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EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - American Retail Group, Inc.f10k2011ex31i_americanretail.htm
EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT - American Retail Group, Inc.f10k2011ex32i_americanretail.htm


SECURITIES AND EXCHANGE COMMISSION
  WASHINGTON, D.C. 20549
 
FORM 10-K
 
þ  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended: December 31, 2011
 
OR
 
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
 
AMERICAN RETAIL GROUP, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
000-53244
 
13-1869744
(State or other jurisdiction of incorporation or organization)
 
(Commission File Number) 
 
(I.R.S. Employer  Identification Number)
 
c/o Primary Capital LLC
80 Wall Street, 5th Floor
New York, New York 10005
 (Address of principal executive offices, including zip code)

(212) 300-0070
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:  None
 
Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, $0.0001 par value
 
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
 
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 o No þ
 
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 þ No o
 
 
 
 

 

 
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 þ   No o

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K 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. þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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. (Check one):
 
Large accelerated filer 
o
Accelerated filer
o
Non-accelerated filer
 
o
Smaller reporting company
þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes þ No o

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, or the average bid and asked price of such common equity, as of June 30, 2011, the last day of the registrant’s second fiscal quarter, was $7,130,000.

The number of shares of Common Stock, $0.0001 par value, outstanding on March 30, 2012, was 22,930,000 shares.
 
 
 

 
 
TABLE OF CONTENTS
 
   
Page
PART I
   
     
Item 1.
Description of Business
  1
Item 2.
Description of Property
  2
Item 3.
Legal Proceedings
  2
     
PART II
   
     
Item 5.
Market for Common Equity and Related Stockholder Matters
  2
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
  3
Item 8.
Financial Statements and Supplementary Data
  6
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  6
Item 9A
Controls and Procedures
  6
Item 9B.
Other Information
  7
     
PART III
   
     
Item 10.
Directors and Executive Officers
  8
Item 11.
Executive Compensation
  9
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  10
Item 13.
Certain Relationships and Related Transactions, and Director Independence
  10
Item 14.
Principal Accountant Fees and Services
  11
     
PART IV
   
     
Item 15.
Exhibits
  12
     
Signatures
  13
     
Financial Statements
F-1

 
 
 

 
 
PART I
 
ITEM 1. BUSINESS.

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.

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.
 
 
1

 
 
The Company expects to incur additional costs related to its ongoing reporting obligations. We intend to raise additional debt and/or equity financing to sustain our operations. We do not expect to generate a positive cash flow from operations. Accordingly, we will require external financing to sustain our operations, perhaps for a significant period of time. Successful future operations are subject to a number of technical and business risks, including our continued ability to obtain future funding

Our principal office is located at c/o Primary Capital LLC, 80 Wall Street, 5th Floor, New York, NY 10005. Our telephone number is (212) 300-0070. Our common stock is quoted on the OTC Bulletin Board under the trading symbol “ARGB.”

At December 31, 2011, we had two part-time employees.  Our employees are not covered by labor union contracts or collective bargaining agreements. From time to time, the Company also employs independent contractors to support its operations.
 
ITEM 2. PROPERTY.

We do not own any real property.  Our corporate headquarters are at c/o Primary Capital LLC, 80 Wall Street, 5th Floor, New York, New York. The office space is provided to us free of charge by Primary Capital LLC, our shareholder.

ITEM 3. LEGAL PROCEEDINGS .

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.  We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.
 
PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

MARKET INFORMATION

Our Common Stock is quoted on the OTC Bulletin Board under the symbol “ARGB.” The following table shows the high and low closing prices for the periods indicated.

 Year
 
High
   
Low
 
             
2011
           
First Quarter
   
9.00
     
1.01
 
Second Quarter
   
7.00
     
3.10
 
Third Quarter
   
1.50
     
1.50
 
Fourth Quarter
   
1.15
     
1.10
 
                 
2010
               
First Quarter
   
0.10
     
0.10
 
Second Quarter
   
0.10
     
0.10
 
Third Quarter
   
1.85
     
1.45
 
Fourth Quarter
   
0.30
     
0.30
 
 
 
2

 
 
 
HOLDERS OF COMMON EQUITY

As of March 30, 2012, the number of record holders of our common shares was approximately 172.

