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 14 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, 2012, we had total revenue of $-0- and a net (loss) of ($149,096).
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.
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.
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 dependant 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, 2012, our average cost to ship a vehicle is $-0- 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 2012, we had a net (loss) per car sold of ($-0-). 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.
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 20 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.
INTELLECTUAL PROPERTY PROTECTION
We regard the protection of our service marks, trademarks and trade secrets as critical to our future success and rely on a combination of trademark, service mark and trade secret laws and contractual restrictions to establish and protect our proprietary rights in our services. Although we do not believe that we infringe the proprietary rights of third parties, there can be no assurance that third parties will not claim infringement by us with respect to past, current or future services.
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, 2012, 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.
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.
Item 1A.
RISK FACTORS.
Not required for smaller reporting companies.
Item 1B.
Item 1B.
Unresolved Staff Comments.
Not applicable
Item 2.
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, and during 2008 and 2009 had rented warehouse and storage spaces on a month-to-month basis. Rent expense was approximately $6,700 for 2012, $7,800 for 2011 and $7,000 for 2010. At December 31, 2012, future minimum lease payments were $6,700 for 2013. We believe that these spaces are sufficient and adequate to operate our current business.
Item 3.
Item 3.
Legal Proceedings.
The Company is not a party to any pending or threatened legal proceedings.
Item 4.
Item 4.
Mine Safety Disclosures.
None.
PART II
Item 5.
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 Market (“OTC”) under the symbol NEAU. There is a limited trading market for our common stock. The low and high share prices during the year ended December 31, 2012, were $0.20 and $1.00, respectively. The low and high share prices during the year ended December 31, 2011, were $0.12 and $2.00, 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 therefore. 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.
Item 6.
Selected Financial Data.
Not Applicable
Item 7.
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 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, 2012, the unaudited interim Condensed Consolidated Financial Statements and related Notes included in Item I of this Report on Form 10-Q ("Form 10-Q") 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. 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.
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, 2012.
We have no material commitments for capital expenditures at this time. 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 Year Ended December 31, 2012, and 2011
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 year ended December 31, 2012 and 2011.
Revenues
Revenue for the year ended December 31, 2012 were $-0-, a decrease of $579,440 or 100% over revenues for the year ended December 31, 2011 of $579,440. The decrease in revenue was a result of no vehicles being sold during 2012. Specifically, in the year ended December 31, 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 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 $-0- or 0.00% of net revenues during the year ended December 31, 2012, a decrease of $526,871, as compared to $526,871 or 90.9% for the comparable period in 2011. Thus, our gross margin was 0.0% for the year ended December 31, 2012 as compared to 9.4% for the comparable period in 2011. The decrease in our cost of revenue is attributable to no cars being sold during 2012.
Operating Expenses
Our operating expenses are comprised primarily of 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 $22,247 for the year ended December 31, 2012, or 0% of net revenue as compared to $91,534 or 14.7% of net revenue for the comparable period in 2011.. The decrease in the ratio of SGA expenses to net revenue was primarily due to a decrease in operating expenses.
Other Expenses
Our combined expenses for officers salaries, consulting fees and interest were $126,850 for the year ended December 31, 2012 or 0.00% of net revenue; in the comparable period in 2011, such expenses were $172,803 or 29.8% of net revenue. The increase in such expenses is attributable to decreased officers’ salaries and interest expense and a 2011 write-off of inventory, offset by an increase in consulting fees.
Operating Gain (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, 2012 was ($149,097) or (-0-)% of net revenue as compared to an operating loss of ($211,765) or (37.1)% of net revenue for comparable period in 2011. This decrease in operating gain was primarily a result of no vehicles being sold during 2012.
Off Balance Sheet Arrangements
There are no off-balance sheet arrangements.
Recent Accounting Pronouncements
No recently issued accounting standards are expected to have an impact on our consolidated results of operations, financial position or cash flows.
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, revenue, 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 Registration Statement.
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
Securities and Exchange Commission 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 auctions 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.
Income Taxes
We account for income taxes in accordance with Accounting Standards Codification (“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.
Item 7A.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2012, we had cash and cash equivalents of $304 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, 2012, 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, 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 8.
Item 8.
Financial Statements and Supplementary Data.
