U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Crown Auto Holdings, Inc.
(Exact name of Registrant as specified in its charter)
| NEVADA | 27-2131079 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
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2760 South State Street Salt Lake City, Utah 84115 | Nevada Agency and Transfer Company 50 West Liberty Street Reno, NV 89501 |
| (Name and address of principal executive offices) | (Name and address of agent for service) |
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Primary Standard Industrial Classification Code Number: 5500 | |
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Registrant's telephone number, including area code: (801) 541-4181 |
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Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. |
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.|__|
If any of the securities being registered on the Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box |X|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |__|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |__|
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.|__|
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| |
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED | AMOUNT TO BE REGISTERED | PROPOSED MAXIMUM PRICE SHARE (1) | PROPOSED MAXIMUM AGGREGATE OFFERING PRICE (2) | AMOUNT OF REGISTRATION FEE |
| Common Stock | 3,000,000 shares | $0.01 | $30,000 | $3.48 |
| (1) | This price was arbitrarily determined by Crown Auto Holdings, Inc. |
| (2) | Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) under the Securities Act. |
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
COPIES OF COMMUNICATIONS TO:
THE LAW OFFICES OF
RYAN ALEXANDER
520 South Fourth Street, Suite 340 · Las Vegas, Nevada 89101
Phone: (702) 868-3311 · Facsimile: (702) 868-3312
SUBJECT TO COMPLETION, Dated January 6, 2011
PROSPECTUS
CROWN AUTO HOLDINGS, INC.
3,000,000
COMMON STOCK
INITIAL PUBLIC OFFERING
The selling shareholders named in this prospectus are offering up to 3,000,000 shares of common stock offered through this prospectus. We will not receive any proceeds from this offering and have not made any arrangements for the sale of these securities. We have, however, set an offering price for these securities of $0.01 per share. We will use our best efforts to maintain the effectiveness of the resale registration statement from the effective date through and until all securities registered under the registration statement have been sold or are otherwise able to be sold pursuant to Rule 144 promulgated under the Securities Act of 1933.
| | Offering Price | Underwriting Discounts and Commissions | Proceeds to Selling Shareholders |
| Per Share | $0.01 | None | $0.01 |
| Total | $30,000 | None | $30,000 |
Our common stock is presently not traded on any market or securities exchange. The sales price to the public is fixed at $0.01 per share until such time as the shares of our common stock are traded on the Over-The-Counter Bulletin Board (“OTCBB”), which is sponsored by the Financial Industry Regulatory Authority (“FINRA”) formerly known as the National Association of Securities Dealers or NASD). The OTCBB is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current "bids" and "asks", as well as volume information. Although we intend to apply for quotation of our common stock on the FINRA Over-The-Counter Bulletin Board through a market maker, public trading of our common stock may never materialize. If our common stock becomes traded on the FINRA Over-The-Counter Bulletin Board, then the sale price to the public will vary according to prevailing market prices or privately negotiated prices by the selling shareholders.
The purchase of the securities offered through this prospectus involves a high degree of risk. See section entitled “Risk Factors” starting on page 7.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
The Date of This Prospectus is: January 6, 2011
We were incorporated as Crown Auto Holdings, Inc. on March 10, 2010, in the State of Nevada for the purpose of purchasing used vehicles at auctions and from other dealers and selling these vehicles specifically to consumers in Salt Lake City, Utah. We operate through our wholly-owned subsidiary Crown Auto, Inc., a Utah corporation. Our dealership and executive offices are located at 2760 South State Street, Salt Lake City, Utah 84115.
We have focused on selling older model vehicles with an average age of six years and a price range of $3,000 to $15,000. Most of the vehicles we sell are priced under $10,000. The majority of our customers are credit-challenged buyers who are unable to qualify for financing elsewhere.
As of September 30, 2010, we had $486,608 in current assets and current liabilities in the amount of $540,810. Accordingly, we had a working capital deficit of $54,202 as of September 30, 2010. For the nine months ended September 30, 2010, we incurred net income of $271,249. We have incurred net losses, however, for each of our two prior fiscal years ended December 31, 2009 and 2008 in the amount of $9,853 and $20,838, respectively. We plan to expand our operations by providing greater financing opportunities to potential customers, increasing our standing inventory, and increasing our throughput. To accomplish these goals, we expect that we will need to purchase vehicles at a greater ra te, and possibly move to a larger location. Demand for our vehicles is currently high, and we hope that having a greater selection of vehicles available at any given time will further increase demand. We will need additional financing to accomplish our expansion plans.
The Offering
| Securities Being Offered | Up to 3,000,000 shares of our common stock, which includes all issued and outstanding shares with the exception of those held by our President and Director, Jim Katsanevas, who holds 5,000,000 shares of our common stock. |
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| Offering Price | The offering price of the common stock is $0.01 per share. There is no public market for our common stock. We cannot give any assurance that the shares offered will have a market value, or that they can be resold at the offered price if and when an active secondary market might develop, or that a public market for our securities may be sustained even if developed. The absence of a public market for our stock will make it difficult to sell your shares in our stock. We intend to apply to the FINRA over-the-counter bulletin board, through a market maker that is a licensed broker dealer, to allow the trading of our common stock upon our becoming a reporting entity under the Securities Exchange Act of 1934. If our common stock becomes so traded and a market for the stock develops, the actual price of stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated by the selling shareholders. The offering price would thus be determined by market factors and the independent decisions of the selling shareholders. |
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| Securities Issued and to be Issued | 8,000,000 shares of our common stock are issued and outstanding as of the date of this prospectus. Our President and Director, Jim Katsanevas, owns an aggregate of 5,000,000 shares of the common shares of our company (or 62.5%) and therefore has substantial control. All of the common stock to be sold under this prospectus will be sold by existing shareholders. There will be no increase in our issued and outstanding shares as a result of this offering. |
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| Use of Proceeds | We will not receive any proceeds from the sale of the common stock by the selling shareholders. |
| Summary Financial Information | | | | | | | | |
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| Balance Sheet Data | As of September 30, 2010 (Unaudited) | | | | | As of December 31, 2009 (Audited) | | As of December 31, 2008 (Audited) |
| Cash | $ | 44,208 | | | | | $ | 20,501 | | $ | 84,346 |
| Total Assets | $ | 486,608 | | | | | $ | 409,395 | | $ | 664,253 |
| Liabilities | $ | 540,810 | | | | | $ | 11,335 | | $ | 33,803 |
| Total Stockholders’ Equity | $ | (54,202) | | | | | $ | 398,061 | | $ | 630,450 |
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| Statement of Operations | For the three ended September 30, 2010 | | | For the nine months ended September 30, 2010 | | For the year ended December 31, 2009 | | For the year ended December 31, 2008 |
| Revenue | $ | 450,234 | | $ | 1,060,740 | | $ | 1,631,533 | | $ | 1,555,507 |
| Net Income | $ | 22,989 | | $ | 249,409 | | $ | (9,853) | | $ | (20,838) |
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus before investing in our common stock. If any of the following risks occur, our business, operating results and financial condition could be seriously harmed. Currently, shares of our common stock are not publicly traded. In the event that shares of our common stock become publicly traded, the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.
Risks Associated with Our Financial Condition
If we do not obtain additional financing, our business expansion plans will be delayed and we may not achieve profitable operations.