DIVIDEND INFORMATION

To date, the Company has never paid a dividend. We have no plans to pay any dividends on common stock in the near future. We intend to retain all earnings, if any, for the foreseeable future, for use in our business operations.

DESCRIPTION OF SECURITIES

The Company is authorized to issue 200,000,000 shares of common stock, $0.0001 par value per share and 10,000,000 shares of preferred stock, $0.0001 par value per share. 22,930,000 shares of common stock are issued and outstanding. No shares of preferred stock have been issued.

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of our stockholders. Holders of our common stock are entitled to receive dividends ratably, if any, as may be declared by the Board of Directors out of legally available funds, subject to any preferential dividend rights of any outstanding preferred stock (there are none currently). Upon our liquidation, dissolution or winding up, the holders of our common stock are entitled to receive ratably our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock.

Our Board of Directors has the authority, without further action by the stockholders, to issue from time to time the blank check preferred stock in one or more series for such consideration and with such relative rights, privileges, preferences and restrictions that the Board may determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase funds and other matters. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of common stock.
  
ITEM 7. 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.
  
 
3

 
 
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.
 
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
 
 
4

 
 
Results of Operations

We did not have any revenues during the fiscal years ended December 31, 2011 and 2010.

We incurred operating expenses of $380,915 and $624,384 for the fiscal years ended December 31, 2011 and 2010, respectively.

The Company incurred an interest expense in the amount of $110,228 and $60,768 for the fiscal years ended December 31, 2011 and 2010, respectively, on the bridge notes.

The Company realized a net loss of $491,143 and $653,692 for the fiscal years ended December 31, 2011 and 2010, respectively.
 
Liquidity and Capital Resources
 
As of December 31, 2011 we had $0 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. During the fiscal year ended September 30, 2011 and up to the date of this report, to finance our operations our chief executive officer has extended loans to us in the total amount of $215,802, of which $205,300 was repaid by us through the issuance of 20,530,000 shares of common stock on September 1, 2011. The balance of $10,502 remains outstanding and payable on demand without interest.

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.
 
Contractual Obligations

At December 31, 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, September 9, 2011 and at maturity (January 12, 2012).  The notes are currently in default. As a result, the interest rate increased to 15%. 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 December 31, 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.
 
 
5

 

 
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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements and notes of this Form 10-K appear after the signature page to this Form 10-K.

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

The evaluation of our disclosure controls and procedures included a review of their objectives and design, our implementation of them and their effect on the information generated for use in this Form 10-K/A. In the course of the controls evaluation, we reviewed any data errors or control problems that we had identified and sought to confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including our Chief Executive Officer and Chief Financial Officer, concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-K and Form 10-Q. Many of the components of our disclosure controls and procedures are also evaluated on an ongoing basis. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures and to modify them as necessary. The Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Sec. 240.13a-15(e) or 240.15d-15(e)) as of December 31, 2011.   In the course of that evaluation, they determined that that there is limited segregation of duties amongst the Company’s employees with respect to the Company’s preparation and review of the Company’s financial statements. This material weakness is a result of the Company’s limited number of employees. This material weakness may affect management’s ability to effectively review and analyze elements of the financial statement closing process and prepare financial statements in accordance with U.S. GAAP.  Based on their evaluation of these controls and procedures required by paragraph (b) of Sec. 240.13a-15 or 240.15d-15,  the Company’s Chief Executive Officer and Chief Financial Officer found the Company’s disclosure controls and procedures  to be ineffective.
 
