UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
ýx      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarter ended December 31, 2010June 30, 2011
 
or
 
¨      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______to _________
 
Commission File Number:  000-53911
 
MK AUTOMOTIVE, INC.
(Exact Name of Registrant as Specified in Its Charter)

Nevada
(State or Other Jurisdiction of
Incorporation or Organization)
 
43-1965656
(I.R.S.IRS Employer
Identification No.)
   
5833 West Tropicana Avenue
Las Vegas, Nevada
(Address of principal executive offices)
 
89103
(Zip Code)

(702) 227-8324
(Registrant’s Telephone Number, Including Area Code)
 
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                    ýx 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).             ý 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.
 
Large accelerated filer  ¨
Accelerated filer ¨
Non-accelerated filer  ¨
Smaller reporting company ýx
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  ¨ Yes  ýx No
 
There were 29,847,10031,139,145 shares of issuer’s Common Stock outstanding as of December 31, 2010.June 30, 2011.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains forward-looking statements.  These statements relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology.  Forward-looking statements are speculative and uncertain and not based on historical facts.  Because forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.  These uncertainties and other factors are more fully described under Part I, Item 1A of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on July 6, 2010 and include:
 
 ·the continued availability of key personnel
 ·consumer acceptance of franchised operations in the automotive repair business
 ·location and appearance of owned and franchised outlets
 ·availability and cost of qualified automotive technicians
 ·ability to attract and retain qualified technicians, managers and franchisees
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements, and you are advised to consult any further disclosures made on related subjects in our future filings.
 

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TABLE OF CONTENTS
  Page
PART I
Item 1.Financial Statements1
Item 2.Management’s Discussion and Analysis of Financial Condition
and Results of Operations
5
Item 3.Quantitative and Qualitative Disclosures about Market Risk76
Item 4.Controls and Procedures76
   
PART II
Item 2.5.Unregistered Sales of Equity Securities and Use of ProceedsOther Information76
Item 6.Exhibits76



 
ii

PART I
 
Item 1.  Financial Statements.
 
MK Automotive, Inc.AUTOMOTIVE, INC.
Balance Sheets
(Unaudited)
December 31, 2010 and March 31, 2010

Unaudited
ASSETS June 30, 2011  March 31, 2011 
       
Current assets:      
Cash $49,578  $80,260 
Accounts receivable  59,564   56,913 
Prepaid expenses and other current assets  28,905   29,655 
Deferred Offering Cost  20,000   - 
     Total current assets  158,047   166,828 
         
Property and Equipment:        
Building  480,620   480,620 
Furniture, fixtures, and equipment  158,079   158,079 
   638,699   638,699 
Less - accumulated depreciation  (227,572)  (223,629)
   411,127   415,070 
Land  919,380   919,380 
     Total property and equipment  1,330,507   1,334,450 
         
Goodwill  1,228,379   1,228,379 
Total Assets $2,716,933  $2,729,657 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
Current liabilities:        
Accounts payable - trade $221,254  $198,233 
Accrued expenses and other current liabilities  49,576   60,241 
Accrued interest - related party  236,595   223,766 
Line of credit  93,397   96,601 
Payable to Related Party  220,857   220,857 
Current portion of long-term debt  541,100   612,145 
     Total current liabilities  1,362,779   1,411,843 
         
Long-term Liabilities        
Long-term debt - third party, net of current portion  1,263,227   1,227,863 
Total Long-Term Liabilities  1,263,227   1,227,863 
Total Liabilities  2,626,006   2,639,706 
         
Stockholders' Equity
        
Common stock, $0.001 par value, 50,000,000 shares authorized;        
31,139,145 and 30,414,145 shares issued and outstanding  31,140   30,415 
Additional paid in capital  2,143,929   2,119,654 
Accumulated deficit  (2,084,142)  (2,060,118)
Total stockholders' equity  90,927   89,951 
Total Liabilities and Stockholders' Equity $2,716,933  $2,729,657 
The accompanying notes are an integral part of the financial statements
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  December 31,  March 31, 
ASSETS 2010  2010 
CURRENT ASSETS      
Cash $53,499  $111,658 
Accounts receivable  32,890   28,088 
Prepaid expenses and other current assets  48,278   35,432 
Total current assets  134,667   175,178 
         