We have limited assets and will require additional capital to complete the development of our business expansion plans. As of September 30, 2010, we had cash in the amount of $42,208. We have a working capital deficit of $54,202 as of September 30, 2010. Our business plan calls for ongoing expenses in increasing inventory, staff, financing, and marketing, and possibly moving to a larger location. If no additional financing is secured, we will not be able to pay our expenses to pursue our business plan. If that is the case, our business will not grow as desired. We reserve the right to seek additional funds through private placements of our common stock and/or through debt fina ncing. Our ability to raise additional financing is unknown. We do not have any formal commitments or arrangements for the advancement or loan of funds. If we are unable to succeed in marketing our dealership and making sufficient sales to support our expanded business operations, we will be unable to achieve profitable operations.
Risks Associated with Our Business Model
If we are unable to succeed in marketing our dealership and making sufficient sales to support our expanded business operations, we will be unable to achieve profitable operations, and our business may fail.
If we are unable to succeed in marketing our dealership and making sufficient sales to support our expanded business operations, we will be unable to achieve profitable operations. Any time business operations are expanded, there is a substantial risk that sales will not meet expectations or even cover the increased cost of operations. General market conditions are unpredictable, and sales might be slow or even non-existent, and/or the products might not fit the needs of our target market sufficiently to induce sales. There is no way to predict the volume of product sales that will occur or even if sales will be sufficient to support our future operations. Numerous factors beyond our control may affect the marketability of the products offered. These factors include, but are not limited to, consumer demand and emerging competition. The exact effect of these factors cannot be accurately predicted, but it is possible they may result in our not receiving an adequate return on our invested capital.
If new competitors enter the market and emulate our business model, our sales and profitability may be materially negatively impacted.
Used Vehicle Sales is a highly competitive arena with competition continually increasing. There is no assurance that there will not be future competition from other companies that could potentially enter the market and try to emulate our business model. This could result in a decrease in revenue, reduced operating margins and a loss of market share for us at a later date. To remain competitive in both revenue and access to resources and capital, we may be required to make substantial investments in our advertising, financing, and sales and marketing activities. In addition, in the event that competitors enter the marketplace, we might face pressure from competitors on the sales prices of our products, as well as from potential customers. As a result of any of these factors, there could be a material adverse effect on our sales and prof itability.
If general economic conditions change, sales may be negatively impacted, and our business may fail.
The national economy is affected by numerous factors and conditions, all of which are beyond our control, including (a) Interest rates; (b) Inflation; (c) Employment levels; (d) Changes in disposable income; (e) Financing availability; (f) Federal and state income tax policies; and (g) Consumer confidence. The volume of used vehicles, which we sell through our dealership, has increased since general economic conditions have deteriorated nationally over the past three years. In uncertain economic times, consumers are more likely to purchase used vehicles than new vehicles because new vehicles are more expensive and depreciate quickly in the early years of ownership. Employment and economic uncertainty tends to encourage fiscal responsibility, which increases sales of used cars. If national economic conditions and economic conditions in the Salt Lake City area specifically, improve dramatically, consumer spending may trend away from used vehicles and begin to favor new vehicles. Similarly, if economic conditions locally or nationally become significantly worse, consumers may forego purchasing used vehicles for repairing their current vehicles or public transportation. Also, worsening economic conditions may prompt the federal government into supporting another stimulus package, which might encourage consumers to purchase used vehicles, but not used ones. Any of these changes in economic conditions could have a negative material impact on our business and cause us to fail.
If we are unable to continually restock our inventory, we will be unable to sustain or increase our sales pace, and our profitability may be materially negatively impacted.
We currently purchase vehicles for our dealership inventory primarily from auctions held by government and financial institutions (vehicles that have been seized by law enforcement officers or repossessed by creditors), and from new vehicle dealerships (vehicles that have been traded in for credit when a consumer purchases a new vehicle). The availability of vehicles through these pipelines may fluctuate. It is possible that we will be unable to purchase a sufficient number of vehicles to keep a full inventory of used vehicles, particularly as we are planning to increase our base inventory level. If we are unable to keep a full inventory of used vehicles on our lot, our sales volume may decrease, our reputation for having a wide selection of vehicles may be harmed, and our revenue and profitability may be materially negatively impacted . If the availability of used vehicles is reduced, we may need to pay more than standard prices or pay transportation fees to purchase vehicles from other geographic areas. Either would increase our expenses and reduce our profitability and our business may fail.
If our products fail to perform to the satisfaction of our customers, we may receive negative publicity that would damage our brand and negatively impact sales, which could cause our business to fail.
We rely upon brand awareness and our reputation in the community to help drive our sales. If our customers purchase vehicles from us, which fail to perform to their expectations, we may receive negative publicity and the value of our brand may be negatively impacted. Similarly, an accident involving one of our products could result in negative publicity and a negative impact on our business. If our reputation for providing quality, affordable used vehicles is damaged, our financial condition may be negatively impacted, and our business may fail.
We may be, from time to time, subject to claims due to the injury of an individual from the products that we sell. Any personal injury claim made against us, whether or not it has merit, could be time consuming, result in costly litigation expenses and damages, result in adverse publicity or damage to our reputation and have an adverse effect on our results of operations.
If alternative forms of transportation become more affordable and widely available, our sales may be impacted, and our business may fail.
Consumers purchase used vehicles for a number of reasons, including the affordability and practicality of used vehicles. Any number of events could impact the public’s view of used vehicle affordability. If economic conditions improve, consumers may have more disposable income for large purchases, such as new vehicles. If new vehicle prices drop significantly, consumers may be lured away from used vehicles to new vehicles. If economic conditions deteriorate, consumers may forego individual transportation altogether, and begin to support and utilize public transportation more fully. Any of these events, or other currently unforeseen events, could serve to reduce consumer demand for used vehicles, negatively impact our business, and cause our business to fail.
If we are unable to continually upgrade and expand our collections systems, our business may fail.
If we are unable to continually upgrade and expand our collections systems in order to keep up with the technological change within our industry, we will not be able to compete within our industry and our business will fail. The in-house financed used vehicle market is characterized by aggressive collections and frequent repossessions. The technology used to support these efforts include starter interrupts and GPS tracking systems. As defaulting customers become more sophisticated and learn to counter these systems, new technology evolves to aid the industry. Our future success will depend, in part, on our ability to change and evolve, and to use technologies effectively. There can be no assurance that we will be successful in this change and evolution on a timely basis.
If we fail to respond to changes in consumer preferences in a timely manner, our sales may be adversely affected, and our business may fail.
Our financial performance depends on our ability to identify and respond to product trends, as well as to anticipate, gauge and react to changing consumer preferences in a timely manner. For example, SUV’s and other large vehicles are in greater demand when gas prices are perceived to be relatively low by consumers, whereas sales of such vehicles are slow and difficult when gas prices are perceived to be high. We want to remain appealing to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to change. The used vehicle business fluctuates according to changes in consumer preferences and perceived value. These fluctuations affect the merchandise in stock since purchases are made in advance of the retail sale, at times before trends and high-demand products are evidenced by consumer purch ases. If we misjudge the market for our products, we may find ourselves providing unwanted products and unable to secure providers for high-demand products.
Risks Associated with Management and Control Persons
If we are unable to hire and retain key personnel, we may not be able to implement our business plan.
