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EX-31.1 - EXHIBIT 31.1 - KOGETO, INC.v309563_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - KOGETO, INC.v309563_ex32-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2011

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission file number

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 65-0637308

(State or other jurisdiction of incorporation or

organization)

(I.R.S. Employer Identification No.)
   

2174 Hewlett Avenue,

Merrick,  New York

 

11566

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (516) 377-6311

 

Securities registered under Section 12(b) of the Exchange Act:
   
Title of each class Name of each exchange on which registered
None None
   
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.0001
(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act.

Yes  ¨    No x  

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  ¨    No x  

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x   

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer   ¨ Accelerated Filer     ¨
   
Non-Accelerated Filer     ¨ Smaller reporting company x
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No   x

 

State issuer’s revenues for its most recent fiscal year. $579,440

 

The aggregate market value of common stock held by non-affiliates of the Registrant on December 31, 2011 based on the closing price on that date of $0.06 on the Over the Counter Bulletin Board was $19,240. For the purposes of calculating this amount only, all directors, executive officers and shareholders owning in excess of ten percent (10%) of the Registrant’s outstanding common stock have been treated as affiliates.

 

Number of shares of the registrant’s common stock outstanding as of April 16, 2012: 554,017 shares of Common Stock.

 

 
 

 

TABLE OF CONTENTS

 

    Pg
Part I    
     
Item 1. Business. 3
     
Item 1A Risk Factors 7
     
Item 1B Unresolved Staff Comments 8
     
Item 2. Properties 8
     
Item 3. Legal Proceedings. 9
     
Item 4. Submission of Matters to a Vote of Security Holders. 9
     
Part II    
     
Item 5. Market for Common Equity and Related Stockholder Matters, and issuer Purchases of Equity Securities. 9
     
Item 6 Selected Financial Data 9
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Plan of Operations. 9
     
Item 7A Quantitative and Qualitative Disclosures About Market Risk 14
     
Item 8. Financial Statements. F1
     
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 15
     
Item 9A. Controls and Procedures. 15
     
Item 9B. Other Information. 15
     
Part III    
     
Item 10. Directors, Executive Officers, of the Registrant. 16
     
Item 11. Executive Compensation. 17
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 18
     
Item 13. Certain Relationships and Related Transactions and Director Independence. 19
     
Item 14. Principal Accountant Fees and Services 19
     
Part IV    
     
Item 15. Exhibits and Financial Statement Schedules 19
     
Signatures 20

 

2
 

 

Except as otherwise required by the context, all references in this prospectus to "we", "us”, "our", or "Company" refer to the operations of Northeast Automotive Holdings, Inc., a Nevada corporation.

 

PART I

Item 1.Business

 

BACKGROUND

 

Northeast Automotive Holdings, Inc., (the “Company”), was incorporated on October 12, 2007 in the State of Nevada.    Pursuant to an Agreement and Plan of Merger with Northeast Auto Acceptance Corp., a Florida Corporation (“NEAA-FL”) in November 2007, we acquired title to all property owned by NEAA-FL including its wholly owned subsidiary Northeast Auto Acceptance Corp., a New York  Corporation (“NEAA-NY”).  All of our operating business is currently conducted through our subsidiary, NEAA-NY, and our principal executive offices are located at 2174 Hewlett Avenue, Suite 206, Merrick, New York 11566. Our telephone number at this address is (516) 377-6311.

 

OUR BUSINESS

 

The Company currently seeks to exploit its 15 years of experience in the wholesale automobile industry and the inefficiencies and geographic differences in the used vehicle market by purchasing high quality, late model used vehicle 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.

 

During our last audited year, which ended December 31, 2011, we had total revenue of $579,440 and a net loss of $211,765.

 

We typically purchase vehicles from two types of sellers: institutional sellers and dealers. Institutional sellers include vehicle manufacturers and their captive finance arms, banks, vehicle finance companies, credit unions, other financial institutions, vehicle rental companies, commercial fleets and fleet management/licensing companies. Selling dealers include licensed franchised, independent and wholesale vehicle dealers.  We deal only with wholesale sellers and buyers and do not buy from or sell to individuals.  In addition, we do not purchase or sell scrap vehicles.

 

As a principal in each transaction, we take title to, and ownership of, the vehicles we purchase.  We generally earn revenue from reselling the used vehicles to dealers in other geographic regions at a higher price than we paid to purchase the vehicles.

 

Our vehicles are purchased from institutional sellers and dealers located within a limited geographic area, specifically, the Northeastern United States.  We currently resell all of these vehicles at wholesale vehicle auctions in the Pacific Northwest.  On a weekly basis, we hire various third party automobile transporters to ship our vehicles from the East coast where they are purchased to wholesale auctions in the Pacific Northwest.

 

Generally speaking, we do not own a vehicle for more than an average of 14 days since our goal is to transport and then quickly sell, at a profit, the vehicles we purchase from sellers.

 

Although our business is not seasonal in nature, we do attempt to take advantage of how seasonal tastes affect the buying habits of consumers.  For example, prior to the spring months we attempt to purchase a greater number of sport vehicles since consumer demand for sports models increases in the spring and summer months.  Likewise, prior to the winter months, we attempt to purchase more SUVs to meet the greater consumer demand in the winter months.  In addition, the prices of certain kinds of used vehicles fluctuate with the season.  For example, the prices of SUVs rise prior to the winter months and drop after the winter ends.

 

3
 

 

INDUSTRY OVERVIEW

 

With calendar year 2004 sales of approximately $367 billion, used vehicles make up nearly half of the U.S. auto retail market, the largest retail segment of the economy. In calendar 2004, there were an estimated 42.5 million used vehicles sold compared with 16.9 million new vehicles, of these vehicles approximately 9,666,000 were sold at auction, according to the National Auto Auction Association.  Our primary focus, late-model vehicles that are one to six years old, is estimated at approximately $265 billion in annual sales and 20 million units per year.

 

The demand for used vehicles purchased at auction is driven by the retail demand for used vehicles. Dealers in the United States sold approximately 29.5 million used vehicles in 2002, which accounts for approximately 69% of the total used vehicle sales in the United States. The demand for used vehicles has grown due to the increase in the number of households that have more than one vehicle, improvements by manufacturers to the quality of vehicles that have extended vehicle lifespan and made used vehicles a more attractive option for retail vehicle buyers and the affordability of used vehicles relative to new vehicles.