PROPERTY AND EQUIPMENT        
Building  480,620   480,620 
Furniture, fixtures and equipment  158,079   158,079 
   638,699   638,699 
Less - accumulated depreciation  (219,686)  (207,727)
   419,013   430,972 
Land  919,380   919,380 
   1,338,393   1,350,352 
GOODWILL  1,218,379   1,218,379 
Total Assets $2,691,439  $2,743,909 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
CURRENT LIABILITIES        
Accounts payable – trade $247,786  $181,032 
Accrued expenses and other current  liabilities  153,216   209,325 
Accrued interest – related party  223,738   214,256 
Line of credit  97,821   103,288 
Advances from shareholders  224,357   244,157 
Current portion of long-term debt – related party  77,549   103,062 
Current portion of long-term debt – third party  573,053   423,676 
Total Current Liabilities  1,597,520   1,478,796 
         
LONG-TERM LIABILITIES        
Long-term debt – third party, net of current portion  1,087,949   1,273,985 
Long-term debt – related party, net of current portion  166,505   201,573 
Total Long-Term  Liabilities  1,254,454   1,475,558 
Total Liabilities  2,851,974   2,954,354 
STOCKHOLDERS’ DEFICIT        
Common stock, $0.001 par value, 50,000,000 shares authorized; 29,847,100 shares issued and outstanding  29,847   29,847 
Additional paid in capital  1,991,340   1,935,784 
Accumulated deficit  (2,181,722)  (2,176,076)
Total Stockholders’ Deficit  (160,535)  (210,445)
Total Liabilities and Stockholders’ Deficit $2,691,439  $2,743,909 

The accompanying footnotes are an integral partMK AUTOMOTIVE, INC.
Unaudited Interim Statements of these unaudited financial statements.Operations
For the Three Months ended June 30, 2011 and 2010
 
 
  2011  2010 
Net Sales $936,318  $1,152,895 
Cost of Goods Sold  820,299   896,599 
Gross Profit  116,019   256,296 
         
         
Selling, general and administrative expenses        
Salaries, wages, and employee benefits  30,654   26,013 
Advertising and marketing  7,965   11,430 
Bank charges  16,115   18,072 
Professional fees  31,209   91,354 
Bad debt  -   1,589 
   85,943   148,458 
         
Income from Operations  30,076   107,838 
         
Other income (expense)        
Interest income  -   597 
Interest expense  (54,100)  (37,839)
Total other expense  (54,100)  (37,242)
         
Net (Loss) Income  (24,024)  70,596 
         
Basic and diluted (loss) earning per share  (0.00)  0.00 
         
Weighted average shares outstanding  30,699,145   29,847,100 
The accompanying notes are an integral part of the financial statements
1-2-

MK Automotive, Inc.
Statements of Operations
(Unaudited)
For the Three and Nine Months ended December 31, 2010 and 2009

  Three Months Ended  Nine Months Ended 
  December 31,  December 31, 
  2010  2009  2010  2009 
             
Net Sales $1,041,988  $1,078,434  $3,432,412  $3,549,786 
Cost of Goods Sold  980,808   1,031,074   2,934,088   3,274,890 
Gross Profit  61,180   47,360   498,324   274,896 
                 
Selling, general and administrative expenses                
Salaries, wages and employee benefits  29,831   32,688   88,808   110,078 
Advertising  13,203   14,660   34,162   47,315 
Bank charges  18,901   23,975   59,552   62,963 
Professional fees  22,739   188,245   182,695   245,028 
Bad debt  5,787   3,284   7,717   2,574 
   90,461   262,852   372,934   467,958 
                 
Income (loss) from operations  (29,281)  (215,492)  125,390   (193,062)
                 
Other income (expense)                
Interest income  577   -   1,760   - 
Interest expense  (49,691)  (72,327)  (132,796)  (153,719)
Total other expense  (49,114)  (72,327)  (131,036)  (153,719)
                 
Net loss  (78,395)  (287,819)  (5,646)  (346,781)
                 