Due to the specified nature of our business, having certain key personnel is essential to the development and marketing of the products we plan to sell and thus to the entire business itself. Consequently, the loss of any of those individuals may have a substantial effect on our future success or failure. We may have to recruit qualified personnel with competitive compensation packages, equity participation, and other benefits that may affect the working capital available for our operations. Management may have to seek to obtain outside independent professionals to assist them in assessing the merits and risks of any business proposals as well as assisting in the development and operation of many company projects. No assurance can be given that we will be able to obtain such needed assistance on terms acceptable to us. Our failure to a ttract additional qualified employees or to retain the services of key personnel could have a material adverse effect on our operating results and financial condition.
Because our President and Director, Jim Katsanevas, owns an aggregate of 62.5% of our outstanding common stock, investors may find that corporate decisions influenced by Jim Katsanevas are inconsistent with the best interests of other stockholders.
Jim Katsanevas is our sole officer and director. He owns approximately 62.5% of the outstanding shares of our common stock. Accordingly, he will have an overwhelming influence in determining the outcome of all corporate transactions or other matters, including mergers, consolidations and the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. While we have no current plans with regard to any merger, consolidation or sale of substantially all of our assets, the interests of Jim Katsanevas may still differ from the interests of the other stockholders.
The direction Jim Katsanevas takes the company may also differ from the interests of the other stockholders. He has sole power to decide every aspect of our business, including fundamental decisions like raising money, which could dilute your ownership in our company, spending investment funds and any future revenue, pursuing business direction, deciding his pay as an officer and director, deciding on what contracts to sign, and other important matters. These decisions may differ radically from the choices you would make as an investor in our company.
Because our President and Director, Jim Katsanevas, owns an aggregate of 62.5% of our outstanding common stock, the market price of our shares would most likely decline if he were to sell a substantial number of shares all at once or in large blocks.
Our President and Director, Jim Katsanevas, owns 5,000,000 shares of our common stock, which equates to 62.5% of our outstanding common stock. There is presently no public market for our common stock although we plan to apply for quotation of our common stock on the FINRA over-the-counter bulletin board upon the effectiveness of the registration statement of which this prospectus forms a part. If our shares are publicly traded on the over-the-counter bulletin board, Jim Katsanevas will be eligible to sell his shares publicly subject to the volume limitations in Rule 144. The offer or sale of a large number of shares at any price may cause the market price to fall. Sales of substantial amounts of common stock or the perception that such transactions could occur may materially and adversely aff ect prevailing markets prices for our common stock.
Because we are subject to additional regulatory compliance matters as a result of becoming a public company, which compliance includes Section 404 of the Sarbanes-Oxley Act of 2002, and our management has limited experience managing a public company, the failure to comply with these regulatory matters could harm our business.
Our sole officer and director and outside professionals will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with being a public company and we may not successfully or efficiently manage this transition. Jim Katsanevas, our President and Director, has no experience running a public company. For now, he will rely heavily on legal counsel and accounting professionals to help with our future SEC reporting requirements. This will likely divert needed capital resources away from the objectives of implementing our business plan. These expenses could be more costly that we are able to bear and could result in us not being able to successfully implement our business plan.
We expect rules and regulations such as the Sarbanes-Oxley Act of 2002 will increase our legal and finance compliance costs and make some activities more time-consuming than in the past. We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company. Furthermore, after any applicable transition period for new public companies, Section 404 of the Sarbanes-Oxley Act of 2002 requires that our management report on, and our independent auditors to attest to, the effectiveness of our internal control structure and procedures for financial reporting in our annual reports on Form 10-K. Section 404 compliance efforts may divert internal resources and will take a significant amount of time and effort to complete. We may not be able to successfully complete the procedures and certification and attestation requirements of Section 404 by the time we will be required to do so. If we fail to do so, or if in the future our chief executive officer, chief financial officer or independent registered public accounting firm determines that our internal controls over financial reporting are not effective, we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a decline in the market price of our stock. Furthermore, whether or not we comply with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement necessary procedures or changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors.
Because our President and Director, Jim Katsanevas, has no experience running a public company, it is possible the business might not be successful.
Mr. Katsanevas has no experience serving as an officer or director of a public company, or experience with the reporting or financial disclosure requirements which public companies are subject to. Such lack of experience may impair our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures, which may result in material misstatements to our financial statements and an inability to provide accurate financial information to our stockholders. Consequently, our operations, future earnings and ultimate financial success could suffer irreparable harm due to his ultimate lack of experience with public companies and their reporting requirements in general.
Risks Related to Legal Uncertainty
Because our business exposes us to personal injury and product liability claims, such claims could result in adverse publicity and harm to our brand and our results of operations.
We may be, from time to time, subject to claims due to the injury of an individual from the products that we sell. While our purchase orders generally require the customer to indemnify us against any product liability claims, there is a risk that if there is a human injury or death we would not be indemnified. Any personal injury claim made against us or any product liability claim made against us, whether or not it has merit, could be time consuming, result in costly litigation expenses and damages, result in adverse publicity or damage to our reputation and have an adverse effect on our results of operations.
Because our Certificate of Incorporation and Bylaws and Nevada law limit the liability of our officers, directors, and others, shareholders may have no recourse for acts performed in good faith.
Under our Certificate of Incorporation, Bylaws, and Nevada law, each of our officers, directors, employees, attorneys, accountants and agents are not liable to us or the shareholders for any acts they perform in good faith, or for any non-action or failure to act, except for acts of fraud, willful misconduct or gross negligence. Our articles and bylaws provide that we will indemnify each of our officers, directors, employees, attorneys, accountants and agents from any claim, loss, cost, damage liability and expense by reason of any act undertaken or omitted to be undertaken by them, unless the act performed or omitted to be performed constitutes fraud, willful misconduct or gross negligence.
New legislation, including the Sarbanes-Oxley Act of 2002, may make it more difficult for us to retain or attract officers and directors.
The Sarbanes-Oxley Act of 2002 was enacted in response to public concerns regarding corporate accountability in connection with recent accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies that file or are required to file periodic reports with the SEC, under the Securities Exchange Act of 1934.
Upon becoming a public company, we will be required to comply with the Sarbanes-Oxley Act. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We continue to evaluate and monitor developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
Risks Related to Our Securities
If a market for our common stock does not develop, shareholders may be unable to sell their shares.
A market for our common stock may never develop. We intend to contact an authorized OTC Bulletin Board market-maker for sponsorship of our securities on the OTC Bulletin Board upon the effectiveness of the registration statement of which this prospectus forms a part. However, our shares may never be traded on the bulletin board, or, if traded, a public market may not materialize. If our common stock is not traded on the bulletin board or if a public market for our common stock does not develop, investors may not be able to re-sell the shares of our common stock that they have purchased and may lose all of their investment.
If the selling shareholders sell a large number of shares all at once or in blocks, the market price of our shares would most likely decline.
The selling shareholders are offering 3,000,000 shares of our common stock through this prospectus. The outstanding shares of common stock covered by this prospectus represent approximately 37.5% of the common shares outstanding as of the date of this prospectus. Our common stock is presently not traded on any market or securities exchange, but should a market develop, shares sold at a price below the current market price at which the common stock is trading will cause that market price to decline. Moreover, the offer or sale of a large number of shares at any price may cause the market price to fall.
If we issue shares of preferred stock with superior rights than the common stock registered in this prospectus, it could result in a decrease in the value of our common stock and delay or prevent a change in control of us.
