default, the Company shall redeem the note at 150% of the principal amount plus accrued interest;
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·
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The Company shall issue the holder a warrant, which shall permit the holder to purchase that number of whole shares equal to the principal amount of this note (prior to acceleration) divided by the conversion price.
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F-6
AMERICAN RETAIL GROUP, INC.
NOTES TO CODENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2011
(UNAUDITED)
The Company has complied with the provisions of FASB ASC Topic 470-20-5 Debt with Conversion and Other Options and has calculated the intrinsic value at the date of the note, as the difference between the conversion price and the fair value of the Company’s common stock, multiplied by the number of shares into which the note is convertible. The Company determined that there is no beneficial conversion feature, based on its intrinsic value.
On July 5, 2011, the Company defaulted on its 10% secured convertible notes in the aggregate principal amount of $1,201,000 as the then primary subsidiary of the Company, SM Market, failed to pay its debts as they were becoming due as a result of the management of SM Market starting the unwinding of its operations. As a result of the default, the notes became due and payable at 150% of the principal amount.
In August 2011, Ms. Soledad Bayazit, the Company’s Chief Executive Officer and sole director, purchased all the outstanding notes from the noteholders.
Note 4 – Related Party Transactions
On July 12, 2010, ARG issued to certain investors 10% secured convertible notes in the aggregate principal amount of $1,201,000, equal to the cash proceeds of the issuance. The maturity date of the notes is January 12, 2012. Interest is accrued on the principal balance outstanding at a rate of 10% per annum starting from June 30, 2010. Accrued interest is payable on December 9, 2010, June 9, 2011 and on any conversion or payment date as applicable. The notes may not be prepaid. The Company’s obligations under this note were guaranteed by Oxenuk Equity Fund Corp., under a limited recourse guaranty, which is secured by a pledge of 6 million shares of the Company’s common stock, held by Oxenuk Equity
Fund, for the benefit of the holders of the notes. Vassili Oxenuk, who was a director of the Company until his resignation on June 24, 2011, has the voting and investment powers over the shares held by Oxenuk Equity Fund Corp.
On July 5, 2011, the Company defaulted on its 10% secured convertible notes in the aggregate principal amount of $1,201,000 as the then primary subsidiary of the Company, SM Market, failed to pay its debts as they were becoming due as a result of the management of SM Market starting the unwinding of its operations. As a result of the default, the notes became due and payable at 150% of the principal amount.
In August 2011, Ms. Soledad Bayazit, the Company’s Chief Executive Officer and sole director, purchased all the outstanding notes from the noteholders.
Note 5 – Acquisitions and Rescission
Acquisitions
Effective February 11, 2011 the Company acquired 100% of the stock of American Retail Group, Inc., a Nevada corporation (“ARG”), which at that time owned 100% of the outstanding equity of TOO “SM Market Retail” (“SM Market”), a limited liability company organized under the laws of Kazakhstan (the “2011 Share Exchange”). Pursuant to the share exchange agreement, on February 11, 2011, stockholders of ARG transferred 100% of the outstanding shares of its common stock held by them, in exchange for an aggregate of 20,000,000 newly issued shares of the Company’s common stock. The shares of common stock of the Company acquired by the stockholders
of ARG constituted approximately 96.1% of the Company’s issued and outstanding common stock after giving effect to the 2011 Share Exchange.
American Retail Group, Inc. was incorporated in Las Vegas, Nevada on February 16, 2010. Effective March 10, 2010, the Company consummated a share exchange with the owners of SM Market (the “2010 Share Exchange”). As a result of the share exchange, ARG acquired all of the outstanding equity of SM Market in exchange for issuance of 12,000,000 shares of its common stock (the “Shares”).
F-7
AMERICAN RETAIL GROUP, INC.
NOTES TO CODENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2011
(UNAUDITED)
Effective April 1, 2011, ARG merged with and into the Company. In connection with the merger the name of the Company was changed from Resource Acquisition Group, Inc. to American Retail Group, Inc.
