U.S. 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 April 30, 2013

 

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

 

For the transition period from

Commission File No. 000-53076

 

AFH ACQUISITION VII, INC.

(Name of registrant in its charter)

 

Delaware		32-0217153
(State or other jurisdiction of incorporation or formation)		(I.R.S. employer identification number)

 

9595 Wilshire Blvd.

Suite 700

Beverly Hills, CA 90212

(Address of principal executive offices)

Issuer’s telephone number: (310) 492-9898

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [  ] 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 (Section 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).

[X] 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	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[X] Yes [  ] No

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of June 20, 2013: 6,483,218 shares of common stock.

 

 

 

AFH ACQUISITION VII, Inc.

- INDEX -

 

				Page
PART I – FINANCIAL INFORMATION:
Item 1.		Financial Statements		3
		Condensed Balance Sheets at April 30, 2013 and October 31, 2012 (Unaudited)		F-1
		Condensed Statements of Changes in Stockholder’s Equity (Deficit) for the Period from Date of Inception (September 24, 2007) through April 30, 2013 (Unaudited)		F-2
		Condensed Statements of Operations for the Three and Six Months Ended April 30, 2013 and 2012 and for the Period from Date of Inception (September 24, 2007) through April 30, 2013 (Unaudited)		F-3
		Condensed Statements of Cash Flows for the Six Months Ended April 30, 2013 and 2012 and for the Period from Date of Inception (September 24, 2007) through April 30, 2013 (Unaudited)		F-4
		Notes to Condensed Financial Statements		F-5 - F-8
Item 2.		Management’s Discussion and Analysis or Plan of Operation		5
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		9
Item 4.		Controls and Procedures		9
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings		10
Item 1A.		Risk Factors		10
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		10
Item 3.		Defaults Upon Senior Securities		10
Item 4.		Mine Safety Disclosures		10
Item 5.		Other Information		10
Item 6.		Exhibits		10
Signatures				11

 

 

PART I – FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

 

AFH ACQUISITION VII, INC.

(A DEVELOPMENT STAGE COMPANY)

(A DELAWARE CORPORATION)

Beverly Hills, CA

 

FINANCIAL REPORTS

AT

APRIL 30, 2013

 

 

AFH ACQUISITION vIi INC.

(A Development Stage Company)

(A DELAWARE Corporation)

Beverly Hills, CA

 

TABLE OF CONTENTS

 

Condensed Balance Sheets at April 30, 2013 and October 31, 2012 (Unaudited)		F-1
Condensed Statement of Changes in Stockholder’s Deficit for the Period from Date of Inception (September 24, 2007) through April 30, 2013 (Unaudited)		F-2
Condensed Statements of Operations for the Three and Six Months Ended April 30, 2013 and 2012 and for the Period from Date of Inception (September 24, 2007) through April 30, 2013 (Unaudited)		F-3
Condensed Statements of Cash Flows for the Six Months Ended April 30, 2013 and 2012 and for the Period from Date of Inception (September 24, 2007) through April 30, 2013 (Unaudited)		F-4
Notes to Condensed Financial Statements		F-5 - F-8

 

 

AFH ACQUISITION VII, INC.

(A DEVELOPMENT STAGE COMPANY)

(A DELAWARE CORPORATION)

Beverly Hills, CA

 

CONDENSED BALANCE SHEETS - UNAUDITED

 

		April 30, 2013				October 31, 2012
ASSETS
Cash and Cash Equivalents			573				50,489
Deferred Expense			62,695				45,000
Total Assets		$	63,268			$	95,489
LIABILITIES AND STOCKHOLDER’S DEFICIT
Liabilities
Accrued Expenses		$	18,807			$	3,038
Due to Parent			—				23,337
Total Liabilities			18,807				26,375
Stockholder’s Deficit
Preferred Stock: $.001 Par; 20,000,000 Shares Authorized, -0- Issued and Outstanding			—				—
Common Stock: $.001 Par; 100,000,000 Shares Authorized; 5,382,850 and 5,000,000 Issued and Outstanding at April 30, 2013 and October 31, 2012, respectively			5,382				5,000
Common Stock to be Issued			2,200,736				966,736
Common Stock Subscription Receivable			—				(100,000	)
Additional Paid-In-Capital			785,318				20,000
Deficit Accumulated During Development Stage			(2,946,975	)			(822,622	)
Total Stockholder’s Deficit			44,461				69,114
Total Liabilities and Stockholder’s Deficit		$	63,268			$	95,489

 

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

 

 

AFH ACQUISITION VII, INC.