Our board of directors is authorized to issue up to 10,000,000 shares of preferred stock. Our board of directors has the power to establish the dividend rates, liquidation preferences, voting rights, redemption and conversion terms and privileges with respect to any series of preferred stock. The issuance of any shares of preferred stock having rights superior to those of the common stock may result in a decrease in the value or market price of the common stock. Holders of preferred stock may have the right to receive dividends, certain preferences in liquidation and conversion rights. The issuance of preferred stock could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of us without further vote or action by the stockholders and may adversely affect the voting and other rights of the holders of common stock.
Because we do not expect to pay dividends for the foreseeable future, investors seeking cash dividends should not purchase our common stock.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their own common stock after price appreciation, which may never occur, as the only way to realize their investment. Investors seeking cash dividends should not purchase our common stock.
Because we will be subject to the “Penny Stock” rules once our shares are quoted on the over-the-counter bulletin board, the level of trading activity in our stock may be reduced.
Broker-dealer practices in connection with transactions in “penny stocks” are regulated by penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges or quoted on Nasdaq). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, broker-dealers who sell these securities to persons other than established customers and “accredited investors” must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security subject to the penny stock rules, and investors in our common stock may find it difficult to sell their shares.
This prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as anticipate, believe, plan, expect, future, intend and similar expressions to identify such forward-looking statements. The actual results could differ materially from our forward-looking statements. Our actual results are most likely to differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in this Risk Factors section and elsewhere in this prospectus.
We will not receive any proceeds from the sale of the common stock offered through this prospectus by the selling shareholders.
The $0.01 per share offering price of our common stock was arbitrarily chosen. There is no relationship between this price and our assets, earnings, book value or any other objective criteria of value.
We intend to apply to the FINRA over-the-counter bulletin board for the quotation of our common stock upon our becoming a reporting entity under the Securities Exchange Act of 1934. We intend to file a registration statement under the Exchange Act concurrently with the effectiveness of the registration statement of which this prospectus forms a part.
The selling price of $0.01 per share will be fixed until the shares are quoted on the over the counter bulletin board. If our common stock becomes so traded and a market for the stock develops, the actual price of stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated by the selling shareholders. The offering price would thus be determined by market factors and the independent decisions of the selling shareholders.
The common stock to be sold by the selling shareholders is common stock that is currently issued and outstanding. Accordingly, there will be no dilution to our existing shareholders.
The selling shareholders named in this prospectus are offering all of the 3,000,000 shares of common stock offered through this prospectus. These shares were acquired from us in an offering that closed in May of 2010 that was exempt from Registration under Regulation D of the Securities Act of 1933, as amended.
The following table provides information regarding the beneficial ownership of our common stock held by each of the selling shareholders as of January 6, 2011, including:
| 1. | the number of shares owned by each prior to this offering; |
| 2. | the total number of shares that are to be offered by each; |
| 3. | the total number of shares that will be owned by each upon completion of the offering; |
| 4. | the percentage owned by each upon completion of the offering; and |
| 5. | the identity of the beneficial holder of any entity that owns the shares. |
The named parties beneficially own and have sole voting and investment power over all shares or rights to the shares, unless otherwise shown in the table. The numbers in this table assume that none of the selling shareholders sells shares of common stock not being offered in this prospectus or purchases additional shares of common stock, and assumes that all shares offered are sold. The percentages are based on 8,000,000 shares of common stock outstanding on January 6, 2011.
| Name of Selling Shareholder | Shares Owned Prior to This Offering | Total Number of Shares to be Offered for Selling Shareholder Account | Total Shares to be Owned Upon Completion of this Offering | Percent Owned Upon Completion of this Offering |
| Kesha Brooks | 100,000 | 100,000 | 0 | 0 |
| Ettya Bulkovshteyn | 100,000 | 100,000 | 0 | 0 |
| Susan Caslow | 100,000 | 100,000 | 0 | 0 |
| Susan B. Cohen | 100,000 | 100,000 | 0 | 0 |
| Leslie C. Cooper | 100,000 | 100,000 | 0 | 0 |
| Teresa Duncan | 100,000 | 100,000 | 0 | 0 |
| Monika Elkaylany | 100,000 | 100,000 | 0 | 0 |
| Paul Ford | 100,000 | 100,000 | 0 | 0 |
| Ashely Galbratith | 100,000 | 100,000 | 0 | 0 |
| George Gergerakis | 100,000 | 100,000 | 0 | 0 |
| Kathi Gergerakis | 100,000 | 100,000 | 0 | 0 |
| Alma Katsanevas | 100,000 | 100,000 | 0 | 0 |
| Chris Katsanevas | 100,000 | 100,000 | 0 | 0 |
| Milee M. Katsanevas | 100,000 | 100,000 | 0 | 0 |
| Manuel Katsanevas | 100,000 | 100,000 | 0 | 0 |
| Katherine K. Kogianes | 100,000 | 100,000 | 0 | 0 |
| Ted Kogianes | 100,000 | 100,000 | 0 | 0 |
| Melinda Lester | 100,000 | 100,000 | 0 | 0 |
| Ching-Chou Lin | 100,000 | 100,000 | 0 | 0 |
| Ming-Fa Lin | 100,000 | 100,000 | 0 | 0 |
| Stephen Lin | 100,000 | 100,000 | 0 | 0 |
| Francisco Ocejo | 100,000 | 100,000 | 0 | 0 |
| Maria G. Ocejo | 100,000 | 100,000 | 0 | 0 |
| Eric Piime | 100,000 | 100,000 | 0 | 0 |
| John S. Sargetakis | 100,000 | 100,000 | 0 | 0 |
| Alex Shats | 100,000 | 100,000 | 0 | 0 |
| Lucille N. Shearer | 100,000 | 100,000 | 0 | 0 |
| Joseph Taranovich | 100,000 | 100,000 | 0 | 0 |
| Lisa Trenfield | 100,000 | 100,000 | 0 | 0 |
| Ilya Vaisberg | 100,000 | 100,000 | 0 | 0 |
None of the selling shareholders; (1) has had a material relationship with us other than as a shareholder at any time within the past three years; (2) has been one of our officers or directors; or (3) are broker-dealers or affiliate of broker-dealers.
The selling shareholders may sell some or all of their common stock in one or more transactions, including block transactions:
| 1. | on such public markets or exchanges as the common stock may from time to time be trading; |
| 2. | in privately negotiated transactions; |
| 3. | through the writing of options on the common stock; |
| 4. | in short sales, or; |
| 5. | in any combination of these methods of distribution. |
We intend to contact an authorized Over-The-Counter Bulletin Board market-maker for sponsorship of our securities on the Over-The-Counter Bulletin Board. The sales price to the public is fixed at $0.01 per share until such time as the shares of our common stock become quoted on the FINRA Over-The-Counter Bulletin Board or another exchange. Although we intend to apply for quotation of our common stock on the FINRA Over-The-Counter Bulletin Board, public trading of our common stock may never materialize. If our common stock becomes traded on the FINRA Over-The-Counter Bulletin Board, or another exchange, then the sales price to the public will vary according to the selling decisions of each selling shareholder and the market for our stock at the time of resale. In these circumstances, the sales price to the public may be:
| 1. | the market price of our common stock prevailing at the time of sale; |
| 2. | a price related to such prevailing market price of our common stock, or; |
| 3. | such other price as the selling shareholders determine from time to time. |
The selling shareholders may also sell their shares directly to market makers acting as agents in unsolicited brokerage transactions. Any broker or dealer participating in such transactions as an agent may receive a commission from the selling shareholders or from such purchaser if they act as agent for the purchaser. If applicable, the selling shareholders may distribute shares to one or more of their partners who are unaffiliated with us. Such partners may, in turn, distribute such shares as described above.
