UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended June 30, 2010 |
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: 000-51997
NORTHEAST AUTOMOTIVE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
NEVADA | 65-0637308 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
2174 HEWLETT AVENUE, SUITE 206
MERRICK, NY 11566
(Address of Principal Executive Offices)
(Zip Code)
(516) 377-6311
(Registrant’s Telephone Number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
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 | x |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the Registrant’s common stock as of August 20, 2009 was 554,017 shares.
NORTHEAST AUTOMOTIVE HOLDINGS, INC.
FORM 10-Q
June 30, 2010
TABLE OF CONTENTS
PART I— FINANCIAL INFORMATION | ||
Item 1. | Financial Statements | 3 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 10 |
Item 4. | Controls and Procedures | 10 |
PART II— OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 10 |
Item 1A. | Risk Factors | 11 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 11 |
Item 3. | Defaults Upon Senior Securities | 11 |
Item 4. | Submission of Matters to a Vote of Security Holders | 11 |
Item 5. | Other Information | 11 |
Item 6. | Exhibits | 11 |
SIGNATURES | 12 |
2
NORTHEAST AUTOMOTIVE HOLDINGS, INC. |
CONSOLIDATED BALANCE SHEETS |
(Unaudited) |
June 30, | December 31, | |||||||
ASSETS | 2010 | 2009 | ||||||
Current Assets: | ||||||||
Cash | $ | 129,031 | $ | 341,629 | ||||
Inventory | 1,613,762 | 1,554,549 | ||||||
Total Current Assets | 1,742,783 | 1,896,178 | ||||||
Equipment, net | 13,527 | 16,251 | ||||||
Other assets | 3,295 | 7,773 | ||||||
TOTAL ASSETS | $ | 1,759,615 | $ | 1,920,202 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 257,250 | $ | 136,711 | ||||
Note payable to bank | 100,000 | 100,000 | ||||||
Credit line | 217,809 | 325,588 | ||||||
Demand loans payable | 954,338 | 770,861 | ||||||
Credit Card loan payable | - | - | ||||||
Due to stockholders | 36,706 | 584,115 | ||||||
Accrued expenses | 63,254 | 75,023 | ||||||
Payroll taxes withheld and accrued | 1,847 | 2,316 | ||||||
Total Current Liabilities | 1,631,204 | 1,994,614 | ||||||
Stockholders' equity | ||||||||
Preferred stock, 0.0001 par value, 10,000,000 shares authorized, 10,000,000 issued and outstanding | 1,000 | 1,000 | ||||||
Common stock, .001 par value, 300,000,000 shares authorized, 554,017 shares issued and outstanding June 30, 2010 and December 31, 2009 | 554 | 554 | ||||||
Capital Stock to be issued (500,000 Shares) | 20,000 | 20,000 | ||||||
Additional Paid in Capital | 3,957,424 | 3,957,424 | ||||||
Deficit | (3,849,391 | ) | (4,052,214 | ) | ||||
129,587 | (73,236 | ) | ||||||
Less: Treasury stock (6,667 common shares) | (1,176 | ) | (1,176 | ) | ||||
Total Stockholders' Equity | 128,411 | (74,412 | ) | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,759,615 | $ | 1,920,202 |
See Notes to Financial Statements
3
NORTHEAST AUTOMOTIVE HOLDINGS, INC. |
CONSOLIDATED STATEMENTS OF OPERATIONS |
Three | Three | Six | Six | |||||||||||||
Months | Months | Months | Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Net sales | $ | 3,464,861 | 4,583,575 | 7,018,604 | 9,385,496 | |||||||||||
Cost of sales | 3,136,739 | 4,313,423 | 6,462,511 | 8,804,244 | ||||||||||||
Gross profit | 328,122 | 270,152 | 556,093 | 581,252 | ||||||||||||
Operating expenses: | ||||||||||||||||
Officers salaries | - | 12,270 | - | 92,026 | ||||||||||||
Interest expense | 37,302 | 33,347 | 69,540 | 94,124 | ||||||||||||
Selling, general and administrative | 126,767 | 154,084 | 271,169 | 324,739 | ||||||||||||