Rescission
On July 22, 2011, the Company and the former owners of SM Market entered into a Rescission Agreement whereby the parties agreed to rescind the 2010 Share Exchange and to release each other from any potential claims (the “Rescission”). The parties have determined that it is in their best interest to rescind the 2010 Share Exchange and unwind the transaction. Under the Rescission Agreement, all outstanding equity of SM Market was to be returned to the former owners of SM Market and the Shares were to be returned to the Company. In connection with the rescission of the 2010 Share Exchange, El Investment Corp. agreed to
return to the Company for cancellation 11,201,603 shares of common stock held by it. The Rescission was completed on September 2, 2011.
Note 6 – Subsequent Events
The Company has evaluated all subsequent events that occurred up to the time of the Company's issuance of its financial statements.
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT, INCLUDING STATEMENTS IN THE FOLLOWING DISCUSSION, ARE WHAT ARE KNOWN AS "FORWARD-LOOKING STATEMENTS", WHICH ARE BASICALLY STATEMENTS ABOUT THE FUTURE. FOR THAT REASON, THESE STATEMENTS INVOLVE RISK AND UNCERTAINTY SINCE NO ONE CAN ACCURATELY PREDICT THE FUTURE. WORDS SUCH AS "PLANS", "INTENDS", "WILL", "HOPES", "SEEKS", "ANTICIPATES", "EXPECTS "AND THE LIKE OFTEN IDENTIFY SUCH FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE ONLY INDICATION THAT A STATEMENT IS A FORWARD-LOOKING STATEMENT. SUCH FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS CONCERNING OUR PLANS AND OBJECTIVES WITH RESPECT TO THE PRESENT AND FUTURE OPERATIONS OF THE COMPANY, AND STATEMENTS WHICH EXPRESS OR IMPLY THAT
SUCH PRESENT AND FUTURE OPERATIONS WILL OR MAY PRODUCE REVENUES, INCOME OR PROFITS. NUMEROUS FACTORS AND FUTURE EVENTS COULD CAUSE THE COMPANY TO CHANGE SUCH PLANS AND OBJECTIVES OR FAIL TO SUCCESSFULLY IMPLEMENT SUCH PLANS OR ACHIEVE SUCH OBJECTIVES, OR CAUSE SUCH PRESENT AND FUTURE OPERATIONS TO FAIL TO PRODUCE REVENUES, INCOME OR PROFITS. THEREFORE, THE READER IS ADVISED THAT THE FOLLOWING DISCUSSION SHOULD BE CONSIDERED IN LIGHT OF THE DISCUSSION OF RISKS AND OTHER FACTORS CONTAINED IN THIS REPORT AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. NO STATEMENTS CONTAINED IN THE FOLLOWING DISCUSSION SHOULD BE CONSTRUED AS A GUARANTEE OR ASSURANCE OF FUTURE PERFORMANCE OR FUTURE RESULTS.
Overview
American Retail Group, Inc., formerly known as Resource Acquisition Group, Inc. (the “Company”), is a Nevada corporation organized on January 27, 1934.
Effective February 11, 2011 the Company acquired 100% of the stock of American Retail Group, Inc., a Nevada corporation (“ARG”), which at that time owned 100% of the outstanding equity of TOO “SM Market Retail” (“SM Market”), a limited liability company organized under the laws of Kazakhstan (the “2011 Share Exchange”). Pursuant to the share exchange agreement, on February 11, 2011, stockholders of ARG transferred 100% of the outstanding shares of its common stock held by them, in exchange for an aggregate of 20,000,000 newly issued shares of the Company’s common stock. The shares of common stock of the Company acquired by the stockholders
of ARG constituted approximately 96.1% of the Company’s issued and outstanding common stock after giving effect to the 2011 Share Exchange.
American Retail Group, Inc. was incorporated in Las Vegas, Nevada on February 16, 2010. Effective March 10, 2010, the Company consummated a share exchange with the owners of SM Market (the “2010 Share Exchange”). As a result of the share exchange, ARG acquired all of the outstanding equity of SM Market in exchange for issuance of 12,000,000 shares of its common stock (the “Shares”).
Effective April 1, 2011, ARG merged with and into the Company. In connection with the merger the name of the Company was changed from Resource Acquisition Group, Inc. to American Retail Group, Inc.