(A DEVELOPMENT STAGE COMPANY)

(A DELAWARE CORPORATION)

Beverly Hills, CA

 

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDER’S DEFICIT FOR THE PERIOD FROM

DATE OF INCEPTION (SEPTEMBER 24, 2007) THROUGH APRIL 30, 2013 - UNAUDITED

 

																						Deficit
																						Accumulated
		Common Stock								Additional				Stock				Stock				During				Total
		Number								Paid-In				to be				Subscription				Development				Stockholder’s
		of Shares				Value				Capital				Issued				Receivable				Stage				Deficit
Balance - September 24, 2007			—			$	—			$	—			$	—			$	—			$	—			$	—
Common Stock Issued for Cash			5,000,000				5,000				20,000				—				(4,900	)			—				20,100
Net Loss for the Period			—				—				—				—				—				(21,853	)			(21,853	)
Balance - October 31, 2007			5,000,000				5,000				20,000				—				(4,900	)			(21,853	)			(1,753	)
Cash Received for Stock Subscriptions			—				—				—				—				4,900				—				4,900
Net Loss for the Period			—				—				—				—				—				(7,543	)			(7,543	)
Balance - October 31, 2008			5,000,000				5,000				20,000				—				—				(29,396	)			(4,396	)
Net Loss for the Period			—				—				—				—				—				(7,450	)			(7,450	)
Balance - October 31, 2009			5,000,000			$	5,000			$	20,000			$	—			$	—			$	(36,846	)		$	(11,846	)
Net Loss for the Period			—				—				—				—				—				(3,577	)			(3,577	)
Balance - October 31, 2010			5,000,000			$	5,000			$	20,000			$	—			$	—			$	(40,423	)		$	(15,423	)
Net Loss for the Period			—				—				—				—				—				(4,820	)			(4,820	)
Balance - October 31, 2011			5,000,000			$	5,000			$	20,000			$	—			$	—			$	(45,243	)		$	(20,243	)
Common Stock to be Issued			—				—				—				966,736				(100,000	)			—				866,736
Net Loss for the Period			—				—				—				—				—				(777,379	)			(777,379	)
Balance - October 31, 2012			5,000,000			$	5,000			$	20,000			$	966,736			$	(100,000	)		$	(822,622	)		$	69,114
Cash Received for Stock Subscription			—				—				—				(100,000	)			100,000				—				—
Common Stock Issued for Cash			382,850				382				765,318				—				—				—				765,700
Common Stock to be Issued			—				—				—				1,334,000				—				—				1,334,000
Net Loss for the Period			—				—				—				—				—				(2,124,353	)			(2,124,353	)
Balance - April 30, 2013			5,382,850			$	5,382			$	785,318			$	2,200,736			$	—			$	(2,946,975	)		$	44,461

 

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

 

 

AFH ACQUISITION VII, INC.

(A DEVELOPMENT STAGE COMPANY)

(A DELAWARE CORPORATION)

Beverly Hills, CA

 

CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED

 

																		Period From
																		Date of Inception
		For the Three Months Ended								For the Six Months Ended								(September 24, 2007)
		April 30,								April 30,								Through
		2013				2012				2013				2012				April 30, 2013
Revenues		$	—			$	—			$	—			$	—			$	—
Expenses
Consulting		$	1,200,000			$	—			$	1,200,000			$	—			$	1,201,776
Reverse Merger Expenses			907,418				—				907,418				—				1,679,154
Interest			—				—				—				—				15
Legal and Professional			8,815				1,750				15,769				3,106				62,113
Office Expenses			130				—				466				—				1,255
Organizational Costs			—				—				—				—				962
Total Expenses		$	2,116,363			$	1,750			$	2,123,653			$	3,106			$	2,945,275
Net Loss for the Period		$	(2,116,363	)		$	(1,750	)		$	(2,123,653	)		$	(3,106	)		$	(2,945,275	)
Franchise Tax			700				400				700				400				1,700
Net Loss for the Period		$	(2,117,063	)		$	(2,150	)		$	(2,124,353	)		$	(3,506	)		$	(2,946,975	)
Loss per Share - Basic and Diluted		$	(0.38	)		$	(0.00	)		$	(0.39	)		$	(0.00	)		$	(0.58	)
Weighted Average Common Shares Outstanding			5,618,270				5,000,000				5,392,692				5,000,000				5,035,160

 

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

 

 

AFH ACQUISITION VII, INC.