We are bearing all costs relating to the registration of the common stock. The selling shareholders, however, will pay any commissions or other fees payable to brokers or dealers in connection with any sale of the common stock.
The selling shareholders must comply with the requirements of the Securities Act of 1933 and the Securities Exchange Act in the offer and sale of the common stock. In particular, during such times as the selling shareholders may be deemed to be engaged in a distribution of the common stock, and therefore be considered to be an underwriter, they must comply with applicable law and may, among other things:
| 1. | not engage in any stabilization activities in connection with our common stock; |
| 2. | furnish each broker or dealer through which common stock may be offered, such copies of this prospectus, as amended from time to time, as may be required by such broker or dealer; and; |
| 3. | not bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities other than as permitted under the Securities Exchange Act. |
We are not currently a party to any legal proceedings.
Directors, Executive Officers, Promoters and Control Persons
Our sole executive officer and directors and his age as of January 6, 2011 is as follows:
| Name | Age | Position Held with the Company |
Jim Katsanevas | 46 | President, Chief Executive Officer, Principal Executive Officer, Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer, and Director |
Set forth below is a brief description of the background and business experience of our executive officer and directors.
Jim Katsanevas is our President, CEO, and sole officer and director. He is also our founder, and has held these positions since our incorporation. In his role as President, Mr. Katsanevas is responsible for overseeing the general direction and daily operations of the company. Prior to founding Crown Auto, LLC in 1997, Mr. Katsanevas joined Internet Properties in Salt Lake City as a licensed real estate agent. In this position, he represented both buyers and sellers of both residential and commercial properties. He still maintains his real estate license with Internet Properties. Mr. Katsanevas graduated from Westminster College in Salt Lake City, Utah with an MBA in 1992.
Mr. Katsanevas has over 10 years experience in the used car industry. He has successfully operated Crown Auto, Inc., our wholly owned subsidiary, during this time. From his experience in the industry, we believe he possesses the skills and attributes to expand our operations.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
Significant Employees
We do not currently have any significant employees aside from Jim Katsanevas.
Involvement in Certain Legal Proceedings
During the past five years, none of the following occurred with respect to our present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdic tion (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of January 6, 2011, certain information as to shares of our common stock owned by (i) each person known by us to beneficially own more than 5% of our outstanding common stock, (ii) each of our directors, and (iii) all of our executive officers and directors as a group:
| Name and Address of Beneficial Owners of Common Stock | Title of Class | Amount and Nature of Beneficial Ownership(1) | % of Common Stock(2) |
Jim Katsanevas 2760 South State St Salt Lake City, UT 84115 | Common Stock | 5,000,000 Shares | 62.5% |
| DIRECTORS AND OFFICERS – TOTAL (One Director and Officer) | | 5,000,000 Shares | 62.5% |
| | | | |
| 5% SHAREHOLDERS | | | |
| NONE | Common Stock | | |
| 1. | As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date. |
| 2. | The percentage shown is based on denominator of 8,000,000 shares of common stock issued and outstanding for the company as of January 6, 2011. |
Our authorized capital stock consists of 90,000,000 shares of common stock, with a par value of $0.001 per share, and 10,000,000 shares of preferred stock, with a par value of $0.001 per share. As of January 6, 2011, there were 8,000,000 shares of our common stock issued and outstanding. Our shares are held by thirty-one (31) stockholders of record. We have not issued any shares of preferred stock.
Common Stock
Our common stock is entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our common stock will possess all voting power. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of our common stock that are present in person or represented by proxy, subject to any voting rights granted to holders of any preferred stock. Holders of our common stock representing fifty percent (50%) of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation. Our Articles of Incorporation do not provide for cumulative voting in the election of directors.
Subject to any preferential rights of any outstanding series of preferred stock created by our board of directors from time to time, the holders of shares of our common stock will be entitled to such cash dividends as may be declared from time to time by our board of directors from funds available therefore.
Subject to any preferential rights of any outstanding series of preferred stock created from time to time by our board of directors, upon liquidation, dissolution or winding up, the holders of shares of our common stock will be entitled to receive pro rata all assets available for distribution to such holders.
In the event of any merger or consolidation with or into another company in connection with which shares of our common stock are converted into or exchangeable for shares of stock, other securities or property (including cash), all holders of our common stock will be entitled to receive the same kind and amount of shares of stock and other securities and property (including cash). Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
Preferred Stock
Our board of directors is authorized by our articles of incorporation to divide the authorized shares of our preferred stock into one or more series, each of which must be so designated as to distinguish the shares of each series of preferred stock from the shares of all other series and classes. Our board of directors is authorized, within any limitations prescribed by law and our articles of incorporation, to fix and determine the designations, rights, qualifications, preferences, limitations and terms of the shares of any series of preferred stock including, but not limited to, the following:
| 1. | The number of shares constituting that series and the distinctive designation of that series, which may be by distinguishing number, letter or title; |
| 2. | The dividend rate on the shares of that series, whether dividends will be cumulative, and if so, from which date(s), and the relative rights of priority, if any, of payment of dividends on shares of that series; |
| 3. | Whether that series will have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; |
| 4. | Whether that series will have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors determines; |
| 5. | Whether or not the shares of that series will be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; |
| 6. | Whether that series will have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; |
| 7. | The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; |
| 8. | Any other relative rights, preferences and limitations of that series |
Provisions in Our Articles of Incorporation and By-Laws That Would Delay, Defer or Prevent a Change in Control
Our articles of incorporation authorize our board of directors to issue a class of preferred stock commonly known as a "blank check" preferred stock. Specifically, the preferred stock may be issued from time to time by the board of directors as shares of one (1) or more classes or series. Our board of directors, subject to the provisions of our Articles of Incorporation and limitations imposed by law, is authorized to adopt resolutions; to issue the shares; to fix the number of shares; to change the number of shares constituting any series; and to provide for or change the following: the voting powers; designations; preferences; and relative, participating, optional or other special rights, qualifications, limitations or restrictions, including the following: dividend rights, including whether dividends are cumulative; dividend rates; terms of redemption, including sinking fund provisions; redemption prices; conversion rights and liquidation preferences of the shares constituting any class or series of the preferred stock.
In each such case, we will not need any further action or vote by our shareholders. One of the effects of undesignated preferred stock may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares of preferred stock pursuant to the board of director's authority described above may adversely affect the rights of holders of common stock. For example, preferred stock issued by us may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. Accordingly, the issuance of shares of preferred stock may discourage bids for the comm on stock at a premium or may otherwise adversely affect the market price of the common stock.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.
Share Purchase Warrants
We have not issued and do not have outstanding any warrants to purchase shares of our common stock.
Options
We have not issued and do not have outstanding any options to purchase shares of our common stock.
Convertible Securities
We have not issued and do not have outstanding any securities convertible into shares of our common stock or any rights convertible or exchangeable into shares of our common stock.