 

To satisfy this large demand for used vehicles, car dealers that sell used vehicles utilize various sources of supply to stock their inventory, including trade-ins from customers on new and used vehicle purchases, purchases from other dealers, wholesalers, individuals or other entities.  It has been our experience that used vehicle dealers are increasingly relying upon wholesale used vehicle auctions, such as the auctions where we primarily sell our vehicles, as a way to purchase high quality used vehicles and this has resulted in an increase in the number of used vehicles sold annually at auctions and an increase in the attendance at auctions by used vehicle dealers.

 

OUR SALES AND DISTRIBUTION METHODS

 

We attempt to have a sales cycle of as little as ten days starting with our purchase of a vehicle, transporting it to auction, reselling it at a profit and our receipt of full payment from the buyer.  On a continual basis, we purchase used vehicles in the Northeast and transport and sell them in the Pacific Northwest. In doing so, we seek to exploit a continual inefficiency in the used vehicle market.  That is, the supply of high quality, late model used cars is more limited in the Pacific Northwest as compared to the Northeast, resulting in substantially higher wholesale prices.  This anomaly in the used vehicle market is largely a factor of the Northeast’s larger population which results in a greater number of cars being bought, sold and leased in the Northeast.  The increased number of used vehicles sold in the wholesale market in the Northeast tends to create lower wholesale prices than would be paid for the same used vehicle in the Pacific Northwest.

 

We purchase used vehicles from one of two broad categories of wholesale sellers: institutions and dealers. We do not purchase vehicles directly from private sellers. The majority of the vehicles we buy are purchased from institutional sellers and dealers located within a limited geographic area, specifically, the Northeastern United States.  When we purchase vehicles from institutional sellers, the purchases are most commonly made utilizing a wholesale vehicle auction as a middleman, although, at times, we do purchase directly from institutional sellers.

 

Institutional sellers include vehicle manufacturers and their captive finance arms, banks, vehicle finance companies, credit unions, other financial institutions, vehicle rental companies, commercial fleets and fleet management/licensing companies.  The vehicles we purchase from these sellers include vehicles that have come off lease, repossessed vehicles, rental and other program fleet vehicles that have reached a predetermined age or mileage at which time they are automatically repurchased by manufacturers and vehicles purchased by dealers as trade-ins from consumers.  Our most important sellers are the captive finance arms of automobile manufacturers such as GMAC and Ford Motor Credit.

 

We also purchase cars from selling dealers which include licensed franchised, independent and wholesale vehicle dealers.  Most of the vehicles we purchase from selling dealers were acquired by the dealers as trade-ins towards the purchase of a new vehicle since many new car dealers find it more efficient to sell trade-in vehicles to wholesale dealers like us than to offer the vehicles in their own used car departments.

 

Although our business is not seasonal in nature, we do attempt to take advantage of how seasonal tastes affect the buying habits of consumers.  For example, prior to the spring months we attempt to purchase a greater number of sport vehicles since consumer demand for sports models increases in the spring and summer months.  Likewise, prior to the winter months, we attempt to purchase more SUVs to meet the greater consumer demand in the winter months.  In addition, the prices of certain kinds of used vehicles fluctuate with the season.  For example, the prices of SUVs rise prior to the winter months and drop after the winter ends.

 

Our management has extensive experience in selecting used vehicles for purchase.  Prior to purchase, we learn about the availability of our used vehicles being sold by institutional sellers, directly from the sellers, either via their Web sites or from lists they provide to us.  We use a combination of industry guidebooks and management’s experience in determining what the proper price to bid for and purchase a used vehicle.  Once we successfully bid on a vehicle, we use third party contractors to inspect the vehicles for substantial defects and we reserve the right to reject the purchase of any vehicle showing substantial defects.

 

4
 

 

Currently, we purchase vehicles, on a monthly basis, through six (6) auction houses, which each comprise over ten percent (10%) of our purchases, namely, Skyline Auto Exchange, Southern Auto Auction , ADESA Boston Auto Auction , NADE (National Auto Dealers Exchange) , ADESA New Jersey Auto Auction and   Manheim Auto Auction.  It should be noted that we are not dependent upon any one auction house for our purchases, since in the event that any particular auction house should go out of business, the sellers utilizing such auction house would shift to other auctions.  We currently utilize a revolving line of credit of up to $975,000   provided by Manheim Automotive Financial Services, Inc., an affiliate of Manheim Auto Auction, Inc. (“Manheim”).  Pursuant to such line of credit, which is designed specifically for the purchase of vehicles from Manheim, we are obligated to repay each advance against the line of credit in no more than 21 days after it is advanced to the Company.  The Manheim line of credit also contains several other material terms, specifically, the loan is secured against vehicles purchase with the funds, we have agreed to maintain reasonable amount of adequate cash necessary to operate our business and we have agreed not to make any material changes in our business or material change in our capital structure.

 

The current focus of our sales activity is the sale of our vehicles at wholesale auctions located in the Pacific Northwest.  On a weekly basis, we hire various non-union, third party automobile shippers to transport our vehicles to wholesale auctions in the Pacific Northwest.  We utilize the services of established third party vehicle shippers that take our vehicles from the New York metropolitan area and ship them to the Pacific Northwest on our behalf.  We have non-exclusive arrangements with these shipping companies and we regularly contract with several different transporters.

 

The average time it takes to ship a vehicle is five days.  Our shipping costs are partially dependant on the price of fuel and may rise or fall depending upon the then-current fuel costs at any point in time and as of December 31, 2011, our average cost to ship a vehicle is $17 per vehicle.  Once our vehicles are shipped to the third party auction locations, they are cleaned and minor repairs, if necessary, are made by third party contractors who are provided by the auction houses as add-on services available to all of its sellers.

 

We utilize third party wholesale used vehicle auctions for almost all of our sales and they are a key element in our business.  Auctions serve as a real-time independent marketplace for the industry and efficiently transfer ownership and title, administer the flow of funds between sellers and buyers of vehicles and facilitate the storing, transporting, reconditioning and selling of vehicles.

 

By selling at wholesale auctions, we help assure that we receive the highest possible prices for our vehicles in an efficient marketplace and we help assure that we can quickly sell the vehicles we purchase.  Equally important, auctions assure payment from buyers by escrowing title until payment is received, so that the Company’s credit risk on vehicle sales is substantially reduced.

 

We believe that auctions are the best means of transferring ownership of used vehicles based on the short time-to-cash cycle auctions offer, the low cost of utilizing auctions as a percent of the gross market value of the vehicles placed at auction and the relative transparency of the auction process.  As a result, auctions offer a large and liquid market resulting in true real time market prices for each vehicle sold.