Total operating expenses | 164,069 | 199,701 | 340,709 | 510,889 | ||||||||||||
Profit (Loss) from operations | 164,053 | 70,451 | 215,384 | 70,363 | ||||||||||||
Interest Income | - | - | - | - | ||||||||||||
Income taxes | 4,217 - | 12,561 | 4,250 | |||||||||||||
Net profit (loss) | $ | 159,836 | 70,451 | 202,823 | 66,113 | |||||||||||
Net profit (loss) per share basic and diluted | $ | 0.29 | 0.13 | 0.37 | 0.12 | |||||||||||
Weighted average number of shares outstanding | 692,879 | 554,017 | 692,879 | 554,017 |
See Notes to Financial Statements
4
NORTHEAST AUTOMOTIVE HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
Six Months | Six Months | |||||||
Ended | Ended | |||||||
June 30, 2010 | June 30, 2009 | |||||||
(unaudited) | (unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net profit (loss) | $ | 202,823 | $ | 66,189 | ||||
Adjustments to reconcile net profit to net cash used by operating activities: | ||||||||
Depreciation and amortization | 2,724 | 2,724 | ||||||
Changes in operating assets and liabilities: | ||||||||
(Increase) decrease in accounts receivable | - | 222,639 | ||||||
(Increase) decrease in inventory | (59,213 | ) | (25,246 | ) | ||||
(Increase) decrease in other assets | 4,478 | 1,694 | ||||||
Increase (decrease) in accounts payable | 120,539 | 13,746 | ||||||
Increase (decrease) in accrued expenses | (11,769 | ) | (10,400 | ) | ||||
Increase (decrease) in payroll taxes | (469 | ) | 522 | |||||
Total adjustments | 56,290 | 205,679 | ||||||
CASH PROVIDED (USED) BY OPERATING ACTIVITIES | 259,113 | 271,792 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of fixed assets | - | - | ||||||
CASH USED BY INVESTING ACTIVITIES | - | - | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds of line of credit | 1,305,493 | 1,397,167 | ||||||
Repayment of line of credit | (1,413,272 | ) | (1,469,574 | ) | ||||
Proceeds of stockholders loans | - | 10,869 | ||||||
Repayment of stockholders loan | (547,409 | ) | (522,866 | ) | ||||
Proceeds of demand loans | 550,000 | - | ||||||
Repayment of demand loans | (366,523 | ) | (108,900 | ) | ||||
CASH PROVIDED (USED)BY FINANCING ACTIVITIES | (471,711 | ) | (693,304 | ) | ||||
NET INCREASE (DECREASE) IN CASH | (212,598 | ) | (421,512 | ) | ||||
CASH | ||||||||
Beginning of year | 341,629 | 934,118 | ||||||
End of period | $ | 129,031 | $ | 512,606 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
Cash paid for: | ||||||||
Income tax payments | $ | 4,217 | $ | - | ||||
Interest payments | $ | 69,540 | $ | 94,124 | ||||
SUPPLEMENTAL FINANCE AND INVESTMENT INFORMATION | ||||||||
Conversion of debt to preferred stock | $ | 100,000 | $ | 100,000 |
See Notes to Financial Statements. |
5
NORTHEAST AUTOMOTIVE HOLDINGS, INC. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
The Company buys used automobiles at auctions, then repairs, cleans, transports and resells them wholesale throughout the United States.
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. 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 period presented have been reflected herein. The results of operations for the interim period 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 most recent fiscal period, as reported in the Form 10-K, have been omitted.
The accompanying interim financial statements of Northeast Automotive Holdings, Inc. are unaudited. However, in the opinion of management, the interim data includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for the interim period. The results of operations for the period ended June 30, 2010 are not necessarily indicative of the operating results for the entire year.