 
6

 
 
EVALUATION OF INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is designed 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness in the Company’s internal control over financial reporting exists in that there is limited segregation of duties amongst the Company’s employees with respect to the Company’s preparation and review of the Company’s financial statements. This material weakness is a result of the Company’s limited number of employees. This material weakness may affect management’s ability to effectively review and analyze elements of the financial statement closing process and prepare financial statements in accordance with U.S. GAAP.
 
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the framework set forth in the report entitled “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a Company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company have concluded, as of the end of the fiscal year covered by this Annual Report on Form 10-K/A, due to a lack of segregation of duties that our internal control over financial reporting has not been effective. However, at this time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. The Company intends to remedy the material weakness by hiring additional employees and reallocating duties, including responsibilities for financial reporting, among the Company’s employees as soon as the Company has the financial resources to do so. Management is required to apply judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm because as a smaller reporting company we are not subject to Section 404(b) of the Sarbanes-Oxley Act of 2002.

CHANGES IN INTERNAL CONTROLS

Management of the Company has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, any change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal year covered by this Annual Report on Form 10-K. There was no change in the Company’s internal control over financial reporting identified in that evaluation that occurred during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting, other than what has been reported above.
 
ITEM 9B. OTHER INFORMATION

None.
 
 
7

 

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

All directors of our company hold office until the next annual meeting of the stockholders or until their successors have been elected and qualified.  The officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office. Our directors and executive officers, their ages, positions held, and duration as such, are as follows:
  
Name
 
Age
 
Position with American Retail Group, Inc.
 
Since
Soledad Bayazit
 
49
 
President, Chief Executive Officer, Chief Financial Officer,
 
2011
       
Secretary, Treasurer and Director
   
 
Soledad Bayazit, 49, has served as President and a director of the Company since February 2011.  Since October 2006, Ms. Bayazit has served as President of Joint Venture “Emperador.”  Beginning in 2000, Emperador, and its predecessor company, Paola LLC, have been primarily engaged in humanitarian projects in cooperation with the Government of the Republic of Kazakhstan.  Such humanitarian projects included the construction of a hospital in Astana and assisted living locations for the indigent in Almaty.  Ms. Bayazit was also the President of Paola LLC after she founded the company in 1993.  Paola owned and operated manufacturing facilities used in the production of work clothes for industrial organizations in Kazakhstan.  During the period from 1983 to 1993, Ms. Bayazit held various positions within the Ministry of Consumer Goods of the USSR and Kazakhstan (from 1991).  These positions were Senior Economist (1983-1987), Chief of the Planning Department (1987-1989), Controller (1989-1990), Chief Financial Officer (1990-1992) and Vice President (1992-1993).  Ms. Bayazit received a B.A. in Economics and Trade Management and in Finance and Credit from Karagandy Economic University in 1983.  She is also currently enrolled in an M.B.A. program in Economics at the Kaliningrad State Technical University. We believe that Ms. Bayazit’s qualifications and her almost 20 years of experience in the consumer goods industry of Kazakhstan provide a unique perspective for our Board.

Our directors and executive officers have not, during the past ten years:

 
·
had any bankruptcy petition filed by or against any business of which was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time,

 
·
been convicted in a criminal proceeding and is not subject to a pending criminal proceeding,

 
·
been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; or
 
 
·
been found by a court of competent jurisdiction (in a civil action), the Securities Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacate  
 
BOARD COMMITTEES
 
The Board presently consists of one director.

The Board does not have a nominating committee.  There are no specific, minimum qualifications that the Board believes must be met by a candidate recommended by the Board.  Currently, the entire Board decides on nominees followed by the Board's review of the candidates' resumes and interviews of candidates. Based on the information gathered, the Board then makes a decision on whether to recommend the candidates as nominees for director.  The Company does not pay any fee to any  third  party or  parties  to  identify  or  evaluate  or  assist  in identifying or evaluating potential nominees.

Currently, the Board functions as an audit committee and performs some of the same functions as an audit committee, including the following: (i) selection and oversight of the Company's independent accountant; (ii) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; and (iii) engaging outside advisors. The Company is not a "listed company" under SEC rules and therefore is not required to have an audit committee comprised of independent directors.