(A DEVELOPMENT STAGE COMPANY)

(A DELAWARE CORPORATION)

Beverly Hills, CA

 

CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED

 

										Period From
										Date of Inception
		For the Six Months Ended								(September 24, 2007)
		April 30,								Through
		2013				2012				April 30, 2013
Cash Flows from Operating Activities
Net Loss for the Period		$	(2,124,353	)		$	(3,506	)		$	(2,946,975	)
Adjustments to reconcile net loss to net cash used in operating activities
Issuance of Stock for Services			334,000				—				1,105,736
Changes in Operating Assets and Liabilities
Accrued Expenses			15,769				3,506				18,807
Deferred Expenses			(17,695	)							(62,695	)
Net Cash Flows from Operating Activities			(1,792,279	)			—				(1,885,127	)
Net Cash Flows from Investing Activities			—				—				—
Cash Flows from Financing Activities
Cash Advance by (Repayment to) Parent			(23,337	)			—				—
Cash Proceeds from Issuance of Stock			1,765,700				—				1,885,700
Net Cash Flows from Financing Activities			1,742,363				—				1,885,700
Net Change in Cash and Cash Equivalents			(49,916	)			—				573
Cash and Cash Equivalents - Beginning of Period			50,489				—				—
Cash and Cash Equivalents - End of Period		$	573			$	—			$	573
Cash Paid During the Period for:
Interest		$	—			$	—			$	—
Income Taxes		$	—			$	—			$	—

 

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

 

 

AFH ACQUISITION VII, INC.

(A Development Stage Company)

(A DELAWARE Corporation)

Beverly Hills, CA

 

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

Note A -	The Company
	AFH Acquisition VII, Inc., a development stage company (the “Company or “AFH”), was incorporated under the laws of the State of Delaware on September 24, 2007. The Company is 82.31% owned by AFH Holding & Advisory, LLC (the “Parent”). The financial statements presented represent only those transactions of AFH Acquisition VII, Inc. The Company is looking to acquire an existing company or acquire the technology to begin operations.
	As a blank check company, the Company’s business is to pursue a business combination through acquisition, or merger with, an existing company.
	Since inception, the Company has been engaged in organizational efforts and as set forth below has entered into an LOI.
	The condensed financial statements of AFH Acquisition VII, Inc., (the “Company”) included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in conjunction with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated balance sheet information as of October 31, 2012 was derived from the audited consolidated financial statements included in Form 10-K. These condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended October 31, 2012, and other reports filed with the SEC
	The accompanying unaudited interim financial statements reflect all adjustments of a normal and recurring nature which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The results of operations for these periods are not necessarily comparable to, or indicative of, results of any other interim period or for the fiscal year taken as a whole. Certain information that is not required for interim financial reporting purposes has been omitted.
	On October 5, 2012, AFH Holding & Advisory, LLC (“AFH Advisory”) entered into a letter of intent (the “LOI”) with two target companies, Eurocar, Inc. (“Eurocar”) and Park Place Motor Ltd. (“Park Place”, together with Eurocar, the “Target Companies”), pursuant to which the Company intends to acquire the Target Companies through a series of transactions including a merger or other business combination (the “Reverse Merger”) pursuant to which AFH would cease to be a shell company, as defined in the rules of the Securities and Exchange Commission (the “SEC”) and Eurocar and Park Place will become a public company (“Pubco”).
	On October 26, 2012, AFH Advisory, Eurocar and Park Place entered into an amendment to the LOI, pursuant to which the parties to the LOI agreed to revise the provision with respect to the beneficial ownership of the Company post Reverse Merger. On January 28, 2013, the parties to the LOI entered into an Amended and Restated Letter of Intent (the “Amended and Restated LOI”), pursuant to which the parties to the LOI agreed to revise the provision with respect to the beneficial ownership of the Company post Reverse Merger, provided for certain acknowledgments regarding the proceeds of the Offering, amended a provision regarding a potential subsequent financing and amended certain financial representations made by each of Eurocar and Park Place. On February 1, 2013, the parties to the Amended and Restated LOI entered into an amendment to the Amended and Restated LOI to revise, among other things, the beneficial ownership of the Company post Reverse Merger. On May 20th, 2013, the parties to the Amended and Restated LOI entered into a Second Amended and Restated Letter of Intent (the “Second Amended and Restated LOI”).