On July 22, 2011, the Company and the former owners of SM Market entered into a Rescission Agreement whereby the parties agreed to rescind the 2010 Share Exchange and to release each other from any potential claims (the “Rescission”). The parties have determined that it is in their best interest to rescind the 2010 Share Exchange and unwind the transaction. Under the Rescission Agreement, all outstanding equity of SM Market was to be returned to the former owners of SM Market and the Shares were to be returned to the Company. In connection with the rescission of the 2010 Share Exchange, El Investment Corp. agreed to
return to the Company for cancellation 11,201,603 shares of common stock held by it. The Rescission was completed on September 2, 2011.
As a result of the Rescission, the Company ceased to be engaged in the supermarket business in Kazakhstan and returned to be a shell company as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.
2
Plan of Operations
At this time, the Company’s purpose is to seek, investigate, and if such investigation warrants, acquire an interest in business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of an Exchange Act registered corporation. The Company will not restrict its search to any specific business, industry, or geographical location and the Company may participate in a business venture of virtually any kind or nature. This discussion of the proposed business is purposefully general and is not meant to be restrictive of the Company’s virtually unlimited discretion to search for and enter into potential business opportunities. Management
anticipates that it may be able to participate in only one potential business venture because the Company has nominal assets and limited financial resources. This lack of diversification should be considered a substantial risk to shareholders of the Company because it will not permit the Company to offset potential losses from one venture against gains from another.
The Company may seek a business opportunity with entities which have recently commenced operations, or which wish to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service, or for other corporate purposes. The Company may acquire assets and establish wholly-owned subsidiaries in various businesses or acquire existing businesses as subsidiaries
Results of Operations
We did not have any revenues during the three and six month periods ended June 30, 2011 and 2010.
We incurred operating expenses of $668 and $128,782 for the three and six month periods ended June 30, 2011, respectively. This compares to $21,852 and $38,384 in expenses during the three and six month periods, respectively, which ended June 30, 2010. The increase of operating expenses was primarily due to an increase of professional fees in connection with the 2011 Share Exchange.
The Company incurred an interest expense in the amount of $29,983 and $59,885 for the three and six month periods ended June 30, 2011, respectively, on the bridge notes. This compares to $2,614 and $4,917 in interest expense for the three and six month periods ended June 30, 2010, respectively, on indebtedness to an officer of the Company.
The Company realized a net loss of $30,611 and $188,667 for the three and six month periods ended June 30, 2011, respectively. This compares to $24,466 and $43,311 in net loss during the three and six month periods, respectively, which ended June 30, 2010.
Liquidity and Capital Resources
As of June 30, 2011 we had $48 in cash. We have financed our operations primarily with the proceeds from the issuance to investors of bridge convertible notes in the aggregate principal amount of $1,201,000 in 2010. In connection with the Rescission, our chief executive officer has purchased from the investors all the outstanding notes. In July 2011, to finance our operations our chief executive officer has extended loans to us in the total amount of $205,300, which was repaid by us through the issuance of 20,530,000 shares of common stock on September 1, 2011.
We believe we cannot satisfy our cash requirements for the next twelve months with our current cash and need to obtain additional financing. We cannot assure investors that adequate financing will be available. In the absence of such financing, we may be unable to proceed with our plan of operations.
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Contractual Obligations
At June 30, 2011, our significant contractual obligations were the bridge convertible notes in the aggregate principal amount of $1,201,000 due on January 12, 2012. The notes have an interest rate of 10% with interest payments due on December 9, 2010, June 9, 2011 and at maturity (January 12, 2012). On July 5, 2011, we defaulted on the notes. As a result of the default, the notes became due and payable at 150% of the principal amount and the interest rate increased to 15% from the date of default. In August 2011, all the notes were purchased from the investors by the Company’s Chief Executive Officer and sole
director.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon our financial condition or results of operations.
Critical Accounting Policies and Estimates
Going concern
As shown in the accompanying financial statements, the Company had limited cash, a deficit working capital, an accumulated deficit, a total deficit, and a net loss through June 30, 2011, which raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s future success is dependent upon, among other things, its ability to raise additional capital or to secure a future business combination. There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations. Management believes they can raise the appropriate funds needed to support their business plan and acquire an operating company with positive cash flow.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amount and classification of liabilities that might be necessary in the event the Company cannot continue in existence. Management intends to seek new capital from owners and related parties to provide needed funds.