The Board does not have a compensation committee and is not required to have such a committee because the Company is not a "listed company" under SEC rules.
 
 
8

 
 
AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined that we do not have an Audit Committee financial expert, as defined under Item 407(d)(5)(i) of Regulation S-K, serving on our Audit Committee. The Board has  determined that its sole  member is able to read and understand fundamental  financial statements and has substantial business experience that results in that member's financial sophistication.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Directors, executive officers and holders of more than 10% of our outstanding common stock are required to comply with Section 16(a) of the Securities Exchange Act of 1934, which requires generally that such persons file reports regarding ownership of transactions in securities of the Company on Forms 3, 4, and 5. Based solely on its review of such forms received by it, the Company believes that all Section 16(a) filing requirements applicable to its officers and directors were complied with during the fiscal year ended December 30, 2011.
 
ITEM 11.   EXECUTIVE COMPENSATION.

The following is a summary of the compensation we paid to our executive officers, for the two years ended December 31, 2011 and 2010 and compensation paid by SM Market. No executive officer received compensation in excess of $100,000 for any of those two years.
 
Summary Compensation Table

Name and Position(s)
 
Year
  Salary($)    
Stock Awards
   
All other Compensation
   
Total Compensation
 
                               
Soledad Bayazit(1)
 
2010
 
$
-
   
$
-
   
$
-
   
$
-
 
CEO, CFO and Director
 
2011
 
$
-
   
$
-
   
$
-
   
$
-
 
                                     
John Leo(2)
 
2010
 
$
10,000
(2)
 
$
0
   
$
0
   
$
10,000
 
CEO, CFO and Director
 
2011
 
$
10,000
(2)
 
$
0
   
$
0
   
$
10,000
 

(1)  
Ms. Bayazit was appointed as our Chief Executive Officer, President, Secretary and Director on February 11, 2011. Ms. Bayazit has been Chief Executive Officer and Director of ARG since March 2010.
   
(2)  
Mr. Leo tendered his resignations as our Chief Executive Officer, President, Secretary and Director on February 11, 2011. On December 31, 2010, Mr. Leo received 699,679 shares in payment for $31,460 of accrued salary owed to him by the Company.

Stock Option Grants

The Company did not issue any stock options for the years ended December 31, 2011 and 2010.
 
 
9

 

 
Director Compensation

For the year ended December 31, 2011, none of the members of our Board of Directors received compensation for his service as a director. We do not currently have an established policy to provide compensation to members of our Board of Directors for their services in that capacity.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMEN AND RELATED STOCKHOLDER MATTERS.

The following table sets forth certain information with respect to the beneficial ownership of our voting securities by (i) any person or group owning more than 5% of each class of voting securities, (ii) each director, (iii) our chief executive officer and our top three most highly compensated officers and (iv) all executive officers and directors as a group, as of the date of this report.
 
 
Name
 
Office
 
Shares Beneficially Owned(1)
 
Percent of Class(2)
Officers and Directors
           
                 
Soledad Bayazit(3)
 
Director, CEO and CFO
   
20,701,571
     
89.6
 
                     
All officers and directors as a group (1 person named above)
       
20,701,571
     
89.6
 
                     
5% Securities Holders
               
                     
Oxenuk Equity Fund Corp. (4)
       
1,300,000
     
5.7
 
________ 
 
(1)
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
 
 
(2)
Based on 22,930,000 shares of the Company’s common stock outstanding immediately after the Closing and after giving effect to the Reverse Merger Transaction.
     
 
(3)
Includes 171,571 shares issuable upon conversion of notes. The address for each officer and director is c/o Primary Capital LLC, 80 Wall Street, 5th Floor, New York, NY 10005.
     