Going Concern
The financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has working capital of $111,579 at June 30, 2010 and an accumulated deficit of $3,849,390 since inception.
While the Company is attempting to produce sufficient revenues, the Company's cash position may not be enough to support the Company's daily operations. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
6
NOTE 2 – NOTES AND LOANS PAYABLE
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Line of credit - On October 4, 2004, the Company was approved for a line of credit of $975,000, as an inventory financing ("Floor Plan") loan with interest set at 2% above the Wall Street Journal Prime rate. The agreement requires any advances to be repaid for a vehicle on the earliest of forty eight (48) hours from the time of sale or within twenty four (24) hours from the time the Company receives payment by or on behalf of the purchase of such vehicle or demand. The agreement is personally guaranteed by the officers and their respective spouses. The collateral for the loan is any vehicle owned by the Company. | $ | 217,809 | 325,588 | |||||
Note payable bank - note payable to bank due February 2007, is an open line of credit interest payable monthly at 1% over the prime rate, secured by a lien on all of the Company's assets and personally guaranteed by the officers. Interest is paid monthly on account. | 100,000 | 100,000 | ||||||
Unsecured demand notes payable. Interest is payable monthly at the varying rates between 5% and 8%. | 954,338 | 770,861 | ||||||
Due to stockholders - The stockholder loans are unsecured, pay interest at 9% per annum, are subordinated to the bank loan and have no specific terms of repayment. | 36,706 | 584,115 | ||||||
$ | 1,308,853 | $ | 1,487,534 |
7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis addresses material changes in the results of operations and financial condition of Northeast Automotive Holdings, Inc. and Subsidiaries (the “Company” or “we”) for the periods presented. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements, the related Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Results of Operations and Financial Condition included in the Company’s Form 10-K for the fiscal year ended December 31, 2009, the unaudited interim Condensed Consolidated Financial Statements and related Notes included in Item 1 of this Report on Form 10-Q (“Form 10-Q”) and the Company’s other SEC filings and public disclosures.
This Form 10-Q may contain “forward-looking statements”. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements about the Company’s market opportunities, strategies, competition and expected activities and expenditures, and at times may be identified by the use of words such as “may”, “will”, “could”, “should”, “would”, “project”, “believe”, “anticipate”, “expect”, “plan”, “estimate”, “forecast”, “potential”, “intend”, “continue” and variations of these words or comparable words. Forward-looking statements inherently involve risks and uncertainties. Accordingly, actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the risks described below under “Risk Factors�� in Part II, Item 1A. The Company undertakes no obligation to update any forward-looking statements for revisions or changes after the date of this Form 10-Q.
Overview
We are a wholesale automobile sales company which seeks to exploit the inefficiencies and geographic differences in the used vehicle market by purchasing high quality, late model used vehicles from dealers and institutional sellers in Northeastern states and transporting the vehicles for resale in the Pacific Northwest. We are involved only in the wholesale purchase and sale of vehicles acting as a middleman between various dealer and institutional sellers and dealer purchasers. We generally sell our vehicles only through established third-party auctions which act as a marketplace for used vehicles. We thus help align institutional used vehicle sellers and wholesale buyers over a wide geographic area.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that have a significant impact on our results of operations, financial position or cash flows.
For the Six months Ended June 30, 2010 and June 30, 2009
The following table sets forth certain data derived from the unaudited consolidated statements of operations, expressed as a percentage of net revenues for each of the six months period ended June 30, 2010 and June 30, 2009.