Recent Accounting Pronouncements
In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS" ("ASU 2011-04"). ASU 2011-04 defines fair value, clarifies a framework to measure fair value, and requires specific disclosures of fair value measurements. The guidance will be effective for interim and annual reporting periods beginning after January 1, 2012 and is required to be applied retrospectively. The Company does not believe the adoption of ASU 2011-04 will have a material impact on its financial statements.
ITEM 4T. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and
communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.
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As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report because of a material weakness in our internal control over financial reporting described below.
Changes in Internal Controls over Financial Reporting
On July 22, 2011, the Company and the former owners of SM Market entered into a Rescission Agreement whereby the parties agreed to rescind the 2010 Share Exchange. The Rescission was consummated on September 1, 2011. As a result of the Rescission, the Company ceased to be engaged in the supermarket business in Kazakhstan and returned to be a shell company as such term is defined in Rule 12b-2 under the Exchange Act of 1934, as amended.
Prior to the Rescission and as a result of the 2010 Shares Exchange, the Company was operating supermarkets in Kazakhstan through its wholly-owned subsidiary SM Market. Although SM Market was 100% owned by the Company, it had its own management controlled directly by the majority shareholder of the Company, El Investment Corp. In June 2011, it came to our attention that the SM Market’s management’s view on the Company’s business direction differs substantially from the position of the Company’s management. Instead of continuing to expand its operations, SM Market started a restructuring which first led to a reduction of the number of its stores and ultimately resulted in closure of most of
the stores by late July 2011. Because of the position of El Investment Corp. as the Company’s majority shareholder, the Company’s management had no redress other than to negotiate the Rescission of the 2010 Share Exchange.
Until his resignation on June 24, 2011, our former director, Mr. Vassili Oxenuk, controlled our U.S. bank accounts. This was mostly due to the fact that Mr. Oxenuk was the Company’s major shareholder and promoter who was instrumental in the Company’s obtaining its bridge financing with gross proceeds of $1,201,000 in July 2010. Mr. Oxenuk, however, failed to provide to the Company full information about use of proceeds from the bridge financing and his use of the Company’s bank accounts. As of the date of this report, $100,000 of the proceeds from the bridge financing that was wired by an investor directly to one of Mr. Oxenuk’s personal accounts have not been accounted for. The Company has
recently closed its banking accounts that were under Mr. Oxenuk’s prior control to limit its potential exposure to liability from third parties. An examination of the bank statements for one of these accounts showed a deposit and immediate transfer out of the Company’s account to an offshore account controlled by Mr. Oxenuk of $300,000. We were not able to obtain from Mr. Oxenuk a plausible explanation of the origin of this money and why the Company’s account was used for these transfers as Mr. Oxenuk refused to honor any of our requests after his resignation.
The foregoing shows that the Company has a material weakness in its internal controls over financial reporting.
Remediation Initiative
The Company took the following actions to remediate the foregoing weaknesses: (i) negotiated and closed the Rescission, and (ii) closed its banking accounts that had been under previous control of Mr. Oxenuk.
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PART II-OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 1, 2011 the Company issued 20,530,000 shares of common stock to Ms. Soledad Bayazit, its chief executive officer and sole director in repayment of the loan of $205,300 previously extended by Ms. Bayazit to the Company.
The foregoing issuance of the shares was effectuated pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
On July 5, 2011, the Company defaulted on its 10% secured convertible notes in the aggregate principal amount of $1,201,000 as the then primary subsidiary of the Company, SM Market, failed to pay its debts as they were becoming due as a result of the management of SM Market starting the unwinding of its operations. As a result of the default, the notes became due and payable at 150% of the principal amount and the interest rate increased to 15% from the date of default.
In August 2011, Ms. Soledad Bayazit, the Company’s Chief Executive Officer and sole director, purchased all the outstanding notes from the noteholders.
ITEM 6. EXHIBITS.
(a) The following exhibits are filed herewith:
31.1
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Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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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.
Date: September 14, 2011
AMERICAN RETAIL GROUP, INC.
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By:
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/s/ Soledad Bayazit
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Chief Executive Officer, Chief Financial Officer and Director
(Principal Executive Officer, Principal Financial Officer and
Principal Accounting Officer)
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