Basic and diluted earnings per share  (0.00)  (0.01)  (0.00)  (0.01)
                 
Weighted average shares outstanding  29,847,100   29,747,100   29,847,100   29,694,952 

The accompanying footnotes are an integral part of these unaudited financial statements.
2
 
MK Automotive, Inc.AUTOMOTIVE, INC.
Unaudited Interim Statements of Cash Flows
(Unaudited)
For the NineThree Months ended December 31,June 30, 2011 and 2010 and 2009

       
  2010  2009 
CASH FLOWS FROM OPERATING ACTIVITIES      
Net loss $(5,646) $(346,781)
Adjustments to reconcile net loss to net cash from operating activities:        
Stock-based compensation  55,556   166,667 
Depreciation  11,959   26,824 
Changes in operating assets and liabilities:        
Accounts receivable  (4,802)  (8,409)
Prepaid expenses and other current assets  (12,846)  7,874 
Accounts payable - trade  66,754   67,331 
Accrued expenses and other current liabilities  (46,627)  (17,036)
Deferred income  -   20,004 
Net cash provided (used) by operating activities  64,348   (83,526)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from sale of stock  -   112,100 
Payment of advances from shareholders  (19,800)  (25,000)
Proceeds of shareholder loans  30,000   - 
Proceeds (payments) on line of credit, net  (5,566)  7,505 
Proceeds of long-term debt  -   50,000 
Repayments of long-term debt  (127,141)  (59,377)
Net cash provided (used) in financing activities  (122,507)  85,228 
         
NET INCREASE (DECREASE) IN CASH  (58,159)  1,702 
         
CASH AT BEGINNING OF PERIOD  111,658   68,291 
         
CASH AT END OF PERIOD $53,499  $69,993 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION        
Cash paid during the year for interest $124,880  $129,259 
Income taxes paid  -   - 
         
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES        
   Acquisition of business through issuance of debt
  -   300,000 

The accompanying footnotes are an integral part of these unaudited financial statements.
       
  2011  2010 
Cash Flows from Operating Activities      
  Net (Loss) Income $(24,024) $70,596 
  Adjustments to reconcile net loss to net cash from operating activities        
Stock-based compensation  5,000   55,556 
Depreciation  3,943   - 
Changes in operating assets and liabilities:        
Accounts receivable  (2,651)  (5,680)
Prepaid expenses and other current assets  750   2,144 
Accounts payable - trade  23,021   (11,772)
Accrued expenses and other current liabilities  2,164   (52,790)
Net cash provided by operating activities  8,203   58,054 
         
Cash Flows from Financing Activities        
Payment of advances from shareholders/related parties  -   (8,300)
Payments on line of credit, net  (3,204)  (3,471)
Repayments of debt  (35,681)  (71,917)
Net cash used in financing activities  (38,885)  (83,688)
         
Net Increase (decrease) in cash  (30,682)  (25,634)
         
Cash at Beginning of Period  80,260   111,658 
         
Cash at End of Period $49,578  $86,024 
         
Supplemental Disclosure of Cash Flow Information        
Cash paid during the period for interest $35,620  $31,581 
Income taxes paid  -   - 
Deferred Offering Cost  20,000   - 
 
The accompanying notes are an integral part of the financial statements
 
3-3-
MK Automotive, Inc.
Notes to Condensed Financial Statements
For the Quarter ended June 30, 2011
 
MK AUTOMOTIVE, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation and Use of Estimates

The accompanying unaudited interim financial statements of MK Automotive, Inc. (“we”, “our” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the SEC and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in MK Automotive’sour Annual Report on Form 10-K for the year ended March 31, 20102011 filed on July 6, 2010.June 27, 2011.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the year ended March 31, 2010, as reported in the Form 10-K have been omitted.

Note 2. Related Party TransactionsAccounting Policies:

On October 8, 2010, the Company borrowed $30,000 fromWe have evaluated recent accounting pronouncements and believe none will have a shareholder.  The loan carries interest of 8%.   On February 6, 2011, the agreement was modified to amend the terms of the agreement to payablematerial effect on demand.  As of December 31, 2010, the outstanding balance of $30,000 is included in current portion of long-term debt – related party.our financial statements upon implementation.