 

Growth Strategy

 

We are pursuing strategic initiatives that are designed to capitalize on our underlying business strengths, grow our business and improve our profitability.  Key elements of our growth strategy include:

 

Growing vehicle sales volume.  We expect to grow our business by capitalizing on the increasing volume of used vehicles purchase and sold annually.  We intend to increase vehicle volume from existing institutional customers and to add new accounts by increased marketing efforts and through the acquisition of smaller competitors.

 

Identifying new markets.  We expect to expand our resale efforts from the Pacific Northwest to other geographic markets within the United States where we can identify similar market inefficiencies and where the supply of high quality, late model used vehicles is limited.

 

Acquisitions of Smaller Competitors.  We have a large number of smaller competitors whose sales volume is less than ours, but who have established relationships with dealers with whom we do not currently do business.  We plan on either acquiring one or more of these smaller competitors or entering into other relationships with such companies which allows us to take advantage of their existing relationship.

 

Optimizing profit per vehicle sold. In 2011, we had a net loss per car sold of $7,059. We plan to increase our average profit per car by negotiating better terms from sellers and by reducing transportation costs through greater volume commitments to shippers and through the possible utilization of railroad shipping for vehicles which are now available to us due to the larger number of vehicles that we now ship.

 

5
 

 

COMPETITIVE STRENGTHS

 

We believe that the following key competitive strengths are critical to our continuing success:

 

Experienced management team. The members of our senior management team have an average of 19 years of experience in the auto industry and have successfully grown our company to become a leader in the wholesale used vehicle market. Our management team has accomplished this by implementing a disciplined strategy of selective vehicle purchases and increasing sales. Over the past several years, our management team has demonstrated its ability to efficiently and successfully integrate both large and small acquisitions of used vehicles and has increased the number of vehicles bought and sold annually.

 

Established relationships with diversified customer base.   Since the supply of high quality used vehicles is limited, our long standing business relationships with institutional sellers and our ability to quickly close and pay for purchases are a strong competitive advantage. We have established strong business relationships with selling dealers and institutional customers, such as vehicle manufacturers, financial institutions, rental agencies and fleet companies. Our customer base is primarily comprised of repeat customers, which allows us to reduce the amount of time required to close a purchase or sale and allows us access to dealer and institutional vehicles for sale which would not be available to less established competitors.  Due to the diversity of our customer base, we do not have a major concentration of business with any one customer on either the buy or sale side of a transaction.  In fact, none of sellers from which we purchase vehicles, accounts for more than 10% of our purchasing volume and no one purchaser of our vehicles accounts for 10% or more of our selling.  This diversity also allows us to better withstand changes in the economy and market conditions.  Our sales and marketing team seeks to foster and maintain strong relationships with our customers through frequent contact and customer service.  These open lines of communication allow us to be more responsive and timely in meeting our customers' needs and goals, regardless of the size of their portfolio of vehicles.

 

Experienced Administrative Staff.  We have developed streamlined administrative services which handle title processing and administrative paperwork resulting in lower administrative costs, greater efficiency and reduced turnaround times for vehicles we purchase and sell.

 

COMPETITION

 

All aspects of the automotive industry are highly competitive. We regularly compete for the purchase of used vehicles with small and large dealers and other wholesalers. At our auctions, we compete with numerous other sellers of used vehicles including the same types of sellers from whom we purchase vehicles.

 

GOVERNMENTAL REGULATION

 

In addition to the laws and regulations which apply to all businesses, our operations are subject to regulation, supervision and licensing under various state and local statutes and regulations applicable to wholesale used vehicle dealers.  We are licensed by the New York State Department of Motor Vehicles as a wholesale motor vehicles dealer and by the New Jersey Department of Motor Vehicles as an automobile leasing company. The cost of compliance with all such regulations is minimal.

 

Since we sell automobiles and are not engaged in manufacturing, we did not spend any material amounts on compliance with environmental laws.

 

EMPLOYEES

 

As of December 31, 2011, we had three full and part time employees, including two in Sales and Support and one in Administration.  In addition, we have on-going relationships with six contractors who work as sales representatives for the Company. Although talented and qualified employees are difficult to find in the current tight job market, we have experienced relative success in attracting and retaining highly motivated and talented employees.

 

6
 

 

We believe that the future success of the Company will depend in part on our continued ability to attract, integrate, retain and motivate highly qualified sales and managerial personnel, and upon the continued service of our senior management. The competition for qualified personnel in our industry and geographical location is intense, and there can be no assurance that we will be successful in attracting, integrating, retaining and motivating a sufficient number of qualified personnel to conduct our business in the future. From time to time, we also employ independent contractors to support our marketing and sales organization. We have never had a work stoppage, and no employees are represented under collective bargaining agreements. We consider our relations with our employees to be good.

 

SUBSIDIARIES

 

We have one subsidiary, Northeast Auto Acceptance Corp., a New York corporation, which was incorporated in 1996 and is a wholly-owned subsidiary of Northeast Automotive Holdings, Inc. (Formerly Northeast Auto Acceptance Corp.), a Nevada corporation.  All of our operating business is handled by our New York subsidiary and information contained herein regarding the business of the Company reflects the operating business of our New York subsidiary.

 

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 Dependant 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 of 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.

 

7
 

 

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 composed 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.  We intend to increase the size of the Board of Directors in 2012.

 

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 dependent 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.

 

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.

 

Governmental Regulations

 

Our operations are subject to regulations promulgated by various government entities, including the New York State Department of Motor Vehicles and the New Jersey Department of Motor Vehicles.

 

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 1B.Unresolved Staff Comments

 

Not applicable

 

Item 2.Properties

 

Our executive offices are located at 2174 Hewlett Avenue, Suite 206, Merrick, New York 11566. The Company rents office space on a month-to-month basis at two locations. Rent expense was approximately $7,800 for 2011 and $7,000 for 2010. We believe that these spaces are sufficient and adequate to operate our current business.

 

8
 

 

Item 3.Legal Proceedings.

 

The Company is not a party to any pending or threatened legal proceedings.

 

Item 4.Submission of Matters to a Vote of Security Holders.

 

None.

 

PART II

 

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities.

 

Market Information

 

Our common stock is currently quoted on the Over the Counter Bulletin Board (“OTC BB”) under the symbol NEAU.  There is an extremely limited trading market for our common stock.  The low and high share price during the year ended December 31, 2011 was $0.12 and $2.00 respectively. The low and high share price during the year ended December 31, 2010 was $0.06 and $0.12 respectively.