Nevada Anti-Takeover Laws
Nevada Revised Statutes sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply. Our articles of incorporation and bylaws do not state that these provisions do not apply. The statute creates a number of restrictions on the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the state of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and does busine ss in the State of Nevada directly or through an affiliated corporation. Because of these conditions, the statute currently does not apply to our company.
No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
Ryan Alexander, Esq., our independent legal counsel, has provided an opinion on the validity of our common stock.
Sadler Gibb & Associates, has audited our financial statements included in this prospectus and registration statement to the extent and for the periods set forth in his audit report. Sadler Gibb & Associates has presented his report with respect to our audited financial statements. The report of Sadler Gibb & Associates is included in reliance upon his authority as an expert in accounting and auditing.
Disclosure of Commission Position of Indemnification for Securities Act Liabilities
Our articles of incorporation provide that we will indemnify an officer, director, or former officer or director, to the full extent permitted by law. We have been advised that in the opinion of the Securities and Exchange Commission indemnification for liabilities arising under the Securities Act of 1933 is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel the matter has been settled by controlling precedent, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction. ;We will then be governed by the court's decision.
We were incorporated as Crown Auto Holdings, Inc. on March 10, 2010, in the State of Nevada for the purpose of purchasing used vehicles at auctions and from other dealers and selling these vehicles specifically to consumers in Salt Lake City, Utah. We operate through our wholly-owned subsidiary Crown Auto, Inc., a Utah corporation. Our dealership and executive offices are located at 2760 South State Street, Salt Lake City, Utah 84115.
On April 20, 2010, we entered into a share exchange agreement with Crown Auto, Inc., whereby we acquired all of the issued and outstanding shares of the Utah corporation in exchange for 5,000,000 shares of our common stock to the sole owner of Crown Auto, Inc., and our officer and director, Jim Katsanevas.
Jim Katsanevas, our President and Director, is a person that may be described as a “promoter” as defined in Rule 405 of the Securities Act by virtue of his role in founding and organizing our company.
Our fiscal year end is December 31.
Business of Company
We are a used automobile dealership engaged in the business of purchasing used vehicles at auctions and from other dealers and selling these vehicles specifically to consumers in Salt Lake City, Utah. We have focused on selling older model vehicles with an average age of six years and a price range of $3,000 to $15,000. Most of the vehicles we sell are priced under $10,000. The majority of our customers are credit-challenged buyers who are unable to qualify for financing elsewhere.
We plan to expand our operations by providing greater financing opportunities to potential customers, increasing our standing inventory, and increasing our throughput. To accomplish these goals, we expect that we will need to purchase vehicles at a greater rate, and possibly move to a larger location. Demand for our vehicles is currently high, and we hope that having a greater selection of vehicles available at any given time will further increase demand.
Used Vehicles
Consumers who are seeking transportation have a number of options available to them. We compete to sell used vehicles to consumers. Following are some of the advantages for consumers to choose used vehicles over new vehicles. We seek to educate consumers regarding these reasons to further our business goals.
Affordability
The purchase price of a used vehicle is significantly less than the purchase price of a new vehicle, and the price spread between new and used is widening. CNW Marketing Research figures indicate that the average transaction price, before taxes and fees, on a new car in 2008 was $25,536. The average used car transaction was $8,244 during that same time period. Unless leasing, the initial of a new vehicle is substantial. Financial institutions typically require down payments of approximately 10 percent on a new-car loan.
Avoiding Depreciation
When a new vehicle is driven off the dealership lot, its value will drop significantly in the early years of ownership. A new mainstream vehicle typically loses at least 30 percent of its value in the first two years of ownership. Used vehicles have often already depreciated significantly and, lose additional value at a much slower rate.
Improving Reliability
The reliability and durability of vehicles has progressively increased over the years. Vehicles are now intended to last for 100 thousand miles or more. Also, many used vehicles well cared for or refurbished, and are in like-new mechanical and cosmetic condition.
Less Risk
When a new vehicle enters the market, it hasn't undergone real consumer road testing. Oftentimes, it isn't until many people are using the vehicle daily that an assembly line mechanical problem surfaces or drivers realize an irritation such as the trunk space is not adequate for an average family's needs. A buyer can research used vehicle makes and models online to uncover a wealth of performance reviews and real-world commentary from everyday drivers.
In addition to performance reviews, crash statistics for a used vehicle are better understood than that of a new vehicle. Before a new vehicle is released, it has normally only undergone a series of controlled crash tests. However, it isn't until 1-3 years after a vehicle is released that there is enough information available to discern how a vehicle will perform in a real crash.
Affordable Options
Options such as sunroofs and navigation systems are exceedingly expensive when buying a new vehicle. This definitely applies when dealing with a manufacturer that packages many of them together. When buying used vehicles, a consumer gets more of these options for their money. The buyer may not be able to afford many options on a new vehicle, but they may be able to find a used vehicle with some of the features they are seeking.
Advantages over Leasing
Some consumers choose to lease new vehicles rather than buy new or used ones. However, there are disadvantages associated with leasing as well. If consumers do not like the vehicle, there are usually fees involved in the early termination of a lease. Additionally, some leasing companies will require the lessee to pay off the remainder of the vehicle lease contract before releasing them from the lease. Leasing a vehicle can also lead to higher insurance rates since a leased vehicle may require more coverage than a purchased used vehicle. Most leases have a limit on the number of miles the lessee may drive, usually anywhere between 12,000 and 15,000 allowable miles per year. Excessive mileage costs more money, usually about 10 to 15 cents per mile over the agreed upon yearly figure. Like mileage, there are limitations on the wear of a ve hicle under a lease. Exceeding these wear limitations may result in more fees. Stringent credit requirements for leasing also present an obstacle to many people.
Used Automobile Dealership Industry
The current economic recession has wounded nearly every U.S. industry. New automobile dealerships in particular have confronted huge challenges and are striving to adapt and endure in this economy. Used automobile dealerships, however, have realized some major advantages over new automobile dealerships during this recession. Consumers seeking more value for their money are discouraged by the high rate of depreciation of new vehicles. Rising unemployment rates and dwindling bank accounts have discouraged or prevented many consumers from buying big-ticket items such as new vehicles. Many consumers are now looking for more practical and less expensive transportation options, and are recognizing the benefits and cost-effectiveness of buying a used vehicle.
CNW Research indicates that 2009 used-automobile sales of $66 billion represents a 2.5 percent increase over 2008. While franchised dealers saw their used sales fall 2.7 percent, independent dealers' used sales climbed 8.6 percent. There was also an 11.5 percent gain in the consumer price index for used vehicles during January 2010, according to the most recent data from the Bureau of Labor Statistics.
Our Products
The rising demand by increasingly value-conscious consumers for affordable vehicles in Northern Utah has resulted in what we anticipate will be a highly receptive potential market for our planned growth. Consumers who are now carefully rationing their expenditures are seeking products that will satisfy their need for reasonably priced vehicles. We feel that the high rate of depreciation of new vehicles combined with the increased reliability of used vehicles will also contribute to consumer demand for our products, and support our planned growth.