Note 3. Stockholders’ EquityEquity:

OnDuring the three months ended June 30, 2011, we issued 725,000 shares to consultants, whose services were valued at $25,000. Due to the light trading and high price volatility of our stock, management determined that the fair value of the consulting services was more reliably measurable than the fair value of the stock issued. $20,000 of these services have been classified as deferred offering costs at June 30, 2011.
Three employees had been granted 400,000 shares on November 16, 2010, the Company granted 900,000 common shareswhich were held in escrow during a vesting period and not considered outstanding at March 31, 2011. The compensatory value of this employee stock compensation was to four employees and service providers as payment for services.  The shares are valued at $765,000 based on fair value at the date issued.  The shares are scheduled to vest inhave been recognized over 36 monthly installments beginningmonths starting June 1, 2011, based on criteria set in the corresponding agreements.  Shares are not outstanding but held in escrow during thea vesting period.    As of December 31, 2010, no expense has been recognized.

schedule. During May 2011, these three stock grants were cancelled prior to any vesting.
 
At June 30, 2011, we had 31,139,145 shares outstanding.
On July 9, 2010, the Company hired a consulting firm to perform franchise sales and/or brokerage services over a one year term.  As part of the compensation, the company granted warrants which vested based on the consultant’s performance. The contract expired July 9, 2011 without any of these warrants being vested. No stock compensation expense was ever recorded by the Company related to this agreement.
4
-4-

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the financial statements and the notes to those statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on July 6, 2010.June 27, 2011.  This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties.  Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed under Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K.
 
Overview
 
We operate full service automotive maintenance and repair service shops in ninefive company-owned and two franchise locations in the greater Las Vegas, Nevada, metropolitan area and have onetwo franchise location in Las Vegas, Nevada, and one franchise locationlocations in St. Louis, Missouri.  Expansion is planned through both the establishment of additional locations that we will operate and by granting franchises to independent businesses.  The term “fiscal 2010”2011” refers to the twelve months ended March 31, 2010,2011, and the term “fiscal 2011”2012” refers to the twelve months ending March 31, 2011.2012.
 
Results of Operations
 
Three Months Ended December 31, 2010June 30, 2011 compared to the Three Months Ended December 31, 2009June 30, 2010
 
Net sales for the three months ended December 31, 2010June 30, 2011 were $1,041,988,$936,318, a decrease of $36,446,$216,577, or 3.4%19%, over net sales of $1,078,434$1,152,895 for the three months ended December 31, 2009.June 30, 2010.  The decrease in net sales was due primarily to the continuing recession during fiscal 20112012 and the continued deferral by consumers of maintenance and repair on personal automobiles.  In addition, the sale of our “Henderson”“Decatur” location to a former employee and conversion of that location to a franchise location in the fourth quarter of fiscal 20102011 resulted in a decrease in net sales from company-operated locations for the three months ended December 31, 2010June 30, 2011 that was offset by an increase in net sales from franchise operations of $16,099$9,053 for the three months ended December 31, 2010.June 30, 2011.
 
Cost of goods sold during the three months ended December 31, 2010June 30, 2011 was $980,808,$820,299, a decrease of $50,266,$76,300, or 4.9%9%, compared to cost of goods sold of $1,031,074$896,599 for the three months ended December 31, 2009.June 30, 2010.  Cost of goods sold as a percentage of sales improvedincreased to 94.1%87.6% for the three months ended December 31, 2010June 30, 2011 compared to 95.6%77.8% for the three months ended December 31, 2009.June 30, 2010.  The reduction inconversion of the Decatur location to a franchise location reduced both sales and cost of goods sold, both in absolute terms and as a percentage of sales, was primarily because we renegotiated the leases related tobut our “Durango” and “Henderson” locations during fiscal 2010 to reduce the minimum rents and the conversion of our “Henderson” location to franchise operation.  In addition, there was no material cost of goods sold associated with the revenue from franchise operations includedincludes some fixed-cost components (such as rents and onsite salespeople) that suppresses our profit margin during times of reduced sales. The decline in net sales during the three months ended December 31, 2010 so the addition of $16,099 in revenue from franchise operations contributed to the improvement in cost of goods sold as a percentage of sales.  The improvementand increase in cost of goods sold as a percentage of sales more than offset the effects of the decline in net sales and resulted in gross profit for the three months ended December 31, 2010June 30, 2011 of $61,180, an increase$116,019, a decrease of $13,820,$140,277, or 29.2%55%, compared to gross profit of $47,360$256,296 for the three months ended December 31, 2009.June 30, 2010.
 