 

Dividends

 

Holders of our common stock are entitled to receive dividends if, as and when declared by the Board of Directors out of funds legally available therefor. We have never declared or paid any dividends on our common stock. We intend to retain any future earnings for use in the operation and expansion of our business. Consequently, we do not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future.

 

Recent Sales of Unregistered Securities

 

None.

 

Item 6.Selected Financial Data

 

Not Applicable

 

Item 7.Management’s Discussion and Analysis or Plan of Operations.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS

 

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 the Company’s other SEC filings and public disclosures.

 

This Form 10-K 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 I, Item 1b. The Company undertakes no obligation to update any forward-looking statements for revisions or changes after the date of this Form 10-K.

 

Overview

 

We are a wholesale automobile sales company which seeks to exploit the inefficiencies and geographic differences in the used vehicle market by purchasing high quality, late model used vehicles from dealers and institutional sellers in Northeastern states and transporting the vehicles for resale in the Pacific Northwest. We are involved only in the wholesale purchase and sale of vehicles acting as a middleman between various dealer and institutional sellers and dealer purchasers.  We generally sell our vehicles only through established third-party auctions which act as a marketplace for used vehicles. We thus help align institutional used vehicle sellers and wholesale buyers over a wide geographic area.

 

9
 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our liquidity is directly related to market trends and events, as well as our ability to interpret those trends and events and react accordingly. We are active in the used vehicle market daily, and we believe that while there will always be uncertainties and unusual events that may shape the market, we are highly capable of dissecting the data available to us, and both willing and able to make whatever changes are needed in a timely fashion to protect our liquidity. Unusual events may include the rise or fall of the cost of fuel, unforeseen economic changes in the geographic areas with which our company operates, or even acts of God.

While we feel we are well capitalized at this time with the cash we have on hand, we do have a line of credit with Manheim Automotive Financial Services in the amount of $1,000,000, all of which was available at December 31, 2011.

 

We have no material commitments for capital expenditures at this time. During the years ended December 31, 2011 and 2010, our capital resources are used primarily for the purpose of purchasing inventory. However, we are under no obligation or contract to purchase inventory at any specific time or from any specific source.

 

For the Years Ended December 31, 2011 and 2010

 

The following table sets forth certain data derived from the consolidated statements of operations, expressed as a percentage of net revenues for each of the years ended December 31, 2011 and 2010.

 

ANNUAL RESULTS OF        
OPERATIONS  Years Ended December 31     
   2011       2010     
(In thousands)  Amount   %   Amount   % 
Net Revenues  $579    100.0%  $13,025    100.0%
Cost of Revenues   527    90.9%   11,926    91.6%
Gross Profit   52    9.1%   1,099    8.4%
Sales, general and administrative expenses   92    16.3%   535    4.1%
Other expenses   173    29.8%   303    2.3%
Total costs and expenses   264    46.1%   838    6.4%
Profit (loss) from operations  $(212)   (37.1)%  $261    2.0)%

 

Revenues

 

Revenues for the year ended December 31, 2011 were $579,440, a decrease of $12,445,568 or 95.6% over revenues for the year ended December 31, 2010 of $13,025,008. The decrease in revenue was a result of a decrease in the number of vehicles we sold in the year 2011 over 2010. Specifically, in the year ended December 31, 2011, we sold 30 vehicles at an average sales price of $19,315 as compared to 775 vehicles at an average sales price of $16,806 during the comparable period in 2010. The sharp decrease in revenues was due to a continued dramatic slowdown in the auto industry in 2011. As gas prices rose steadily, and economic conditions worsened, we experienced a significant drop in demand for used vehicles. Sales of light trucks and sport utility vehicles, our core product, dropped sharply. As dealers nationwide scrambled to sell off their light truck and SUV inventory, prices plummeted. This led to a glut of these types of vehicles in the market and a further erosion of vehicle values. We continued in 2011 to see little demand for these vehicles. We expended tremendous amounts of time and energy attempting to market our existing inventory, which prevented us from buying and selling new inventory which would have offset the dramatic drop in revenues we reported.

 

Cost of Revenues and Gross Profit Margin

 

The Company's cost of revenues is composed primarily of the cost of purchasing vehicles for resale. Cost of revenues was $526,871 or 90.9% of net revenues during the year ended December 31, 2011, a decrease of $11,398,911, as compared to $11,925,782 or 91.6% for the comparable period in 2010. Thus, our gross margin was 9.1% for the year ended December 31, 2011 as compared to 8.4% for the comparable period in 2010. The decrease in our cost of revenue is attributable to a decrease in the number of the vehicles sold during the year ended December 31, 2011 as compared to the comparable period in 2010. The decrease in the number of units sold was the result of higher fuel prices, and worsening economic conditions, which led to a dramatic drop in demand for our core product, light trucks and sport utility vehicles.

 

10
 

 

Operating Expenses

 

Our operating expenses are composed primarily of salaries, consulting fees and sales, general and administrative expenses.

 

Sales, General and Administrative

Sales, general and administrative ("SGA") expenses are composed principally of commission, salaries of administrative personnel, fees for professional services and facilities expenses. These expenses were $91,531 for the year ended December 31, 2011 or 14.7% of net revenue as compared to $535,577 or 4.1% of net revenue for the comparable period in 2010, a decrease in such expenses of $444,046 or 82.9%. The decrease in the ratio of SGA expenses to net revenue was primarily due to a decrease in operating expenses. As the slowdown in the used vehicle industry took hold, we made every attempt to reduce our expenses wherever we saw fit. Most significantly, we reduced our workforce. This reduction included the elimination of full time salaried positions, as well as the termination of our relationship with certain subcontracted personnel.

 

Other Expenses

 

Our combined expenses for officers salaries, consulting fees and interest was $202,908 for the year ended December 31, 2010 or 1.56% of net revenue compared to the comparable period in 2010 when such expenses were $202,908 or 1.56% of net revenue. The decrease in such expenses is attributable to decreased officers’ salaries and interest expense.

 

   Year Ended   Year Ended   Variance     
ANNUAL OPERATING EXPENSES  December 31, 2011   December 31, 2010   Amount   % 
                 
Sales, General and Administrative Expenses  $91,531    535,577   $(444,046)   (82.9)%
Officers’ Salaries   20,338    173,620    (153,282)   (88.3)%
Consulting Fees   85,000    -    85,000    n/a
Loss on Write-off of Inventory   63,087    -         n/a
Interest Expense   4,378    129,287    (124,909)   (96.6)%
Total Operating Expenses  $264,334    838,484   $(574,150)   (68.5)%

 

Operating profit (Loss)

Operating profit (loss) from operations is calculated as our revenues less all of our operating expenses. Our operating loss for the year ended December 31, 2011 was $211,765) or 36.5% of net revenue as compared to an operating profit of $260,742 or 2.0% of net revenue for comparable period in 2010. This decrease in operating profit was primarily as a result of a decrease in gross revenues of a greater magnitude than the decrease in operating expenses.