Six months ended June 30, | |||||
2010 | 2009 | ||||
Percentage of net revenues: | |||||
Net revenues | 100% | 100% | |||
Cost of revenues | 92.1% | 93.8% | |||
Gross profit | 7.9% | 6.2% | |||
Sales, general and administrative expenses | 3.8% | 3.5% | |||
Other operating expenses | 1.0% | 2.0% | |||
Total operating expenses | 4.8% | 5.5% | |||
Profit (loss) from operations | 2.9% | 0.8% |
8
Revenues
Revenue for the six month periods ended June 30, 2010 were $7,018,604 a decrease of $2,366,892 or 25.2% as compared to revenues for the six months period ended June 30, 2009 of $9,385,496. The decrease in revenue was a result of a decrease in the number of vehicles we sold in the six months period in 2010 over 2009. Specifically, in the six months period ended June 30, 2010 we sold 417 vehicles at an average sales price of $16,831 as compared to 730 vehicles at an average sales price of $12,857 during the comparable period in 2009.
Cost of Sales and Gross Profit Margin
The Company's cost of sales is composed primarily of the cost of purchasing vehicles for resale. Cost of revenues was $6,462,511 or 92.1% of net revenues during the six months period ended June 30, 2010 as compared to $8,804,244 or 93.8% for the comparable period in 2009, a decrease of $2,341,733 or 26.6%. Thus, our gross margin was 7.9% for the six months period ended June 30, 2010 as compared to 6.2% for the comparable period in 2009. The decrease in our cost of revenue as a percent of revenue is attributable to a decrease in the cost of the vehicles sold during the six months period ended June 30, 2010 as compared to the comparable period in 2009.
Operating Expenses
Our operating expenses are comprised primarily of salaries, consulting fees and sales, general and administrative expenses.
Sale, General and Administrative
Sale, general and administrative (“SGA”) expenses are composed principally of commission, salaries of administrative personnel, fees for professional services and facilities expenses. These expenses were $271,169 for the six months period ended June 30, 2010 or 3.9% of net revenue as compared to $324,739 or 3.5% of net revenue for the comparable period in 2009, a decrease in such expenses of $53,570 or 16.5% The decrease in the ratio of SGA expenses to net revenue was primarily due to a decrease in operating expenses.
Other Expenses
Our combined expenses for officers salaries and interest was $69,540 for the six months period ended June 30, 2010 or 1.0% of net revenue compared to the comparable period in 2009 when such expenses were $186,150 or 2.0% of net revenue. The decrease in such expenses is attributable to decreased officers’ salaries in 2010 as well as a decrease in interest expense. The following table shows the changes in the components of these expenses during the comparable periods.
Six months Period Ended June 30 2010 | Six months Period Ended June 30, 2009 | Change | Percent Change | ||||||||||
Officers Salaries | $ | - | $ | 92,026 | $ | (92,026) | (100.0%) | ||||||
Interest Expense | $ | 69,540 | $ | 94,124 | $ | (24,584) | (26.1%) |
Operating Gain (Loss)
Operating gain or loss is calculated as our revenues less all of our operating expenses. Our operating gain for the six months period ended June 30, 2010 was $202,823 or 2.9% of net revenue as compared to an operating gain of $66,113 or 0.7% of net revenue for comparable period in 2009, an increase of $136,710. This increase in operating gain was primarily as a result of an increase in gross profits as well as a decrease of operating expense.
9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for Smaller Reporting Companies
Item 4. | Controls and Procedures |
Not required for Smaller Reporting Companies
Item 4T. | Controls and Procedures |
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within 90 days of the filing date of this report. In designing and evaluating the Company’s disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that as of June 30, 2009, the Company’s disclosure controls and procedures were (1) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Limitations on the Effectiveness of Internal Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material errors. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations on all internal control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of internal control is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in circumstances, and/or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost effective internal control system, financial reporting misstatements due to error or fraud may occur and not be detected on a timely basis.
There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in the above paragraph.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
10
ITEM 1A. RISK FACTORS
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Chief Financial Officer |
32.1 | Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer |
11
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.
NORTHEAST AUTOMOTIVE HOLDINGS, INC. | |||
Date: August 20, 2010 | By: | /s/ William Solko | |
William Solko, Chief Executive | |||
Officer and Chief Financial Officer |
12