Selling, general and administrative expenses during the three months ended December 31, 2010June 30, 2011 were $90,461,$85,943, a decrease of $172,391,$62,515, or 65.6%42%, compared to selling, general and administrative expenses during the three months ended December 31, 2009June 30, 2010 of $262,852.$148,458.  The decrease was primarily due to a decrease instock compensation classified as professional fees. ProfessionalTotal professional fees decreased by $165,506 (87.9%$60,145 (66%) duefrom $91,354 in the three months ending June 30, 2010 to a decrease$31,209 in the three months ending June 30, 2011. Of these amounts, $55,556 (2010) and $5,000 (2011) was stock-based compensation for consulting services. Bank charges decreased by $5,074 (21.2%)(non-cash) and $35,798 (2010) and $26,209 (2011) was cash-based. Our stock-based professional fees were higher as a resultwe engaged consultants to help us find investors to fund our plans to create new compay-owned locations. Reductions in Advertising and Marketing of decreased credit card sales.  Salaries, wages and employee benefits decreased by $2,857 (8.7%$3,465 (30%), reflecting salary reductions at the corporate executiveBank Charges of $1,957 (11%) and administrative level in response to recessionary pressures, and advertising expenses decreased by $1,457 (9.9%), reflecting the deferralbad debt of certain advertising expenses.  These decreases$1,589 (100%) were offset by an increase in bad debtssalaries, wages and employee benefit costs of $2,503 (76.2%$4,641 (18%) reflecting an increase in uncollectible receivables due to the continuing recession..
 
