SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the quarterly period ended September 30, 2012
For the transition period from __________ to __________
Commission file number: 000-51997
NORTHEAST AUTOMOTIVE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
2174 HEWLETT AVENUE, SUITE 206
MERRICK, NY 11566
(Address of Principal Executive Offices)
(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.
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 November 26, 2012 was 554,017 shares.
NORTHEAST AUTOMOTIVE HOLDINGS, INC.
September 30, 2012
TABLE OF CONTENTS
See Notes to Unaudited Consolidated Financial Statements
See Notes to Unaudited Consolidated Financial Statements
See Notes to Unaudited Consolidated Financial Statements.
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
The Company used to used automobiles at auctions, then repairs, cleans, transports and resells them wholesale throughout the United States. The Company ceased such operations in 2011 and currently has no operations.
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 September 30, 2012 are not necessarily indicative of the operating results for the entire year.
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 a working capital deficiency of $175,066 at September 30, 2012 and an accumulated deficit of $4,147,310 since inception.
The Company currently has no revenues and the Company's cash position may not be enough to support the Company's daily operations. Management is now seeking other business opportunities to provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy, 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.
NOTE 2 – NOTES AND LOANS PAYABLE
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, 2011, 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.
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 Nine months Ended September 30, 2012 and September 30, 2011
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 nine months period ended September 30, 2012 and September 30, 2011.
Revenue for the six month period ended September 30, 2012 was $-0- a decrease of $579,440 or 100% as compared to revenues for the six months period ended September 30, 2011 of $579,440. The decrease in revenue was a result of no vehicles being sold in the nine months period in 2012 compared to 2011. Specifically, in the nine months period ended September 30, 2012 no vehicles were sold as compared to 30 vehicles at an average sales price of $19,315 during the comparable period in 2011.
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 $-0- or 100% of net revenues during the nine months period ended September 30, 2012 as compared to $524,854 or 90.6% for the comparable period in 2011, a decrease of $524,854 or 100%. Thus, our gross margin was 0.0% for the nine months period ended September 30, 2012 as compared to 9.4% for the comparable period in 2011. 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 nine months period ended September 30, 2012 as compared to the comparable period in 2011.
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 $141,271 for the nine months period ended September 30, 2012 or 100% of net revenue as compared to $158,703 or 27.39% of net revenue for the comparable period in 2011, a decrease in such expenses of $17,432 or 10.9% The decrease in the ratio of SGA expenses to net revenue was primarily due to a decrease in operating expenses.
Our combined expenses for officers salaries and interest was $2,800 for the nine months period ended September 30, 2012 or 100% of net revenue compared to the comparable period in 2011 when such expenses were $24,716 or 4.3% of net revenue. The decrease in such expenses is attributable to decreased officers’ salaries in 2012 as well as a decrease in interest expense. The following table shows the changes in the components of these expenses during the comparable periods.
Operating Gain (Loss)
Operating gain or loss is calculated as our revenues less all of our operating expenses. Our operating (loss) for the nine months period ended September 30, 2012 was ($144,071) or (100%) of net revenue as compared to an operating loss of ($130,562) or (22.5%) of net revenue for comparable period in 2011, an increase of $13,509. This increase in operating loss was primarily as a result of a decrease in gross profits.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2012, we had cash and cash equivalents of $172 invested in standard bank checking accounts and highly liquid money market instruments. Such investments are subject to interest rate and credit risk. Such risks and a change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operations. As of September 30, 20121, we had no outstanding balance on our revolving credit facility with Manheim Auto Financial Services, Inc. Borrowings under such revolving credit facility would bear interest at a variable rate equal to prime plus 2.0%. In addition, as of September 30, 2012, we had an outstanding balance of $100,000 on a bank revolving credit facility which bears interest at a variable rate equal to prime plus 1.0%.
ITEM 4. 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 September 30, 2012, 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.
ITEM 1A. RISK FACTORS
The Company is subject to various risks, including the risks described below. The Company’s business, operating results, and financial condition could be materially and adversely affected by any of these risks. Additional risks not presently known to the company or that the Company currently deems immaterial may also impair the business and its operations.
Economic Conditions and Gasoline Prices May Affect Sales. In the normal course of business, the Company is subject to changes in general or regional U.S. economic conditions, including, but not limited to, consumer credit availability, consumer credit delinquency and default rates, interest rates, gasoline prices, inflation, personal discretionary spending levels, and consumer sentiment about the economy in general. Any significant changes in economic conditions could adversely affect consumer demand and/or increase our costs resulting in lower profitability for the Company. In addition, our transportation costs are partially tied to the cost of gasoline and any additional increases to the cost of gasoline may increase our costs and may result in lower profitability.
Our Business is Highly Competitive. The reselling of late model used vehicles is a highly competitive business. The Company’s competition includes publicly and privately owned franchised new car dealers and independent dealers, as well as millions of private individuals. The company’s competitors may sell the same or similar makes of vehicles that the Company offers in the same or similar markets at competitive prices. Further, new entrants to the market could result in increased wholesale costs for used vehicles and lower-than-expected vehicle sales and margins. Additionally, competition on vehicle sales is increasing as these products are now being marketed and sold over the Internet. Customers are using the Internet to compare pricing for cars and related financing, which may further reduce the Company’s profitability.