 
(4)
Vassili Oxenuk has the voting and investment powers over the shares held by Oxenuk Equity Fund Corp. The address of Oxenuk Equity Fund Corp. is 2770 S. Maryland Pkwy, Suite 300, Las Vegas, Nevada 89109.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
Transactions with related persons

John C. Leo, the Company’s former chief executive officer and director, was previously issued promissory notes (the “Notes”) with an outstanding balance of $100,000 and $55,500 as of December 31, 2010 and 2009, respectively, in consideration for the loans extended by him to fund the Company’s operations.  The notes originally carried a fixed rate of 15%. Principal and interest are to be paid at the occurrence of the following events: a) Any financing in excess of $25,000, b) A change of control of the board, c) The issuance of shares equal to or greater than 10% of the outstanding in any 12 month period or other securities in which upon conversion would equate to an issuance in excess of 10% of the outstanding, d) The occurrence of any business combination transaction.

On December 31, 2010, Mr. Leo has agreed to retroactively reduce the interest rate of all promissory notes due him to 4% and to extend the due dates of all notes to March 31, 2011. Mr. Leo also agreed to forgo accrued salaries of $31,459.50 owed to him in exchange for issuance of 699,679 shares of common stock.
 
 
10

 
 
On December 31, 2010, Brian Zucker, the Company’s former chief financial officer and director agreed to forego accrued salaries of $31,459.50 owed to him.
 
On February 4, 2011, Mr. Leo and ARG entered into a Stock Purchase Agreement (the “Purchase Agreement”), pursuant to which Mr. Leo sold to ARG, and ARG purchased from him, (a) an aggregate of 401,603 shares of the Company’s common stock representing approximately 50.1% of the then issued and outstanding shares of common stock for an aggregate purchase price of $225,000, or approximately $0.56 per share, and (b) the Notes for an aggregate purchase price of $100,000.

On July 12, 2010, ARG issued to certain investors 10% secured convertible notes in the aggregate principal amount of $1,201,000. The maturity date of the notes was January 12, 2012 with the interest accruing on the principal balance outstanding at a rate of 10% per annum starting from September 30, 2010 and payable on December 9, 2010, September 9, 2011 and on any conversion or payment date as applicable. The Company’s obligations under the notes were guaranteed by Oxenuk Equity Fund Corp. Vassili Oxenuk, who was a director of the Company until his resignation on September 24, 2011, has the voting and investment powers over the shares held by Oxenuk Equity Fund Corp.

The notes are in default. In August 2011, Ms. Soledad Bayazit, the Company’s Chief Executive Officer and sole director, purchased all the outstanding notes from the noteholders.

During the three month period ended September 30, 2011 and up to the date of this report, to finance our operations our chief executive officer has extended loans to us in the total amount of $215,802, of which $205,300 was repaid by us through the issuance of 20,530,000 shares of common stock on September 1, 2011. The balance of $10,502 remains outstanding and payable on demand without interest.

Director Independence

The Company does not have independent directors as defined by the Rules of NASDAQ, Marketplace Rule 5605(a)(2).
 
ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth fees billed to the Company by the Company’s independent auditors for the year ended December 31, 2011 and December 31, 2010 for (i) services rendered for the audit of the Company’s annual financial statements and the review of the Company’s quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of the Company’s financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.

 
SERVICES
 
2011
   
2010
 
             
Audit Fees
 
$
5,500
   
$
5,500
 
                 
Audit - Related Fees
   
3,000
     
1,500
 
                 
Tax fees
   
-0-
     
-0-
 
                 
All Other Fees
   
-0-
     
1,000
 
                 
Total
 
$
8,500
   
$
8,000
 
 
Prior to engaging our accountants to perform a particular service, our Audit Committee obtains an estimate for the service to be performed. The Audit Committee in accordance with its procedures approved all of the services described above.
 
 
11

 
 
PART IV
 
ITEM 15. EXHIBITS

Exhibits

Exhibit No.
 
Description
     
31.1
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herein.
     
32.1
 
Certification of 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 filed herein.
   
                 
101
 
Interactive Data Files.
 
 
 
12

 
 
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 30, 2012

 
American Retail Group, Inc.
     