 

11
 

 

Off Balance Sheet Arrangements

 

There are no off-balance sheet arrangements.

 

Recent Accounting Pronouncements

 

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

 

Critical Accounting Policies and Estimates

 

Our management’s discussion and analysis of our financial condition and results of our operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the amounts reported for assets, liabilities, revenues, expenses and the disclosure of contingent liabilities. A summary of our significant accounting policies is more fully described in Note 2 to our consolidated financial statements included elsewhere in this report.

 

Our critical accounting policies are those that we believe are both important to the portrayal of our financial condition and results of operations and that involve difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The estimates are based on historical experience and on various assumptions about the ultimate outcome of future events. Our actual results may differ from these estimates in the event unforeseen events occur or should the assumptions used in the estimation process differ from actual results.

 

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

 

Revenue Recognition

 

In December 2003, the SEC released Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”).  All of our revenue is generated from the sales of used vehicles.  We recognize revenue only when one of vehicles is sold at auction to a buyer and upon the occurrence of either the title being transferred or when buyer assumes the responsibility of ownership such as the risk of loss.

 

Allowance for Doubtful Accounts

 

All of our vehicles are sold through wholesale auction houses.  The terms of the auction sales require that payment be received by the seller prior to the title being transferred to the purchaser.  Thus, we receive payment upon the sale of each vehicle and therefore, we do not maintain an allowance for doubtful accounts on our financial statements.

 

12
 

 

Income Taxes

 

We account for income taxes in accordance with ASC Topic 740 “Income Taxes” which requires an asset and liability approach for the financial accounting and reporting of income taxes. Under this method, deferred income taxes are recognized for the expected future tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These balances are measured using the enacted tax rates expected to apply in the year(s) in which these temporary differences are expected to reverse. The effect on deferred income taxes of a change in tax rates is recognized in income in the period when the change is enacted.

 

Based on consideration of all available evidence regarding their utilization, net deferred tax assets are recorded to the extent that it is more likely than not that they will be realized. Where, based on the weight of all available evidence, it is more likely than not that some amount of a deferred tax asset will not be realized, a valuation allowance is established for that amount that, in our judgment, is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized.

 

Inventory

 

Inventory is stated at the lower of cost or market using the specific identification basis.  Since we generally only own vehicles in our inventory for less than 14 days, we do not have to estimate the realizability of our inventory since it is generally 100% sold within 14 days.

 

Stock-Based Compensation

 

We do not maintain share-based incentive plans for our employees and have not granted any stock as compensation.

 

13
 

 

Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As of December 31, 2011, we had cash and cash equivalents of $5,395 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 December 31, 2011, we had an outstanding balance of $-0- 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 December 31, 2011, 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%.

 

14
 

 

Item 8.Financial Statements and Supplementary Data.

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC.

 

FINANCIAL STATEMENTS

 

DECEMBER 31, 2011

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC.

 

INDEX

 

    PAGE
     
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   F2
     
CONSOLIDATED BALANCE SHEETS   F3
     
CONSOLIDATED STATEMENTS OF OPERATIONS   F4
     
CONSOLIDATED STATEMENTS OF CASH FLOWS   F5
     
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)   F6
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   F7-F10

 

F1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

Northeast Automotive Holdings, Inc,

Merrick, New York

 

We have audited the accompanying consolidated balance sheet of Northeast Automotive Holdings, Inc. and its subsidiary (collectively, the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year ended December 31, 2011 and 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Automotive Holdings, Inc. and its subsidiary as of December 31, 2011 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a working capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

MaloneBailey, LLP

www.malonebailey.com

Houston, Texas

 

April 16, 2012

 

F2
 

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC

 

CONSOLIDATED BALANCE SHEETS

 

   December 31, 
   2011   2010 
ASSETS          
Current Assets:          
Cash  $5,395   $417,948 
Accounts Receivable   123,052    - 
Inventory   -    480,598 
Total Current Assets   128,447    898,546 
           
Equipment, net of accumulated depreciation of $34,408 and $28,961   5,357    10,804 
Other assets   2,868    1,800 
           
TOTAL ASSETS  $136,672   $911,150 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current Liabilities:          
Accounts payable  $-   $48,430 
Note payable to bank   100,000    100,000 
Demand loans payable   -    263,753 
Due to stockholders   42,584    272,640 
Accrued expenses   18,250    39,123 
Payroll taxes withheld and accrued   1,273    874 
Total Current Liabilities   162,107    724,820 
           
Stockholders' Equity (Deficit)          
Convertible Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 10,000,000 issued and outstanding   1,000    1,000 
Common stock, $0.001 par value, 300,000,000 shares authorized, 554,017 shares issued and outstanding   554    554 
Capital stock to be issued (500,000 shares)   20,000    20,000 
Additional paid-in capital   3,957,424    3,957,424 
Accumulated deficit   (4,003,237)   (3,791,472)
    (24,259)   187,506)
Less: Treasury stock at cost (6,667 common shares)   (1,176)   (1,176)
Total Stockholders' Equity (Deficit)   (25,435)   186,330 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)  $136,672   $911,150 

 

See Notes to Consolidated Financial Statements

 

F3
 

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   Year ended December 31, 
   2011   2010 
         
Net sales  $579,440   $13,025,008 
           
Cost of sales   526,871    11,925,782 
           
Gross profit   52,569    1,099,226 
           
Operating expenses:          
Officers salaries   20,338    173,620 
Consulting fees   85,000    - 
Selling, general and administrative   91,531    535,577 
Loss on write-off of inventory   63,087    - 
Total operating expenses   259,956    709,197 
           
Profit (loss) from operations   (207,387)   390,029 
           
Interest expense   4,378    129,287 
           
Net income (loss)  $(211,765)  $260,742 
           
Net income (loss) per common share, basic  $(0.38)  $0.47 
           
Weighted average number of shares outstanding, basic   554,017    554,017 
           
Net income (loss) per common share, diluted  $(0.38)  $0.02 
           
Weighted average number of shares outstanding, diluted   554,017    10,554,017 

 

See Notes to Consolidated Financial Statements

 