Retail and Wholesale Prices May Vary Depending Upon Factors Beyond the Company’s Control. Any significant changes in retail or wholesale prices for used and new vehicles could result in lower sales and margins for the Company. If any of the Company’s competitors seek to gain or retain market share by reducing prices for used vehicles, the Company would likely reduce its prices in order to remain competitive, which may result in a decrease in its sales and profitability and require a change in its operating strategies.
There are Risks Associated with Purchasing Inventory. A reduction in the availability or access to sources of inventory would adversely affect the Company’s business. A failure to adjust the price that the Company offers to purchase vehicles from sellers to stay in line with market trends, or a failure to recognize those trends, could negatively impact the Company’s ability to acquire inventory.
We are highly Dependent Upon Our Management and Workforce. The Company’s success depends upon the continued contribution of its corporate management team. Consequently, the loss of the services of key employees could have a material adverse effect on the Company’s results of operations. In addition, in order to expand the Company’s business, the Company will need to hire additional personnel. The market for qualified employees in the industry and in the regions in which the Company operates is highly competitive and may subject the company to increased labor costs during periods of low unemployment.
We are Dependent Upon Our Information Systems. The Company’s business is dependent upon the efficient operation of its information systems. In particular, the Company relies on its information systems to effectively manage its sales, inventory and customer information. The failure of the Company’s information systems to perform as designed or the failure to maintain and continually enhance or protect the integrity of these systems could disrupt the Company’s business, impact sales and profitability, or expose the Company to customer or third-party claims.
Our Availability to Capital May Vary. Changes in the availability or cost of capital and working capital financing, including the availability of long-term financing to support development of the Company, could adversely affect the company’s growth and operating strategies. Further, the Company’s current credit facilities contain certain financial covenants and the Company’s future credit facilities may contain covenants and/or performance triggers. Any failure by the Company to comply with these covenants and/or performance triggers could have a material adverse effect on the Company’s business.
Our Purchases and Sales are Geographically Concentrated. The Company’s performance is subject to local economic, competitive, and other conditions prevailing in geographic areas where the Company operates. Since currently, all of our vehicles are purchased in the Northeast and are sold in the Pacific Northwest; the Company’s current results of operations depend substantially on general economic conditions and consumer spending habits in these markets. In the event that any of the geographic areas in which the Company does business experiences a downturn in economic conditions, it may adversely affect the Company’s business. Furthermore, in the event that the regional price discrepancies of vehicles that the Company exploits should decrease or disappear, it may adversely affect the Company’s business.
We Currently Have Just One Director. Our Board of Directors is currently comprised of just one member, our Chief Executive Officer William Solko. Thus, without any independent directors, conflicts of interest between the Company and our Chief Executive Officer may occur regarding issues such as executive compensation.
Our Costs Are Partially Dependent Upon Fuel Costs. Because all of the vehicles we purchase must be shipped from the Northeast to the Pacific Northwest, we are dependant upon variations in the cost of fuel. Any significant rise in the cost of fuel will increase our transportation costs and we may not be able to pass these increased costs along to our customers, resulting in lower net profits on each vehicle we sell.
We will be subject to substantial and growing competition in all aspects of our business. Barriers to entry to the asset management business are relatively low, and our management anticipates that we will face a growing number of competitors. Although no one company dominates the asset management industry, many companies are larger, better known and have greater resources than we do.
We will compete against an ever-increasing number of investment dealers, banks, insurance companies, trust companies and others that offer investment advice and trust services. In short, the competitive landscape in which we will operate is both intense and dynamic and there can be no assurance that we will be able to compete effectively in the future.
Patent and Trademarks
We currently do not own any patents, trademarks or licenses of any kind and therefore we have no protected rights with respect to our services.
We have not yet received regulatory approval to provide our services. However, we will seek the necessary approvals from any governmental agencies required to conduct our business prior to commencing operations.
We will operate in a highly regulated environment and be subject to extensive supervision and examination. As a chartered trust company, we would be subject to state rules and regulations and supervision by the State Department of Banking in which we will operate. These laws are intended primarily for the protection of clients and creditors, rather than for the benefit of investors and generally provide for and regulate a variety of matters, such as minimum capital maintenance requirements; restrictions on dividends; restrictions on investments of restricted capital; lending and borrowing limitations; prohibitions against engaging in certain activities; periodic examinations by the office of the Department of Banking Commissioner; furnishing periodic financial statements to the Department of Banking Commissioner; fiduciary record-keeping requirements; and sometimes prior regulatory approval for certain corporate events (such as mergers, sale/purchase of all or substantially all of the assets and transactions transferring control of a trust company).
We may also be subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to the related regulations, insofar as we are a “fiduciary” under ERISA with respect to some of our clients. ERISA and applicable provisions of the Code impose certain duties on persons who are fiduciaries under ERISA or who provide services to ERISA plan clients and prohibit certain transactions involving ERISA plan clients.
We may also be subject to other regulatory agencies including the Securities and Exchange Commission. Our failure to comply with any of these regulatory requirements could have a material adverse effect on us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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.