 

Note B -	Summary of Significant Accounting Policies
	Method of Accounting
	The Company maintains its books and prepares its financial statements on the accrual basis of accounting.

 

 

AFH ACQUISITION VII, INC.

(A Development Stage Company)

(A DELAWARE Corporation)

Beverly Hills, CA

 

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

Note B -	Summary of Significant Accounting Policies – continued
	Development Stage
	The Company has operated as a development stage enterprise since its inception by devoting substantially all of its efforts to financial planning, raising capital, research and development, and developing markets for its services. The Company prepares its financial statements in accordance with the requirements of FASB ASC 915.
	Cash and Cash Equivalents
	Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. The Company maintains cash and cash equivalents at financial institutions, which periodically may exceed federally insured amounts.
	Loss Per Common Share
	Loss per common share is computed in accordance with FASB ASC 260-10, by dividing income (loss) available to common stockholders by weighted average number of common shares outstanding for each period
	Use of Estimates
	The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results can differ from those estimates.
	Organizational Costs
	Organizational costs represent management, consulting, legal, accounting, and filing fees incurred to date in the formation of the company. Organizational costs are expensed as incurred in accordance with FASB ASC 720-15.
	Income Taxes
	The Company accounts for income taxes in accordance with FASB ASC 740-10, using the asset and liability approach, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities. This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income tax rates upon enactment. Deferred tax assets are recognized, net of any valuation allowance, for temporary differences and net operating loss and tax credit carry forwards. Deferred income tax expense represents the change in net deferred assets and liability balances.

 

 

AFH ACQUISITION VII, INC.

(A Development Stage Company)

(A DELAWARE Corporation)

Beverly Hills, CA

 

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

Note B -	Summary of Significant Accounting Policies – continued
	Financial Instruments
	The Company’s financial instruments consist of cash and due to parent. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying value, unless otherwise noted.
	Recent Pronouncements
	The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position, or cash flow.
Note C -	Equity Securities
	Holders of shares of common stock shall be entitled to cast one vote for each common share held at all stockholder’s meetings for all purposes, including the election of directors. The common stock does not have cumulative voting rights.
	The preferred stock of the Company shall be issued by the Board of Directors of the Company in one or more classes or one or more series within any class and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as the Board of Directors of the Company may determine, from time to time.
	No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock or any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.
	As of April 30, 2013, we have received subscription agreements for 1,100,368 common shares representing aggregate proceeds of $2,200,736 which has been reflected as Common Stock to be Issued in the accompanying financial statements.
Note D -	Going Concern
	The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has reported recurring losses from operations. As a result, there is an accumulated deficit of $2,946,975 at April 30, 2013.
	The Company’s continued existence is dependent upon its ability to raise capital or acquire a marketable company. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

 

AFH ACQUISITION VII, INC.

(A Development Stage Company)

(A DELAWARE Corporation)

Beverly Hills, CA

 

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

Note E -	Deferred Expenses
	Deferred expenses represents funds received by the Company for reverse merger expenses that were forwarded to the parent company and which have not yet been allocated to fees incurred with the transaction described in note A. It is expected that all funds will be used for expenses in the third quarter.
Note F -	Due to Parent
	Due to parent represents cash advances from AFH Holding & Advisory, LLC. There are no repayment terms.
Note G -	Stock Transactions
	In October 2012, The Company commenced a private placement offering (the “Offering”) to several accredited investors (the “Purchasers”) for up to 500,000 Shares (the “Maximum Offering”) for aggregate proceeds equal to $1,000,000 (the “Maximum Offering Amount”). On January 31, 2013, an amendment to the offering was made to increase the offering to 1,300,000 shares and proceeds of $2,600,000. As of April 30, 2013, the Company entered into subscription agreements for the issuance of 907,850 shares of common stock at a per share price of $2.00 per share for gross proceeds of $1,815,700 (the “Private Placement”), of which 525,000 shares were subsequently issued. The shares of our common stock sold in the Private Placement were not registered under the Securities Act of 1933, as amended (the “Securities Act”).
	On March 26, 2013, The Company entered into an agreement to issue 167,000 shares of common stock in connection with consideration given in relation to a note with Park Place Motor Ltd. These shares were issued in May 2013.
	In September 2012, The Company’s parent received $45,000 in proceeds to enter into subscription agreements for the issuance of shares of the Company’s common stock, which resulted in additional reverse merger expenses of $771,736. The shares were issued in May 2013.
Note H -	Reverse Merger Expenses
	Reverse merger expenses represent cash from the private placement offering (see note F) which were used towards fees in relation to the LOI (see note A). $1,200,000 of such proceeds will be kept by the parent, AFH Holding & Advisory. The $1,200,000 has been reflected as a consulting fee in the accompanying financial statements. The remaining proceeds from the Private Placement Finances will be used for expenses incurred by AFH in connection with the Private Financing, the Business Combination and all related going public expenses. The expenses incurred to date have been reflected under Reverse Merger Expenses in the accompanying financial statements with any remainder in deferred expenses.
Note I -	Subsequent Events
	In May 2013, the Company issued all stock shown in Common Stock to be Issued on the accompanying financial statements.