Despite the decline in net revenue, lossesWe posted a profit from operations improved to $78,395of $30,076 for the three months ended December 31, 2010June 30, 2011 compared to a lossprofit of $287,819$107,838 for the three months ended December 31, 2009.June 30, 2010.  The improved results aredecrease in profit was primarily the result of decreased sales due to the decreaseeconomic conditions in selling, generalour primary market, Las Vegas, erosion of our profit margin as we struggle to contain our cost of sales, and administrative expenses.increased stock-based professional fees expense. Interest expense for the three months ended December 31, 2010June 30, 2011 was $49,691, a decrease$54,100, an increase of $22,636$16,261 or 31.3%43% compared to interest expense of $72,327$37,839 for the three months ended December 31, 2009.June 30, 2010.  The declineincrease in interest expense is a result of costs associated with the sale of future credit card receivables, an agreement that we entered into just before the start of fiscal 2012 and are treating as a decrease in indebtedness.current note payable.  Net loss for the three months ended December 31, 2010June 30, 2011 was $78,395$24,024 ($0.00 per share) compared to a lossincome of $287,819$70,596 ($0.010.00 per share) for the three months ended December 31, 2009.
Nine Months Ended December 31, 2010 compared to the Nine Months Ended December 31, 2009
Net sales for the nine months ended December 31, 2010 were $3,432,412, a decrease of $117,374, or 3.3%, over net sales of $3,549,786 for the nine months ended December 31, 2009.  The decrease in net sales was due primarily to the continuing recession during fiscal 2011 and the continued deferral by consumers of maintenance and repair on personal automobiles.  In addition, the sale of our “Henderson” location to a former employee and conversion of that location to a franchise location in the fourth quarter of fiscal 2010 resulted in a decrease in net sales from company-operated locations for the nine months ended December 31, 2010 that was offset by an increase in net sales from franchise operations of $61,171 for the nine months ended December 31,June 30, 2010.
5
Cost of goods sold during the nine months ended December 31, 2010 was $2,934,088, a decrease of $340,802 or 10.4%, compared to cost of goods sold of $3,274,890 for the nine months ended December 31, 2009.  Cost of goods sold as a percentage of sales improved to 85.5% for the nine months ended December 31, 2010 compared to 92.3% for the nine months ended December 31, 2009.  The reduction in cost of goods sold, both in absolute terms and as a percentage of sales, was primarily because we renegotiated the leases relating to our “Durango” and “Henderson” locations during fiscal 2010 to reduce the minimum rents and the conversion of our “Henderson” location to franchise operation.  In addition, there was no material cost of goods sold associated with the revenue from franchise operations included in net sales during the nine months ended December 31, 2010 so the addition of $61,171 in revenue from franchise operations contributed to the improvement in cost of goods sold as a percentage of sales.  The improvement in cost of goods sold as a percentage of sales more than offset the effects of the decline in net sales and resulted in gross profit for the nine months ended December 31, 2010 of $498,324, an increase of $223,428, or 81.3%, compared to gross profit of $274,896 for the nine months ended December 31, 2009.
Selling, general and administrative expenses during the nine months ended December 31, 2010 were $372,934, a decrease of $95,024, or 20.3%, compared to selling, general and administrative expenses during the nine months ended December 31, 2009 of $467,958.  The decrease in selling, general and administrative expenses was primarily the result of a decrease in professional fees of $62,333 (25.4%).  The decrease in professional fees during the nine months ended December 31, 2010 occurred because of a decrease in stock-based compensation of $111,111.  Stock-based compensation consisted of $55,556 for the nine months ended December 31, 2010 compared to $166,667 for the nine months ended December 31, 2009.  The decrease was also attributable to a $109,537 reduction in expenses related to going public, offset by increases in franchise development and public compliance costs. In addition to the decrease in professional fees, salaries, wages and employee benefits decreased by $21,270 (19.3%), reflecting salary reductions at the corporate executive and administrative level in response to recessionary pressures.  Advertising expenses decreased by $13,153 (27.8%), reflecting the deferral of certain advertising expenses, and bank charges decreased by $3,411 (5.4%).  Decreases were offset by an increase in bad debts of $5,143 (199.8%) reflecting an increase in uncollectible receivables due to the continuing recession.
Despite the decline in net revenue, losses from operations improved to $5,646 for the nine months ended December 31, 2010 compared to $346,781 for the nine months ended December 31, 2009.  The improved results are primarily the result of the increase in gross profits and the decline in selling, general and administrative expenses.  Interest expense for the nine months ended December 31, 2010 was $132,796, a decrease of $20,923 or 13.6% compared to interest expense of $153,719 for the nine months ended December 31, 2009.  Interest-bearing debt outstanding during the nine months ended December 31, 2010 declined slightly compared to interest-bearing debt outstanding during the nine months ended December 31, 2009.   Net loss for the nine months ended December 31, 2010 was $5,646 ($0.00 per share) compared to a loss of $346,781 ($0.01 per share) for the nine months ended December 31, 2009.
 
Liquidity and Capital Resources
 
We had cash on hand as of December 31, 2010June 30, 2011 of $53,499,$49,578, a decrease of $58,159$30,682 compared to cash on hand as of March 31, 20102011 of $111,658.$80,260.  Our operating activities during the ninethree months ended December 31, 2010June 30, 2011 provided $64,348.$8,203.  Cash provided by operating activities was the result of a net loss of $5,646$24,024 for the ninethree months ended December 31, 2010June 30, 2011 which was offset by $67,515$8,943 in non-cash compensation and depreciation expenses and changes in balance sheet items of $2,479.$23,284.  Changes in balance sheet items include an increase of $20,127$25,185 in accounts payable and other accrued expenses, a $4,802$2,651 increase in accounts receivable, and an increase of $12,846a $750 decrease in prepaid expenses and other current assets.  We used net cash from operating activities and $58,159$30,682 of the cash available at DecemberMarch 31, 20102011 to reduce outstanding advances from related parties, reduce the amount outstanding under our line of credit of line, and repay long-term debt.
 
As of December 31, 2010,June 30, 2011, we had outstanding obligations to banks and other unrelated persons in the amount of $1,758,823$2,168,554 and obligations payable to stockholders and related parties in the amount of $468,411.$457,452.  Substantially all of our assets are subject to a security interest and mortgage to secure the repayment of the obligations to banks and other unrelated persons.  During the three months ended December 31, 2010,June 30, 2011, we received $30,000 in loan proceeds from a shareholder.repaid $35,681 of our debt principle.
 