NORTHEAST AUTOMOTIVE HOLDINGS, INC
FINANCIAL STATEMENTS
DECEMBER 31, 2012
NORTHEAST AUTOMOTIVE HOLDINGS, INC
INDEX
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, 2012 and 2011 and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. 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 Northeast Automotive Holdings, Inc. and its subsidiary as of December 31, 2012 and 2011 and the results of their operations and their cash flows for the years 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, 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 15, 2013
NORTHEAST AUTOMOTIVE HOLDINGS, INC
CONSOLIDATED BALANCE SHEETS
See Notes to Consolidated Financial Statements
NORTHEAST AUTOMOTIVE HOLDINGS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
See Notes to Consolidated Financial Statements
NORTHEAST AUTOMOTIVE HOLDINGS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
See Notes to Consolidated Financial Statements
NORTHEAST AUTOMOTIVE HOLDINGS, INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
See Notes to Consolidated Financial Statements
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”). We currently have no operations.
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 negative working capital of $(178,835) at December 31, 2012 and an accumulated deficit of $4,152,334 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.
Depreciation
The cost of equipment is depreciated over the estimated useful lives of the related assets of five years.
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 Accounting Standards Codification (“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 standards to have an impact on our consolidated results of operations, financial position or cash flows.
NOTE 3 - INVENTORIES
All inventory was sold or written off during 2011 when the business ceased operations.
NOTE 4 - NOTES AND LOANS PAYABLE
NOTE 5 - CONVERTIBLE PREFERRED STOCK
On April 22, 2008 a Debt Exchange Agreement (“Agreement”) was entered into between Northeast Automotive Holdings, Inc. (the “Company” or “NEAH”) and William Solko (the “Holder”). The Agreement calls for the Holder to waive, release, forgive and cancel a portion of the debt in the amount of $100,000 owed to the Holder by the Company. In addition, in consideration for this Agreement, the Holder hereby agrees to cancel 333,333 shares of the Holders’ 500,000 shares Common Shares. In exchange, NEAH will issue to the Holder 10,000,000 shares of Series A Convertible Preferred Stock (“Series A Preferred”).
Each share of the Series A Preferred carries with it (i) voting rights equal to 30 times the number of Common Stock votes, (ii) no dividends, (iii) liquidation preference equal to eight times the sum available for distribution to Common Stock holders, (iv) automatically convert after three years to one (1) common share, (v) not be subject to reverse stock splits and other changes to the common stock capital of the Company, and (vi) convertible at the option of the holder after forty-five (45) days.
NOTE 6 - INCOME TAXES
Due to the Company’s prior year net losses, there was no provision for income taxes. The Company has net operating loss carry forwards for income tax purposes of approximately $660,000 and $640,000 at December 31, 2012 and 2011, respectively. These carry forward 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. The components of the Company’s tax provision were as follows:
NOTE 7 -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 $6,700 and $7,800 for 2012 and 2011, respectively.
Item 9.
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
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 a limited segregation of duties amongst the Company’s employees with respect to the Company’s control activities. This deficiency is the result of the Company’s limited number of employees. This deficiency may affect management’s ability to determine if 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. Our internal control over financial reporting was not effective for the following reasons:
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, 2012 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, 2012 due to limited segregation of duties .
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 2012 that have materially affected, or are reasonably likely to material affect, our internal control
Item 9B.
Item 9B.
Other Information.
None.
PART III
Item 10.
Item 10.
Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
The following table sets forth the name and age of our sole executive officer and director.
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 22 years of experience in the automobile industry including over 19 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 12 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 20 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.
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.
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, 2012 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
SUMMARY COMPENSATION TABLE
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, 2012, we did not compensate our directors for their services.
Item 12.
Item 12.
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.
(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 100,000,000 shares of Common Stock authorized, 554,017 shares issued and outstanding.
Item 13.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
None.
Item 14.
Item 14.
Principal Accounting Fees and Services.
Audit Fees
For 2012 and 2011, we were billed $6,600 and $30,000 respectively 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 and tax fees paid to the auditors with respect to fiscal year 2012 were pre-approved by the entire Board of Directors.
Item 15.
Item 15.
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.
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.
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 15, 2013
WILLIAM SOLKO