 

  

Item 2.

Management’s Discussion and Analysis or Plan of Operation.

 

Plan of Operation

 

Letter of Intent with Eurocar and Park Place

 

On October 5, 2012, AFH Holding & Advisory, LLC (“AFH Advisory”), a major shareholder of the Company, entered into a letter of intent (the “LOI”) with two target companies, Eurocar, Inc. (“Eurocar”) and Park Place Motors Ltd. (“Park Place,” together with Eurocar, the “Target Companies”), pursuant to which the Company will acquire the Target Companies through a series of transactions including a merger or other business combination pursuant to which the Company would cease to be a shell company, as defined in the rules of the SEC (the “Reverse Merger”).

 

Eurocar, formerly known as Tilos European Autosales, Inc., is a privately held California corporation incorporated on July 24, 1992. Eurocar is an independent automotive retailer specializing in pre-owned luxury and exotic vehicles with an operating history of approximately 30 years. Park Place was formed in 1987 and is a specialty dealership primarily serving high net worth individuals with a wide range of automotive vehicles and services.

 

On October 26, 2012, AFH Advisory, Eurocar and Park Place entered into an amendment to the LOI, pursuant to which the parties to the LOI agreed to revise the provision with respect to the beneficial ownership of the Company post Reverse Merger. On January 28, 2013, the parties to the LOI entered into an Amended and Restated Letter of Intent (the “Amended and Restated LOI”), pursuant to which the parties to the LOI agreed to revise the provision with respect to the beneficial ownership of the Company post Reverse Merger, provided for certain acknowledgments regarding the proceeds of the Offering, amended a provision regarding a potential subsequent financing and amended certain financial representations made by each of Eurocar and Park Place. On February 1, 2013, the parties to the Amended and Restated LOI entered into an amendment to the Amended and Restated LOI to revise, among other things, the beneficial ownership of the Company post Reverse Merger. On May 20th, 2013, the parties to the Amended and Restated LOI entered into a Second Amended and Restated Letter of Intent (the “Second Amended and Restated LOI”).

 

Pursuant to the Second Amended and Restated LOI, upon consummation of the Reverse Merger, the existing stockholders of the Company and AFH Advisory and its affiliates will collectively own 50.395% of the issued and outstanding common shares of the Company post Reverse Merger (the “Advisor Shares”), certain individuals who are not affiliated with AFH Advisory will, in the aggregate, own 4% of the issued and outstanding common shares of the Company post Reverse Merger; the investors in the Offering will own, in the aggregate, 9.411% of the issued and outstanding common shares of the Company post Reverse Merger (the “Investors Shares”), the stockholders of Eurocar will own 16.57% of the issued and outstanding common shares of the Company post Reverse Merger, and the stockholders of Park Place will own 20.603% of the issued and outstanding common shares of the Company post Reverse Merger. Holders of the Advisor Shares will have two demand registration rights and unlimited “piggy-back” registration rights.