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We lease property in ninefive locations under non-cancelable operating leases.  All lease agreements provide for minimum lease payments and some lease agreements provide for additional rents contingent upon prescribed sales volumes or constitute net leases, which require us to pay additional rent relating to real estate taxes, insurance, rental taxes, and common area maintenance.  During fiscal 2010,2012, we renegotiated the leases relating to eliminate scheduled periodic increases in our “Durango” and “Henderson” locations to reduce the minimum annual rents.lease payments.
 
Since April 1, 2010,2011, we have required cash of approximately $376,000$310,000 per month and we generated cash from operating activities of approximately $395,000$312,000 per month.  The difference was used primarily to reduce our outstanding indebtedness.  We will incur additional expenses in the future relating to the reporting and corporate governance requirements as a public company, including the cost of establishing and documenting the effectiveness of internal control over financial reporting as required by the Securities Exchange Act of 1934 and preparing and filing periodic reports with the Securities and Exchange Commission.We expect to pay additional professional fees of between $25,000$50,000 and $50,000$75,000 over the next 12 months relating to the expenses of being publically traded.
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We will incur approximately $75,000$25,000 in additional costs relating to franchise operations during fiscal 2011.2012, exclusive of commissions we might incur on the sale of franchise locations.  We plan to expand our franchise operations if they are successful.  We plan to use fees paid by existing franchisees and franchise fees from new franchisees to fund any expansion of our franchise operations.  If fees generated by franchise operations are not sufficient to fund expansion of franchise operations, we may borrow additional funds to support expansion of franchise operations or delay, reduce or terminate franchise operations.
 
We expect revenue to increase during the next 12 months as consumers undertake deferred maintenance and repairs.  In addition, we believe our gross profit will continue to increase during the next 12 months as a result of increased franchise operations.  We do not expect to incur any material capital expenditures during the next 12 months.months unless we succeed in attracting new investment.
 
We believe that cash available at December 31, 2010,June 30, 2011, together with cash generated from operating activities will be sufficient to fund our cash requirements for the next 12 months, including all debt service, lease payments and additional expenses relating to being a public company.  If funds from operations and available cash are not sufficient, we may borrow additional funds from related parties, defer salaries payable to executives, refinance or renegotiate our existing indebtedness, incur additional indebtedness to banks or unrelated parties, delay payments to our vendors, delay advertising and other expenses, or sell or close some of our operations.
 
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
 
Not applicable.
 
Item 4.  Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures.  In accordance with Exchange Act Rules 13a-15 and 15a-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2010.June 30, 2011.
 
Changes in Internal Control over Financial Reporting.  There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II
 
Item 5.  Unregistered Sales of Equity Securities and Use of Proceeds.
On November 16, 2010, the Company’s Board of Directors approved the grant of 900,000 restricted shares of the Company’s Common Stock to four employees and service providers.  The grant was exempt from the registration requirements of the Securities Act of 1933 (the “Act”) because there was no sale of the shares within the meaning of Section 2(a)(3) of the Act, as interpreted by the Commission.  All shares subject to the grants were issued without contribution by the grantee, vest over a period of 42 months and are subject to restrictions on transfer without registration.
Item 6.  Exhibits.
 
The following documents are filed as exhibits to this report.
 
Exhibit No.Description
  
 4.1*
Form of Restricted Stock Bonus Award.
31.1*Certification of our Principal Executive Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*Certification of our Principal Financial Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*Certification under Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed with this Report

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Date:  FebruarySeptember 14, 2011MK AUTOMOTIVE, INC.
   
 By:/s/ Michael R. Murphy
  Michael R. Murphy
  President and Chief Executive Officer



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EXHIBIT INDEX

NumberDescription
 4.1
31.1		Form of Restricted Stock Bonus Award
31.1Certification of our President and Chief Executive Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification of our Principal Financial Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification of our President and Principal Executive Officer and Principal Financial Officer, under Section 906 of the Sarbanes-Oxley Act of 2002.







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