F4
 

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Year Ended December 31, 
   2011   2010 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income (loss)  $(211,765)  $260,742 
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:          
Depreciation and amortization   5,447    5,447 
Compensation expense   24,718    100,000 
Write-off of Inventory   63,087    - 
Changes in operating assets and liabilities:          
Accounts receivable   (123,052)   - 
Inventory   417,511    1,073,951 
Other assets   (1,068)   5,973 
Accounts payable   (48,430)   (26,593)
Accrued expenses   (20,873)   (97,588)
Accrued payroll taxes   399    (1,442)
CASH PROVIDED BY OPERATING ACTIVITIES   105,974    1,320,490 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds of line of credit   -    1,815,315 
Repayment of line of credit   -    (2,140,903)
Proceeds of stockholders loans   40,461    37,127 
Repayment of stockholders loans   (295,235)   (448,602)
Proceeds of demand loans   -    757,913 
Repayment of demand loans   (263,753)   (1,265,021)
CASH USED IN FINANCING ACTIVITIES   (518,527)   (1,244,171)
           
NET INCREASE (DECREASE) IN CASH   (412,553)   76,319 
CASH, beginning of year   417,948    341,629 
           
CASH, end of year  $5,395   $417,948 
           
SUPPLEMENTAL CASH FLOW INFORMATION          
Cash paid for:          
Income tax payments  $-   $4,200 
Interest payments  $8,957   $129,288 

 

See Notes to Consolidated Financial Statements

 

F5
 

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

   Convertible Preferred Stock   Common Stock   Capital Stock   Additional             
   ($.0001 par value)   ($.001 par value)   to be issued   Paid-In       Treasury     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Stock   Total 
Balance, December 31, 2009   10,000,000   $1,000    554,017   $554    500,000   $20,000   $3,957,424   $(4,052,214)  $(1,176)  $(74,412)
                                                   
Net profit   -    -    -    -    -    -    -    260,742    -    360,743 
                                                   
Balance, December 31, 2010   10,000,000   $1,000    554,017   $554    500,000   $20,000   $3,957,424   $(3,791,472)  $(1,176)  $186,330 
                                                   
Net loss   -    -    -    -    -    -    -    (211,765)   -    (211,765)
                                                   
Balance, December 31, 2011   10,000,000   $1,000    554,017   $554    500,000   $20,000   $3,957,424   $(4,003,237)  $(1,176)  $(25,435)

 

See Notes to Financial Statements

 

F6
 

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS

 

Northeast Automotive Holdings, Inc., (the “Company”), was incorporated on October 12, 2007 in Nevada. Pursuant to an Agreement and Plan of Merger with Northeast Auto Acceptance Corp., a Florida Corporation (“NEAA-FL”) in November 2007, we acquired title to all property owned by NEAA-FL including its wholly owned subsidiary Northeast Auto Acceptance Corp., a New York  Corporation (“NEAA-NY”).  All of our operating business is currently conducted through our subsidiary, NEAA-NY, and our principal executive offices are located at 2174 Hewlett Avenue, Suite 206, Merrick, New York 11566. Our telephone number at this address is (516) 377-6311.

 

On January 14, 2004, the Company issued 200,000 shares of its common stock to Northeast Auto Acceptance Corp (a New York corporation) (“NAAC-NY”) when the Company had 181,886 shares outstanding as consideration for the acquisition of NAAC-NY. NAAC-NY was incorporated in New York on December 31, 1996.  NAAC-NY buys used automobiles at auctions, then repairs, cleans, transports and resells them wholesale throughout the Pacific Northwest.

 

On March 4, 2004, the Company acquired NAAC-NY the accounting acquirer and to change its name to Northeast Auto Acceptance Corporation.  Catadyne Corporation, the legal acquirer, was a non-operating public shell corporation at the time of the transaction.

 

Also on March 4, 2004, the Company issued its two officer/shareholders 17,000,000 shares of common stock in exchange for (a) $100,000 as part of the acquisition of NAAC-NY by reducing a loan payable to the officers by this amount and (b) the 200 shares of NAAC-NY they owned, which were all of the shares of NAAC-NY issued and outstanding at the time.  Effectively, Mr. William Solko, the new President and sole Director owns more than 50% of the voting Common Stock and can pass any item that is subjected to approval of a stockholders vote.

 

The Company is treating this transaction as a reverse acquisition and reorganization for accounting purposes.  The financial statements include the operations of NAAC-NY, the accounting acquirer, for all periods presented.

 

Going Concern

 

The financial statements have been prepared on the basis of a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a working capital deficit of $33,660 at December 31, 2011 and an accumulated deficit of $4,003,237 since inception.

 

While the Company is attempting to produce sufficient revenues, the Company's cash position may not be enough to support the Company's daily operations. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Accounting Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Inventory

 

Inventory is stated at the lower of cost or market using the specific identification basis.

 

F7
 

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Depreciation

 

The cost of equipment is depreciated over the estimated useful lives of the related assets of five years.

 

Cash and cash equivalents

 

Cash equivalents are highly liquid investments with an original maturity of three months or less.

 

Principles of Consolidation

 

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Northeast Auto Acceptance (New York). All inter-company accounts and transactions have been eliminated.

 

These consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States.

 

Revenue Recognition

 

The Company buys used autos and recognizes revenue when it resells them and title is transferred to the buyer. The costs of the auto, any fees charged, and any repair costs are included in the costs of sales. The Company is the owner of the vehicle until the sale is complete and as such has all risks inherent with such ownership.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC Topic 740 “Income Taxes” which requires an asset and liability approach for the financial accounting and reporting of income taxes. Under this method, deferred income taxes are recognized for the expected future tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These balances are measured using the enacted tax rates expected to apply in the year(s) in which these temporary differences are expected to reverse. The effect on deferred income taxes of a change in tax rates is recognized in income in the period when the change is enacted.

 

Based on consideration of all available evidence regarding their utilization, net deferred tax assets are recorded to the extent that it is more likely than not that they will be realized. Where, based on the weight of all available evidence, it is more likely than not that some amount of a deferred tax asset will not be realized, a valuation allowance is established for that amount that, in our judgment, is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized.

 

The Company accounts for unrecognized tax benefits in accordance with ASC Topic 740, which prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation, based solely on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.

 

The Company recognizes interest and penalties related to unrecognized tax benefits if there are any within the income tax expense line of the Consolidated Statement of Operations, while accrued interest and penalties are included within the related tax liability line of the Consolidated Balance Sheets.