 
By:
/s/  Soledad Bayazit
   
Soledad Bayazit
   
Chief Executive Officer,
Chief Financial Officer and Director
(principal executive officer, and
principal financial and principal accounting officer)
                  
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
 
Name
 
Title
 
Date
         
/s/ Soledad Bayazit
 
Chief Executive Officer, Chief Financial Officer and Director
 
March 30, 2012
Soledad Bayazit
  (principal executive officer, and principal financial and principal accounting officer)    
         


 
13

 
 
 
 
 
 
 
 
 
 
 
AMERICAN RETAIL GROUP, INC.
 FINANCIAL STATEMENTS
DECEMBER 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 

Paritz& Company, P.A
15 Warren Street, Suite 25
Hackensack, New Jersey 07601
(201) 342-7753
Fax:  (201) 342-7598
E-Mail:  PARITZ@paritz.com
Certified Public Accountants

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To The Board of Directors
and Stockholders of
American Retail Group, Inc.

We have audited the accompanying consolidated balance sheets of American Retail Group, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ deficiency and cash flow for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit 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 audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Retail Group, Inc. as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company had limited cash, a working capital deficit, an accumulated deficit, a total deficit, and a net loss through December 31, 2011. These conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
/s/ Paritz & Company, P.A.

Hackensack, New Jersey
March 26, 2012
 
 
F-1

 
 
AMERICAN RETAIL GROUP, INC.
CONSOLIDATED BALANCE SHEET
 
 
ASSETS
 
   
December 31,
   
December 31,
 
   
2011
   
2010
 
   
(Unaudited)
       
ASSETS:
           
Cash and cash equivalents
  $ -     $ 470,521  
                 
TOTAL ASSETS
  $ -     $ 470,521  
                 
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
 
                 
CURRENT LIABILITIES:
               
Accounts payable and accrued expenses
  $ 34,866     $ 16,691  
Notes Payable - related party
    1,201,000       1,201,000  
Accrued interest - related party
    50,343       -  
Loan payable - related party
    11,919       -  
                 
                 
Total current liabilities
    1,298,128       1,217,691  
                 
                 
Total liabilities
    1,298,128       1,217,691  
                 
STOCKHOLDERS' (DEFICIT)
               
Preferred stock, $.0001 par value, 10,000,000 shares authorized;
               
  -0- shares issued and outstanding
    -       -  
Common stock, $.0001 par value, 200,000,000 shares authorized;
               
 22,930,000 and 20,801,603 shares issued and outstanding at
               
  December 31, 2011 and 2010, respectively
    2,293       2,080  
Additional paid-in capital
    283,694       229,434  
Accumulated Deficit
    (1,584,115 )     (978,684 )
                 
Total stockholders' (deficit)
    (1,298,128 )     (747,170 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)
  $ -     $ 470,521  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-2

 
 
AMERICAN RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
             
   
Year Ended
   
Year Ended
 
   
December 31, 2011
   
December 31, 2010
 
             
OPERATING EXPENSES:
           
General and administrative expenses
    380,915       624,384  
                 
      Total operating expenses
    380,915       624,384  
                 
(LOSS) FROM  OPERATIONS
    (380,915 )     (624,384 )
                 
OTHER INCOME (EXPENSE)
               
  Other Income
    -       31,460  
  Interest expense
    (110,228 )     (60,768 )
                 
TOTAL OTHER INCOME (EXPENSE)
    (110,228 )     (29,308 )
                 
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
    (491,143 )     (653,692 )
                 
                 
BASIC LOSS PER COMMON SHARE
  $ (0.03 )   $ (0.03 )
                 
WEIGHTED AVERAGE SHARES OUTSTANDING
    19,496,398       20,103,841  
                 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-3

 
 
AMERICAN RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
 
   
Common Stock
   
Preferred Stock
   
Additional
Paid - In
   
Accumulated
       
   
Shares
   
Amount
   
Shares
   
Amount
   
 Capital
   
Deficit
   
Total
 
                                           
                                           