 

The Target Companies acknowledged and agreed that they shall not be entitled to the proceeds of the Offering, $1.2 million of which will be kept in AFH Advisory’s account and used by AFH Advisory for all expenses incurred by AFH Advisory in connection with the Offering, the Reverse Merger and all related going public expenses (the “Going Public Expenses”). The remaining proceeds of the Offering will also be kept in AFH Advisory’s account and allocated by AFH Advisory in its sole discretion for any expenses incurred by the Company in connection with the Going Public Expenses. In the event the Reverse Merger does not take place, any remaining proceeds of the Offering that have not been used in connection with the Offering, the Reverse Merger and the Going Public Expenses will be used in a future transaction. To date, in excess of $1,860,700 has been either spent or allocated for certain expenses. To the extent AFH Advisory advances expenses to the Company in an amount in excess of the total proceeds raised in the Offering, AFH Advisory shall be entitled to be reimbursed such amount.

 

 

Following the consummation of the Reverse Merger, AFH Advisory will assist the Company post Reverse Merger in procuring an investment bank to underwrite the Company’s initial public offering in an amount of up to $70 million (the “IPO”). Notwithstanding the foregoing, if the IPO is not consummated, following the approval of a 15c-211 filing with the Financial Industry Regulatory Authority (“FINRA”), the Company post Reverse Merger may consummate a private financing (the “Subsequent Private Financing”), of approximately $35 million in debt (the “Subsequent Debt Securities”) and equity securities (the “Subsequent Equity Securities,” together with the Subsequent Debt Securities, the “Subsequent Financing Securities”). We anticipate the debt portion of the Subsequent Financing (if obtained) will be approximately $20 million and the equity portion of the Subsequent Financing will be approximately $15 million.

 

AFH Advisory will have the right to approve all senior management of the Company and five initial members of the Company’s board of directors (the total number of directors not to exceed 9) following the Reverse Merger.

 

The Company plans to adopt a 2013 Omnibus Incentive Plan with 3,187,636 shares of the Common Stock initially reserved for issuance thereunder, with the number of shares reserved for issuance under such plan to increase on January 1 of each year pursuant to an evergreen provision by an amount equal to the lesser of (a) 10% of the outstanding shares of the Company on such date and (b) 7,000,000 shares of Common Stock, or such lesser amount as determined by the Company’s board of directors in its discretion.

 

In connection with the Reverse Merger, AFH Advisory has received $750,000 from an affiliate of Park Place (the “PP Affiliate”) and will receive an additional $250,000 (subject to certain conditions) as consideration for dilution of its ownership percentage of the Company in connection with the Reverse Merger. Upon the consummation of the IPO or Subsequent Financing, the Company will issue to the PP Affiliate five year warrants to purchase the Company’s Common Stock. The per share exercise price will be equal to 100% of the price at which the Company’s Common Stock is sold in the IPO or the Subsequent Financing, as applicable (the “Exercise Price”). The number of shares underlying the warrants will be calculated by dividing $750,000 by the Exercise Price.

 

The Second Amended and Restated LOI contains a provision which provides that the Company will be responsible for all of the transaction costs (including reasonable expenses of AFH Advisory) incurred in connection with the proposed Subsequent Financing and/or IPO. In addition, upon the consummation of the IPO or Subsequent Financing, the Company will issue AFH Advisory five year warrants to purchase the Company’s Common Stock (the “AFH Warrants”). The per share exercise price will be equal to the Exercise Price. The number of shares underlying the AFH Warrants will be calculated by dividing $1,000,000 by the Exercise Price. The AFH Warrants will also have a cashless exercise provision. AFH Advisory will have normal and customary piggyback registration rights with respect to the shares of Common Stock issuable upon exercise of such warrants.

 

In consideration for the mergers and acquisitions services rendered to the Company post Reverse Merger by Amir F. Heshmatpour and his relatives, assignees and affiliates (the “AFH Group”), the AFH Group will receive additional shares of the Common Stock (the “Additional AFH Shares”) as follows:

 

(i)    If the earnings per share of the Company post Reverse Merger (as reflected on the Company’s financial statements filed in its ’34 Act reports with the SEC) increase by 100% within ten fiscal quarters after the IPO, AFH Group in the aggregate shall be entitled to shares of Common Stock in an amount equal to 10% of the then outstanding Common Stock;

 

(ii)    If the earnings per share of the Company post Reverse Merger (as reflected on the Company’s financial statements filed in its ’34 Act reports with the SEC) increase by 100% within eighteen fiscal quarters after the IPO, AFH Group in the aggregate shall be entitled to shares of Common Stock in an amount equal to 5% of the then outstanding Common Stock.