 

Recent Accounting Pronouncements

 

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

 

F8
 

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – INVENTORIES

 

Inventory consists of the following:

 

   December 31, 
   2011   2010 
           
Automobiles purchased for resale  $-   $480,598 

 

Inventory is stated at the lower of cost or market using the specific identification basis.

 

The inventory is valued by comparing the total cost of the vehicle to our net realizable value at the time of sale or to the “Blue Book” value for unsold vehicles. The lower of these is used to price the inventory. Our experience has been that costs are usually equal to or lower than our net realizable value or the “Blue Book” value. Since our inventory is usually turned over in a short time, our pricing is not sensitive to wide deviations from the actual results. The Company has not had to make revisions to its pricing of inventory as a result of deviations from actual results. The inventories are limited by the amount of working capital the Company has at any one time.

 

NOTE 4 – NOTES AND LOANS PAYABLE

 

   December 31,   December 31, 
   2011   2010 
         
Revolving line of credit interest payable monthly at 1% over the prime rate, secured by a lien on all of the Company's assets and personally guaranteed by the majority stockholders. Interest is paid monthly on account)   100,000    100,000 
           
6% unsecured demand notes payable   -    263,753 
           
Due to stockholders (The stockholder loans are unsecured, pay interest at an average 6% per annum, are subordinated to the bank loan and have no specific terms of repayment)   42,584    272,640 

 

NOTE 5 – CONVERTIBLE PREFERRED STOCK

 

Each share of the Series A preferred stock carries with it (i) voting rights equal to 30 times the number of Common Stock votes, (ii) no dividends, (iii) a liquidation preference equal to eight times the sum available for distribution to Common Stock holders, (iv) automatic conversion after three years to one (1) common share, (v) exemption from reverse stock splits and other changes to the common stock capital of the Company, and (vi) convertibility at the option of the holder anytime.

 

During the year ended December 31, 2011, the date for automatic conversion of the preferred shares passed. However, the conversion has not yet been effected by the Board of Directors.

 

F9
 

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 - PROFIT OR LOSS PER SHARE

 

Profit or loss per common share is calculated as the profit or loss for the period divided by the weighted average number of shares of the Company's common stock.

 

   December 31, 
   2011   2010 
Numerator          
Net income (loss) available to common stockholders  $(211,765)  $260,744 
           
Denominator          
Weighted-average shares outstanding for earnings per share, basic   554,017    554,017 
           
Effect of dilutive securities:          
Convertible preferred stock   -    10,000,000 
Weighted-average shares outstanding for earnings per share, diluted   554,017    554,017 

 

The following were excluded from the computation of the diluted securities outstanding as they would have had an anti-dilutive impact.

 

   December 31, 
   2011   2010 
           
Convertible preferred stock   10,000,000    - 

 

NOTE 7 - INCOME TAXES

 

Due to the Company’s prior year net losses, there was no provision for income taxes. The Company has net operating loss carryforwards for income tax purposes of approximately $640,000 and $588,000 at December 31, 2011 and 2010, respectively. These carryforward losses are available to offset future taxable income, if any, and expire starting in the year 2024. The Company’s utilization of this carry forward against future taxable income may become subject to an annual limitation due to any cumulative 36-month change in ownership of the Company of more than 50 percent. As the company has largely suspended operations, it is unlikely that the Company will have future taxable income that could be reduced by the benefit of these carryforwards. Accordingly, the Company has recorded a valuation allowance for the full amount of the deferred tax assets. The components of the Company’s tax provision were as follows:

 

   2011   2010 
Deferred tax asset – NOL carryforward  $216,000   $200,000 
Less: valuation allowance   (216,000)   (200,000)
Total  $-   $- 

 

NOTE 8 -COMMITMENTS AND CONTINGENCIES

 

The Company rents office space on a month-to-month basis at two locations and warehouse space on a month-to-month basis.  Rent expense was approximately $7,800 and $7,000 for 2011 and 2010, respectively.

 

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Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

Disclosure Controls.

 

We carried out an evaluation required by Rule 13a-15(b) of the Securities Exchange Act of 1934 under the supervision and with the participation of our chief executive officer and chief financial officer of the effectiveness of the design and operation of our “disclosure controls and procedures” as of the end of the period covered by this Report.

 

Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in an issuer’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

 

The evaluation of our disclosure controls and procedures included a review of our objectives and processes and effect on the information generated for use in this Report. This type of evaluation will be done quarterly so that the conclusions concerning the effectiveness of these controls can be reported in our periodic reports filed with the SEC. We intend to maintain these controls as processes that may be appropriately modified as circumstances warrant.

 

Based on their evaluation, our chief executive officer who also acts as our chief financial officer has concluded that our disclosure controls and procedures are not effective in timely alerting him to material information relating to the Company required to be included in our periodic reports filed with the SEC as of the end of the period covered by this Report due to the following:

·Lack of proper segregation of duties in financial reporting due to limited personnel and most accounting functions, including preparation of financial statements, being performed by third party consultants.
·Lack of a formal review process that includes multiple levels of review.

 

These deficiencies are the result of the Company’s limited number of employees and limited financial resources. This deficiency may affect management’s ability to determine whether errors or inappropriate actions have taken place. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.

 

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, a 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. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all 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. The design of any system of controls is 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, regardless of how remote. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected.

 

Internal Controls.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, consisting of one person who serves as our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011 based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our evaluation under that criteria, our management concluded that our internal control over financial reporting was not effective as of December 31, 2011.

 

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  We were not required to have, nor have we engaged our independent registered public accounting firm to perform, an audit on our internal control over financial reporting pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the fourth quarter of fiscal 2011 that have materially affected, or are reasonably likely to material affect, our internal controls.

 

Item 9B. Other Information.

 

None.

 

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PART III

 

Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.

 

The following table sets forth the names and age of our executive officers and sole director.

 

Name   Age   Position   Date of Appointment
             
William Solko   43   President, Chief Executive Officer, Chairman, Treasurer   December 2004
             
Michael Shaw   43   Vice President   December 2004
             
Marsha Solko   43   Director of Administration   December 2004

 

Set forth below is a brief description of the background and business experience of our executive officers and sole director for the past five years.

 

William Solko

 

President, Chief Executive Officer and Director.  Mr. Solko has served as President, Chief Executive Officer and Director of the Company since the acquisition of our Northeast Auto Acceptance (NY) subsidiary.  He founded our Northeast Auto Acceptance (NY) subsidiary in 1995.  Mr. Solko has over 23 years of experience in the automobile industry including over 20 years of experience in commercial automobile buying.  Prior to forming the Company, from 1993 to 1995, Mr. Solko was employed as a buyer for two public automobile auction companies in the Chicago area. Mr. Solko attended The State University of New York at New Paltz.