We are a used automobile dealership engaged in the business of purchasing used vehicles at auctions and from other dealers, and selling those vehicles to consumers in Salt Lake City, Utah. We began operating as a used automobile dealership, Crown Auto, LLC, in 1997 and we were incorporated in the state of Utah on January 21, 1999. We have remained in the same location on a quarter-acre lot on State Street in Salt Lake City since our inception. Our lot on State Street is located in an area that has a large number of new and used auto dealerships – a central location where consumers go when considering a vehicle purchase. We were initially a low volume used automobile dealership focusing on cash transactions or in-house financing.
Currently, we generally hold 50-60 vehicles in inventory. We specialize in selling older model vehicles with an average age of six years and a price range of $3,000 to $15,000. Most of the vehicles we sell are priced under $10,000. The majority of our customers are credit-challenged buyers, usually with credit scores in the 400-500 range, who are unable to qualify for purchase from more conventional automobile credit facilities or third party financial institutions. As a result, we provide in-house financing to many of our customers. Although we attempt to obtain 33 percent for down payments for such in-house financed transactions, our customers typically pay a down payment of approximately 25 percent of the purchase price of the automobile, and sometimes as low as 20 percent. We require payment of the balance of the principal and inte rest over 18 months. We charge 24 percent annual interest for life of the 18-month loan, which is secured by a lien on the automobile. The buyer is required to maintain collision insurance on the collateral that names Crown Auto as the payee.
Expansion of Operations
We are currently located on a 0.4 acre lot and maintain an average inventory of 55 vehicles at all times. We plan to increase our sales through one of two methods. First, we will seek to identify and purchase a larger location, and move our lot to the larger location. This would allow us to hold more cars in inventory, attracting more customers by having a greater selection of vehicles. We expect that this strategy would increase our sales significantly.
We have not identified, and may not be able to identify and purchase a larger property in an ideal location for a used vehicle dealership. Also, we may determine that a larger lot is not the best growth strategy for us. In this case, we will then pursue our alternative growth plan, which consists of increasing the throughput of used vehicles through our existing lot by making financing available to a greater number of customers.
As we cater to consumers with poor credit scores, there is a risk that they will default on the financing we make available to them. To mitigate these risks, we intend to continue engaging in the following practices, which we have found effective:
| · | We load a GPS and/or starter interrupts on the cars we sell. If a buyer defaults on the terms of his financing, we are able to locate and disable the car remotely. This makes repossession of the vehicle much simpler and results in a high rate of recovery for these vehicles. We also pursue an aggressive collections policy, repossessing vehicles after the expiration of a ten day grace period when customer payments are late. |
| · | We charge higher interest rates for shorter terms than individuals could obtain through conventional financing if they were able to qualify for such financing. This results in higher monthly payments, but payments last for only 18 months. By doing this we focus our financial risk of each transaction into a relatively short period of time. The high payments ensure that we recover our principal quickly. Also, if defaults occur and we are able to recover the vehicle, little time has passed, and, therefore, little depreciation of the vehicle has occurred. |
Sales and Distribution Strategy
Our goal is for our company to become a leading dealership in the used automobile marketplace in Salt Lake City, Utah. In order to achieve our goal, we intend to increase awareness of our products with potential customers, who we anticipate will be consumers influenced by the recession to make more economical purchases. We intend to do this primarily by engaging in traditional media advertising. We intend to use traditional media to promote our product directly to the public to raise public awareness of our products. A value-conscious public could pull our products through the supply chain if they are properly educated regarding our products and the benefits of buying used as opposed to new vehicles. Local discount classified advertising newspapers and local radio spots are affordable and effective marketing tools for reaching our targ et audience. We intend to use both regularly in order to increase our brand awareness within the community as well as to promote and sell specific vehicles in our inventory. Our marketing efforts will be focused on the state of Utah, and specifically the Salt Lake City area.
Competition
We compete with a number of established dealerships who sell used vehicles in and around Salt Lake City, Utah. Some of these companies enjoy brand recognition which exceeds that of our brand name. We compete with several dealerships, which have significantly greater financial, distribution, advertising, and marketing resources than we do, including:
| · | Steve’s Auto Sales has been in business for 40 years. The large majority of their customers pay cash or utilize in-house financing. They previously held an average of 50 vehicles in inventory, but recently reduced to approximately 25 due to changes in the economic environment. They advertise specifically to customers with “bad credit, no credit, divorce, bankruptcy, repossession, judgments, first time buyers, and tax liens.” |
| · | First Class Cars has been in business since 1984 and holds about 100 vehicles in inventory. |
| · | CJ Prestman Used Car Department stocks Certified Used Vehicles and advertises “a huge selection of makes/models to choose from,” including used trucks, sport utility vehicles, and cars from Chevrolet, Honda, Toyota, Nissan, Dodge, GMC and others. They advertise that all of their used vehicles have had a mechanical inspection, come with a Car Fax history report and an available extended warranty. They also serve the surrounding areas of Murray, Bountiful, Taylorsville, Kaysville, Centerville, Draper, Holladay, Woods Cross, Provo, Lehi, and Orem. |
| · | Low Book Sales advertises easy financing, a strategic buying program, free 45-day warranty, a seven-day exchange policy, and up-front pricing. They emphasize “stress-free automobile shopping.” |
| · | Ken Garff Nissan Salt Lake was founded in 1932 and claims to be “considered by Utah residents to be the most preferred new car and used car dealer in the whole State of Utah.” The Ken Garff Automotive Group holds an inventory of nearly 5,000 new, certified pre-owned, and used cars total at 39 locations. Their Back U Up promise includes 24/7 roadside assistance, best price guarantee, lifetime engine warranty, as well as full service, repair, parts, and collision repair. |
We compete primarily on the basis of quality, brand name recognition, financing, and price. We believe that our success will depend upon our ability to remain competitive in our product areas. The failure to compete successfully in the future could result in a material deterioration of customer loyalty and our image and could have a material adverse effect on our business.
Regulatory Matters
Used Car Rule
Automobile dealers who sell more than five used vehicles in a 12-month period must comply with the Federal Trade Commission's (FTC’s) Used Car Rule. A dealer must post a Buyers Guide before he “offers” a used vehicle for sale. A vehicle is offered for sale when he displays it for sale or lets a customer inspect it for the purpose of buying it, even if the car is not fully prepared for delivery. This requirement also applies to used vehicles for sale on the lot through consignment, power of attorney, or other agreement. The Used Car Rule was enacted to prevent and discourage oral misrepresentations and unfair omissions of material facts by used motor vehicle dealers concerning warranty coverage. The main purpose of the Guide is to provide important information to consumers about used vehicles they are considering purch asing and to ensure that consumers get information in writing about any warranty protection they have if there is a problem with the vehicle.
Previously titled or not, any vehicle driven for purposes other than moving or test driving is considered a used vehicle, including light-duty vans, light-duty trucks, demonstrators, and program cars that meet the following specifications:
| · | a gross vehicle weight rating (GVWR) of less than 8,500 pounds; |
| · | a curb weight of less than 6,000 pounds; and |
| · | a frontal area of less than 46 square feet. |
Exceptions to the Rule are:
| · | any vehicle sold for scrap or parts if the dealer submits title documents to the appropriate state authority and obtains a salvage certification; and |
| · | agricultural equipment. |
Red Flags Rule
As of May 1, 2009, creditors and financial institutions must develop and implement written identity theft prevention programs.
Fair Credit Reporting Act
Under the federal Fair Credit Reporting Act, a car dealer must always get your permission to look at your credit report. He or she can get that permission in writing—when you sign a release or a loan application—or by implication, without your signature, if there is a “legitimate business need.”