 

 

However, circumstances may arise that will result in AFH not acquiring the Target Companies and there is no assurance that the Reverse Merger will be consummated. If AFH does not acquire the Target Companies, AFH will continue to pursue another target to acquire.

 

In addition to the efforts described above, the Company has not restricted its search for any specific kind of businesses, and it may acquire a business which is in its preliminary or development stage, which is already in operation, or in essentially any stage of its business life. It is impossible to predict the status of any business in which the Company may become engaged, in that such business may need to seek additional capital, may desire to have its shares publicly traded, or may seek other perceived advantages which the Company may offer.

 

In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity.

 

It is anticipated that any securities issued in any such business combination would be issued in reliance upon exemption from registration under applicable federal and state securities laws. In some circumstances, however, as a negotiated element of its transaction, the Company may agree to register all or a part of such securities immediately after the transaction is consummated or at specified times thereafter. If such registration occurs, it will be undertaken by the surviving entity after the Company has entered into an agreement for a business combination or has consummated a business combination. The issuance of additional securities and their potential sale into any trading market which may develop in the Company’s securities may depress the market value of the Company’s securities in the future if such a market develops, of which there is no assurance. However, if the Company cannot effect a non-cash acquisition, the Company may have to raise funds from a private offering of its securities under Rule 506 of Regulation D. There is no assurance the Company would obtain any such equity funding.

 

The Company will participate in a business combination only after the negotiation and execution of appropriate agreements. Negotiations with a target company will likely focus on the percentage of the Company which the target company shareholders would acquire in exchange for their shareholdings.

 

Although the terms of such agreements cannot be predicted, generally such agreements will require certain representations and warranties of the parties thereto, will specify certain events of default, will detail the terms of closing and the conditions which must be satisfied by the parties prior to and after such closing and will include miscellaneous other terms. Any merger or acquisition effected by the Company can be expected to have a significant dilutive effect on the percentage of shares held by the Company’s shareholders at such time.

 

Private Placement Commencing from October 2012

 

In October 2012, the Company commenced a private placement offering, as amended, (the “Offering”) to several accredited investors (the “Purchasers”) for up to 1,300,000 Shares (the “Maximum Offering”) for aggregate proceeds equal to $2,600,000 (the “Maximum Offering Amount”). The Company may increase the Maximum Offering to 1,560,000 Shares and the Maximum Offering Amount to $3,120,000 to cover over-allotments. There is no minimum number of Shares that may be purchased in the Offering. No warrants were issued to investors in the Offering. The Offering was conducted pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Regulation D, Section 4(2) and Rule 506 thereunder.

 

Proceeds from the Offering are expected to be used as working capital or as cash which may be utilized to pay fees and expenses incurred in connection with the Reverse Merger with the Target Companies as indicated in the Second Amended and Restated LOI.

 

The Offering was undertaken pursuant to a definitive Subscription Agreement between the Company and the Purchasers (the “Subscription Agreement”), which contains customary representations, warranties and covenants of the parties.

 

As of the date of this Quarterly Report, the Company has received proceeds in an aggregate amount of $1,815,700 and entered into stock subscriptions for the issuance of 907,850 shares of its Common Stock in connection with the Offering. It is expected that the Offering will be consummated in the third quarter of 2013.

 

 

Results of Operations

 

The Company has not conducted any active operations since inception, except for its efforts to locate suitable acquisition candidates and raise funds to pay fees and expenses incurred in connection therewith. No revenue has been generated by the Company from September 24, 2007 (inception) to April 30, 2013. It is unlikely the Company will have any other revenues unless it is able to effect an acquisition or merger with an operating company, of which there can be no assurance.

 

Expenses incurred since inception are primarily due to reverse merger expenses, legal, accounting, and other professional service fees.

 

Liquidity and Capital Resources

 

Other than the proceeds from the Offering described above, at April 30, 2013 the Company had no capital resources and will rely upon the issuance of common stock and additional capital contributions from shareholders to fund administrative expenses pending acquisition of an operating company.

 

Management anticipates seeking out a target company through solicitation. Such solicitation may include newspaper or magazine advertisements, mailings and other distributions to law firms, accounting firms, investment bankers, financial advisors and similar persons, the use of one or more World Wide Web sites and similar methods. No estimate can be made as to the number of persons who will be contacted or solicited. Management may engage in such solicitation directly or may employ one or more other entities to conduct or assist in such solicitation.