 

Michael Shaw

 

Vice President.  Mr. Shaw has more than 13 years of experience in automotive sales.  Prior to joining our Northeast Auto Acceptance (NY) subsidiary in 1995, Mr. Shaw operated his own used vehicle sales operation.

 

Marsha Solko

 

Director of Administration.  Ms. Solko has held this position since the formation of the Company’s Northeast Auto Acceptance subsidiary in 1994. Her primary responsibility is to oversee the day-to-day operations of the company. In her supervisory role, she is responsible for the monitoring of accounts payables and receivables, daily cash flows, as well as handling vehicle title issues.  Ms. Solko has over 21 years experience in the automobile industry, having held the position of bookkeeper and office manager for several vehicle dealerships during that time.

 

BOARD OF DIRECTORS

 

Our Board of Directors currently has only one member, William Solko, our President and Chief Executive Officer.  Pursuant to our By-Laws, our Board may be expanded, from time to time, to include up to seven directors.  All directors hold office until the next annual meeting of shareholders following their election or until their successors have been elected and qualified. Executive officers are appointed by and serve at the pleasure of the Board of Directors. We may adopt provisions in our By-laws and/or Articles of Incorporation to divide the board of directors into more than one class and to elect each class for a certain term. These provisions may have the effect of discouraging takeover attempts or delaying or preventing a change of control of the Company.

 

BOARD COMMITTEES

 

The Board of Directors does not have any committees.

 

DIRECTORS’ COMPENSATION

 

Directors who are also employees of the Company receive no compensation for serving on the Board of Directors.  We do not have any directors who are not employees.

 

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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.

 

Significant Employees

 

None.

 

Family Relationships

 

William Solko and Marsha Solko are husband and wife. No other family relationships exist among our directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

To our knowledge, during the past five years, none of our directors, executive officers, promoters, control persons, or nominees has been:

 

the subject of 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;

 

convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

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 involvement in any type of business, securities or banking activities; or

 

found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.

 

Code of Ethics

 

We have adopted a Code of Ethics applicable to our Chief Executive Officer and Chief Financial Officer. This Code of Ethics is filed herewith as an exhibit.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10 percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (SEC). Officers, directors, and greater than 10 percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

 

To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company, all reports under Section 16(a) required to be filed by its officers and directors and greater than ten percent beneficial owners were timely filed as of the date of this filing.

 

Item 11. Executive Compensation.

 

Compensation of Executive Officers

 

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the fiscal years ended December 31, 2011 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):

 

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Compensation of Executive Officers (continued)

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position  Year        Salary
($)
   Bonus
($)
   Stock
Awards
($)
   Option
Awards
($)
   Non-Equity
Incentive
Plan
Compensat
ion 
 
($)
   Non-
Qualified
Deferred
Compensation
Earnings
($)
   All Other
Compensation
($)
   Totals
($)
 
                                     
William Solko President, Chief   2011   $20,338    -0-    -0-    -0-    -0-    -0-    -0-   $20,338 
Executive Officer, Treasurer                                             
                                              
Michael Shaw, Vice President   2011   $-0-    -0-    -0-    -0-    -0-    -0-    -0-   $-0- 
Marsha Solko, Director of Administration   2011    -0-    -0-    -0-    -0-    -0-    -0-    -0-   $-0- 

 

 

Outstanding Equity Awards at Fiscal Year-End Table. There were no individual grants of stock options to purchase our common stock made to the named executive officers in the Summary Compensation Table during the fiscal year ended December 31, 2011, and the subsequent period up to the date of the filing of this prospectus.

 

Compensation of Directors

 

For the fiscal year ended December 31, 2011, we did not compensate our director for his services.

 

Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table sets forth certain information regarding the ownership of our capital stock, as of April 15, 2009, for: (i) each director; (ii) each person who is known to us to be the beneficial owner of more than 5%of our outstanding common stock; (iii) each of our executive officers named in the Summary Compensation Table; and (iv) all of our current executive officers and directors of as a group. Except as otherwise indicated in the footnotes, all information with respect to share ownership and voting and investment power has been furnished to us by the persons listed. Except as otherwise indicated in the footnotes, each person listed has sole voting power with respect to the shares shown as beneficially owned.

 

Title of Class  

Name and Address of

Beneficial Owner

 

Amount and Nature of

Beneficial Ownership

   

Percent of

Class(2)

 
                 
Class A Common   William Solko (1)     166,667       30.08 %
Stock   Michael Shaw (1)     66,667       12.03 %
Class A Preferred Stock   William Solko (1)     10,000,000       100.00 %

  

(1) Unless otherwise indicated in the footnotes to the table, (1) the individuals listed have sole voting and sole investment control with respect to the shares they beneficially own and (2) the address of each beneficial owner listed is c/o the Company, 2174 Hewlett Avenue, Suite 206, Merrick, New York 11566.

 

(2) Based on 300,000,000 shares of Common Stock authorized, 554,017 shares issued and outstanding; and 10,000,000  shares of Class A Preferred Stock authorized, 10,000,000 shares issued and outstanding.

 

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Item 13.Certain Relationships and Related Transactions, and Director Independence.

 

None.

 

Item 14.Principal Accounting Fees and Services.

 

Audit Fees

 

For 2011 and 2010, we were billed $30,000 per year for professional services rendered for the audit and reviews of our financial statements.

 

Tax Fees

 

None.

 

All Other Fees

 

None.

 

Audit Related Fees

 

None.

 

Pre-approval Policy

 

Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent auditors. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit fees paid to the auditors with respect to fiscal year 2011 were pre-approved by the entire Board of Directors.

 

Item 15.Exhibits.

 

Exhibit No.   Title of Document   Location
         
3.1   Articles of Incorporation   Incorporated by reference to Information Statement filed on November 8, 2007
         
3.2   Bylaws   Incorporated by reference to Information Statement filed on November 8, 2007
         
14.1   Code of Ethics   Incorporated by reference to Form 10-K filed on April 14, 2008
         
31.1   Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934   Filed herewith
         
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   Filed herewith

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

NORTHEAST AUTOMOTIVE HOLDINGS, INC.  
     
By: /s/ William Solko  
  WILLIAM SOLKO  
  President, Chief Executive Officer, Treasurer  
     
Date: April 16, 2012  

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name   Title   Date
         
/s/ William Solko   President, Chief Executive Officer, Treasurer, Director   April 16, 2012
WILLIAM SOLKO        

 

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