Gramm-Leach-Bliley Act
Under the Gramm-Leach-Bliley Act, the Safeguards Rule, enforced by the FTC, requires financial institutions to have a security plan to protect the confidentiality and integrity of personal consumer information.
The Patriot Act
The purpose of the Patriot Act is to strengthen existing requirements and enact new regulations dealing with terrorism, homeland security and financial disclosures to prevent the funding of terrorist activities, domestically and abroad. The Act requires dealerships to establish and maintain anti-money laundering programs. The Act also requires dealers to respond to information requests from Federal government law enforcement agencies. Upon receipt of such a request, a dealership must expeditiously search its records to determine whether it maintains or has maintained any account for, or has engaged in any transaction with, each individual, entity, or organization named in the government's request.
State Regulations
The state of Utah currently requires every dealership to be bonded for $75,000. The current cost of maintaining this bond is $800 per year. There is the possibility that the bond amount may be increased by the state legislature. If this occurs, the cost of maintaining the bond would increase. Also, the requirements associated with qualifying for a larger bond will be more restrictive, and there is a chance that we would not qualify.
Intellectual Property Protection
We do not currently have any intellectual property, and we do not have plans to acquire any intellectual property.
Employees
We currently have employees, including our sole officer and director, Jim Katsanevas. Our President oversees all responsibilities in the areas of corporate administration, business development, and research.
We intend to expand our current management and staff to retain skilled employees with experience relevant to our business focus. In order to expand our operations, we expect to hire one additional employee for collections, one for finance, and four additional salespeople. Obtaining the assistance of individuals with and in-depth knowledge of operations and markets will allow us to build market share more effectively.
Our dealership and executive offices are located at 2760 South State Street, Salt Lake City, Utah 84115. We have a month to month lease for $2500 on the property. It is a triple net lease and we pay everything except, sewer and water, and property taxes. We have been leasing from the same landlord for 13 years.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Historical results and trends should not be taken as indicative of future operations. Management's statements contained in this report that are not historical facts are forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," "prospects," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of c apital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Results of Operations for the Three and Nine Months Ended September 30, 2010 and 2009
We generated $450,234 in revenue for the three months ended September 30, 2010, as compared with $368,175 for the three months ended September 30, 2009. We generated $1,307,716 in revenue for the nine months ended September 30, 2009, as compared with $1,322,665 for the nine months ended September 30, 2009. The increase in revenues for the three months ended September 30, 2010 from 2009 is due to the expiration of the Federal Governments “Cash for Clunkers” program that significantly reduced the supply of used cars available for resale. The program is also the primary reason sales for the nine months ended September 30, 2010 as compared with the prior year periods declined.
Our cost of sales of $381,741resulted in gross profit of $68,493 or 15.2% of our revenues for the three months ended September 30, 2010, as compared with cost of sales of $266,130 and gross profit of $2102,045 or 27.7% of our revenues for the three months ended September 30, 2009. Our cost of sales of $894,482 resulted in gross profit of $413,234 or 31.6% of our revenues for the nine months ended September 30, 2010, as compared with cost of sales of $1,049,343 and gross profit of $273,322 or 20.7% of our revenues for the nine months ended September 30, 2009. Our gross margin fluctuates according to the availability of used cars at the auto auctions. During periods of high demand for used cars we have to pay more at the auctions which reduces our gross margin.
We incurred $51,582 in operating expenses for three months ended September 30, 2010, as compared with $36,084 in operating expenses for the same period ended 2009. Our operating expenses for the three months ended September 30, 2010 included $25,270 in payroll expenses, $7,500 in rent expenses, $5,054 in advertising expenses, $721 in professional fees and $13,037 in other general and administrative expenses. In contrast, our operating expenses for the three months ended September 30, 2009 included $19,203 in payroll expenses, $5,000 in rent expenses, $4,265 in advertising expenses, $545 in professional fees and $7,071 in other general and administrative expenses
We incurred $178,118 in operating expenses for nine months ended September 30, 2010, compared to $128,187 in operating expenses for the same period ended 2009. Our operating expenses for the nine months ended September 30, 2010 included $58,879 in payroll expenses, $22,500 in rent expenses, $13,546 in advertising expenses, $33,972 in professional fees and $49,221 in other general and administrative expenses. In contrast, our operating expenses for the nine months ended September 30, 2009 included $60,347 in payroll expenses, $20,000 in rent expenses, $14,854 in advertising expenses, $2,451 in professional fees and $30,535 in other general and administrative expenses. Total operating expenses increased for the nine months ended September 30, 2010 compa red to 2009 largely due to an increase in professional fees and general and administrative expense related to conducting the Company’s December 31, 2009 year end audit.
We anticipate our operating expenses will increase as we implement the expansion of our business plan. The increase will be attributable to expenses to implement our business plan, and the professional fees to be incurred in connection with the filing of a registration statement with the Securities Exchange Commission under the Securities Act of 1933. We anticipate our ongoing operating expenses will also increase once we become a reporting company under the Securities Exchange Act of 1934.
We generated interest income of $40,765 for the three months ended September 30, 2010, as compared with interest income of $16,273 for the three months ended September 30, 2009. We generated interest income of $70,820 for the nine months ended September 30, 2010, as compared with interest income of $48,819 for the nine months ended September 30, 2009. Interest income increased because the accounts receivable from car sales is higher due to increased sales in 2010.
We, therefore, recorded net income of $22,989 for the three months ended September 30, 2010, as compared with net income of $82,234 for the three months ended September 30, 2009. We recorded net income of $271,249 for the nine months ended September 30, 2010, as compared with net income of $193,954 for the nine months ended September 30, 2009.
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Results of Operations for the Years Ended December 31, 2009 and 2008
We generated $1,631,533 in revenue for the year ended December 31, 2009, as compared with $1,555,507 for year ended December 31, 2008. The increase in revenue for the year ended December 31, 2009 as compared with the prior year is a result of the weak U. S. economy. During a weak economy automobile buyers tend to purchase used vehicles rather than new vehicles.
Our cost of sales resulted in gross profit of $171,496 or 10.5% of our revenues for the year ended December 31, 2009, as compared with gross profit of $302,000 or 19.4% of our revenues for the year ended December 31, 2008. Our gross margin fluctuates according to the availability of used cars at the auto auctions. During periods of high demand for used cars we have to pay more at the auctions which reduces our gross margin.
We incurred $246,441 in operating expenses for year ended December 31, 2009, as compared with $402,235 in operating expenses for the same period ended 2008. Our operating expenses for the year ended December 31, 2009 included $127,228 in payroll expenses, $29,281 in general and administrative expenses, $40,818 in bad debt expenses, $30,000 in rent expenses, and $19,114 in advertising expenses. In contrast, our operating expenses for the year ended December 31, 2008 included $158,176 in bad debt expenses, $123,907 in payroll expenses, $71,492 in general and administrative expenses, $30,000 in rent expenses, and $18,660 in advertising expenses. We instituted significant cost cutting measures in 2009 in response to the downturn in the economy.
We generated interest income of $65,092 for the year ended December 31, 2009, as compared with interest income of $79,397 for the year ended December 31, 2008.
We, therefore, recorded a net loss of $9,853 for the year ended December 31, 2009, as compared with a net loss of $20,838 for the year ended December 31, 2008.