 

Management and its affiliates will pay referral fees to consultants and others who refer target businesses for mergers into public companies in which management and its affiliates have an interest. Payments are made if a business combination occurs, and may consist of cash or a portion of the stock in the Company retained by management and its affiliates, or both.

 

The Company and/or shareholders will supervise the search for target companies as potential candidates for a business combination. The Company and/or shareholders may pay as their own expenses any costs incurred in supervising the search for a target company. The Company and/or shareholders may enter into agreements with other consultants to assist in locating a target company and may share stock received by it or cash resulting from the sale of its securities with such other consultants.

 

The following is a summary of the Company’s cash flows provided by (used in) operating, investing and financing activities for the quarters ended April 30, 2013, April 30, 2012 and for the cumulative period from September 24, 2007 (Inception) to April 30, 2013.

 

		Fiscal Quarter Ended April 30, 2013					Fiscal Quarter Ended April 30, 2012			For the Cumulative Period from September 24, 2007 (Inception) to April 30, 2013
Net Cash (Used in) Operating Activities		$	(1,792,279	)			-				(1,885,127	)
Net Cash (Used in) Investing Activities			-				-				-
Net Cash Provided by Financing Activities		$	1,742,363				-				1,885,700
Net Increase (Decrease) in Cash and Cash Equivalents		$	(49,916	)			-				573

 

Due to the uncertainty of our ability to meet our operational expenses, in their report on our audited financial statements as of and for the years ended October 31, 2012 and 2011, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our independent auditors. There is substantial doubt about our ability to continue as a going concern as we have losses for the six months ended April 30, 2013 totaling $2,124,353 as well as an accumulated deficit since inception amounting to $2,946,975 and negative working capital of $2,946,975.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4.

Controls and Procedures.

 

Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures designed for the purpose of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Interim Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of April 30, 2013. We are in the process of evaluating our risk assessment and any related deficiencies specifically in maintaining effective control over our accounting for liability associated with stock issuance in addition to maintaining sufficient documentation concerning our existing financial processes, risk assessment and internal controls.

 

Changes in Internal Control over Financial Reporting

 

Other than discussed above, there were no changes in our internal controls over financial reporting except for the above corrective actions with regard to significant deficiencies or material weaknesses that occurred during the fiscal quarter ended April 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings.

 

None

 

Item 1A.

Risk Factors.

 

As a smaller reporting company we are not required to provide this information

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

In October 2012, the Company commenced a private placement offering, as amended, (the “Offering”) to several accredited investors (the “Purchasers”) for up to 1,300,000 Shares (the “Maximum Offering”) for aggregate proceeds equal to $2,600,000 (the “Maximum Offering Amount”)The Company may increase the Maximum Offering to 1,560,000 Shares and the Maximum Offering Amount to $3,120,000 to cover over-allotments. There is no minimum number of Shares that may be purchased in the Offering. No warrants were issued to investors in the Offering. The Offering was conducted pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Regulation D, Section 4(2) and Rule 506 thereunder.

 

Proceeds from the Offering are expected to be used as working capital or as cash which may be utilized to pay fees and expenses incurred in connection with the Reverse Merger with the Target Companies as indicated in the LOI.

 

The Offering was undertaken pursuant to a definitive Subscription Agreement between the Company and the Purchasers (the “Subscription Agreement”), which contains customary representations, warranties and covenants of the parties.

 

As of the date of this Quarterly Report, the Company has received proceeds in an aggregate amount of $1,815,700 and entered into stock subscriptions for the issuance of 907,850 shares of its Common Stock in connection with the Offering. It is expected that the Offering will be consummated in the third quarter of 2013.

 

Item 3.

Defaults Upon Senior Securities.

 

None

 

Item 4.

Mine Safety Disclosures

 

Not Applicable

 

Item 5.

Other Information.

 

None

 

Item 6.

Exhibits.

 

(a) Exhibits required by Item 601 of Regulation S-K.

 

Exhibit		Description
31.1		Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Report on Form 10-Q for the quarter ended April 30, 2013.*
32.1		Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed Herewith

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

 

Dated: June 20, 2013

 

	AFH ACQUISITION VII, INC.
	(Registrant)
	/s/ Amir F. Heshmatpour
	Amir F. Heshmatpour,
	President, CEO and Principal Financial Officer