Balance, December 31, 2009
    20,101,924       2,010       -     $ -       149,945     $ (324,992 )   $ (173,037 )
                                                         
Common stock issued in exchange of officer salary
    699,679       70                       79,489               79,559  
                                                         
Net loss
                    -       -       -       (653,692 )     (653,692 )
                                                         
Balance, December 31, 2010
    20,801,603       2,080       -     $ -       229,434     $ (978,683 )   $ (747,170 )
                                                         
Effect of Reverse Merger
                                    (210,712 )     (114,288 )     (325,000 )
                                                         
Cancellation of shares resulting from
    (18,401,603 )     (1,840 )                     1,840               -  
                                                         
Capital Contribution
                                    59,885               59,885  
                                                         
Common stock issued in exchange of related party loan
    20,530,000       2,053                       203,247               205,300  
                                                         
Net loss
                                            (491,143 )     (491,143 )
                                                         
      22,930,000     $ 2,293       -     $ -     $ 283,694     $ (1,584,114 )   $ (1,298,128 )
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-4

 
 
AMERICAN RETAIL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
   
Year Ended
   
Year Ended
 
   
December 31, 2011
   
December 31, 2010
 
             
CASH FLOW FROM OPERATING ACTIVITIES
           
Net (loss)
  $ (491,143 )   $ (653,692 )
                 
Adjustments to reconcile net loss to net cash
               
(used in) operating activities:
               
                 
   Expenses paid by related party
    217,219          
   Forgiveness of accrued salary
            (31,460 )
                 
Changes in operating assets and liabilities
               
    Accounts payable and accrued expenses
    18,175       (5,290 )
    Accrued interest
    50,343       11,412  
                 
Net cash used in operating activities
    (205,406 )     (679,030 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
   Acquisition of subsidiary
    (325,000 )     -  
                 
   Net cash used in investing activities
    (325,000 )     -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
    Proceeds from loan and note payable
    -       1,145,500  
     Capital contribution
    59,885       -  
                 
   Net cash provided (used in) by financing activities
    59,885       1,145,500  
                 
NET  (DECREASE) IN CASH
               
AND CASH EQUIVALENTS
    (470,521 )     466,470  
                 
CASH AND CASH EQUIVALENTS -
               
BEGINNING OF YEAR
    470,521       4,051  
                 
CASH AND CASH EQUIVALENTS -
               
END OF  YEAR
  $ -     $ 470,521  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-5

 
 
AMERICAN RETAIL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011

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.

As a result of the share exchange described above, the Company became the parent company of ARG. The acquisition of ARG was accounted for as a reverse acquisition. ARG is considered the acquirer for accounting and financial reporting purposes.

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 working capital deficit, an accumulated deficit, a total deficit, and a net loss through December 31, 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-6

 

AMERICAN RETAIL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011
 
 
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.

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 payable and accrued expenses and notes payable to a related party, approximate their fair values because of the short maturity of these instruments.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
 
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

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 and bear interest at a rate of 10% per annum 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.
 
 
F-7

 
 
AMERICAN RETAIL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2011
 
 
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 (see note 4)

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 (see Note 3). The maturity date of the notes is January 12, 2012 and bears interest at a rate of 10% per annum.

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 for the aggregate amount of $1,201,000.

Interest expense on the Note payable – related party aggregated $50,343 for the year ended December 31, 2011.

During the year ended December 31, 2011, to finance our operations our chief executive officer has extended loans to us in the total amount of $217,219, of which $205,300 was repaid by us through the issuance of 20,530,000 shares of common stock on September 1, 2011. The balance of $10,502 remains outstanding and payable on demand without interest. The remaining balance at December 31, 2011 of $11,919 is presented as Loan payable – related party in the accompanying consolidated balance sheet, such loan is non-interest bearing and due on demand.

Note 5 – Income Taxes

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all of the deferred tax assets will not be realized.


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