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EX-31.1 - KOGETO, INC. | v181131_ex31-1.htm |
EX-32.1 - KOGETO, INC. | v181131_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, 2009
¨
|
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
o 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
o 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 o
|
Accelerated
Filer o
|
Non-Accelerated
Filer o
|
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. $16,692,590
The
aggregate market value of common stock held by non-affiliates of the Registrant
on December 31, 2009 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 March 31, 2010:
554,017 shares of Common Stock.
TABLE
OF CONTENTS
Pg
|
||
Part
I
|
|
|
Item
1.
|
Business.
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3
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Item
1A
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Risk
Factors
|
7
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Item
1B
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Unresolved
Staff Comments
|
8
|
Item
2.
|
Properties
|
8
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Item
3.
|
Legal
Proceedings.
|
9
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Item
4.
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Submission
of Matters to a Vote of Security Holders.
|
9
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Part
II
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||
Item
5.
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Market
for Common Equity and Related Stockholder Matters, and issuer Purchases of
Equity Securities.
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9
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Item
6
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Selected
Financial Data
|
9
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Plan of
Operations.
|
9
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Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
|
15
|
Item
8.
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Financial
Statements.
|
F-1
|
Item
9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure.
|
16
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Item
9A.
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Controls
and Procedures.
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16
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Item
9B.
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Other
Information.
|
16
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Part
III
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||
Item
10.
|
Directors,
Executive Officers, of the Registrant.
|
17
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Item
11.
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Executive
Compensation.
|
18
|
Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
19
|
Item
13.
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Certain
Relationships and Related Transactions and Director
Independence.
|
20
|
Item
14.
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Principal
Accountant Fees and Services
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20
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Part
IV
|
||
Item
15.
|
Exhibits
and Financial Statement Schedules
|
20
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Signatures
|
21
|
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.
"NAAC" and “NEAA” are
trademarks and service marks of Northeast Automotive Holdings, Inc. (Formerly
Northeast Auto Acceptance Corp.). All other trademarks, service marks
or trade names referred to in this Registration Statement on Form 10
("Registration Statement") are the property of their respective owners. Except
as otherwise required by the context, all references in this Registration
Statement to (a) "we," "us," "our," the “Company” or "NEA" refer to the
consolidated operations of Northeast Auto Acceptance Corp., a Florida
corporation, and its wholly-owned subsidiary, Northeast Auto Acceptance Corp., a
New York corporation and (b) "you" refers to prospective investors in our common
stock and other readers of this Registration Statement.
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 13 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, 2009, we had total revenue of
$16,692,590 and a net profit of $297,603.
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 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, 2009, our average cost to ship a vehicle is $194 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 2009, we had a net profit per car sold of $239.42. 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 18 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, 2009, we had five full and part time employees, including two in
Sales and Support and three in Administration. In addition, we have
on-going relationships with six contactors 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 incorporation 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 Dependant Upon Our Information
Systems. The Company’s business is dependent upon the efficient operation
of its information systems. In particular, the Company relies on its information
systems to effectively manage its sales, inventory and customer information. The
failure of the Company’s information systems to perform as designed or the
failure to maintain and continually enhance or protect the integrity of these
systems could disrupt the Company’s business, impact sales and profitability, or
expose the Company to customer or third-party claims.
Our Availability to Capital May
Vary. Changes in the availability or cost of capital and
working capital financing, including the availability of long-term financing to
support development of the Company, could adversely affect the company’s growth
and operating strategies. Further, the Company’s current credit facilities
contains 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 comprised of
just one member, our Chief Executive Officer William Solko. Thus,
without any independent directors, conflicts of interest between the Company and
our Chief Executive Officer may occur regarding issues such as executive
compensation. We intend to increase the size of the Board of
Directors in 2010.
Our Costs Are Partially Dependant
Upon Fuel Costs. Because all of the vehicles we purchase must
be shipped from the Northeast to the Pacific Northwest, we are dependant upon
variations in the cost of fuel. Any significant rise in the cost of
fuel will increase our transportation costs and we may not be able to pass these
increased costs along to our customers, resulting in lower net profits on each
vehicle we sell.
We will
be subject to substantial and growing competition in all aspects of our
business. Barriers to entry to the asset management business are relatively low,
and our management anticipates that we will face a growing number of
competitors. Although no one company dominates the asset management industry,
many companies are larger, better known and have greater resources than we
do.
We will
compete against an ever-increasing number of investment dealers, banks,
insurance companies, trust companies and others that offer investment advice and
trust services. In short, the competitive landscape in which we will operate is
both intense and dynamic and there can be no assurance that we will be able to
compete effectively in the future.
Patent and
Trademarks
We
currently do not own any patents, trademarks or licenses of any kind and
therefore we have no protected rights with respect to our services.
Governmental
Regulations
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 and beginning during 2008, warehouse and storage spaces on a
month-to-month basis. Rent expense was approximately $42,816 for
2009, $34,500 for 2008 and $7,200 for 2007. At December 31, 2009, future minimum
lease payments were $2,800 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 a limited trading market for our
common stock. The low and high share price between September 2008 and
December 2008 was $0.08 and $1.05.
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.
|
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 Management's Discussion and Analysis of Results of Operations and
Financial Condition included in the Company's Form 10-K for the fiscal year
ended December 31, 2009, the unaudited interim Condensed Consolidated Financial
Statements and related Notes included in Item 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. 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
with which we typically have only 50% in use.
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, 2009, and 2008
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, 2009, 2008, and 2007.
ANNUAL RESULTS OF
OPERATIONS
|
Years Ended December 31
|
|||||||||||||||
|
2009
|
2008
|
||||||||||||||
(In thousands)
|
Amount
|
%
|
Amount
|
%
|
||||||||||||
Net
Revenues
|
$
|
16,693
|
100.00
|
%
|
$
|
43,015
|
100.00
|
%
|
||||||||
Cost
of Revenues
|
15,555
|
93.19
|
%
|
42,796
|
99.49
|
%
|
||||||||||
Gross
Profit
|
1,138
|
6.81
|
%
|
219
|
0.51
|
%
|
||||||||||
Sales,
general and administrative expenses
|
601
|
3.59
|
%
|
724
|
1.68
|
%
|
||||||||||
Other
expenses
|
239
|
1.43
|
%
|
642
|
1.49
|
%
|
||||||||||
Total
costs and expenses
|
840
|
5.02
|
%
|
1,366
|
3.18
|
%
|
||||||||||
Profit
(loss) from operations
|
$
|
298
|
1.79
|
%
|
$
|
(1,146
|
)
|
(2.67
|
)%
|
Revenues
Revenue
for the year ended December 31, 2009 were $16,692,590, a decrease of $26,322,861
or 61.2% over revenues for the year ended December 31, 2008 of $43,015,451. The
decrease in revenue was a result of a decrease in the number of vehicles we sold
in the year 2009 over 2008. Specifically, in the year ended December 31, 2009,
we sold 1,243 vehicles at an average sales price of $13,429 as compared to 3,002
vehicles at an average sales price of $14,329 during the comparable period in
2008. The sharp decrease in revenues was due to a continued dramatic slowdown in
the auto industry in 2009. 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 2009 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 $15,555,099 or 93.2% of net revenues
during the year ended December 31, 2009, a decrease of $27,240,512, as compared
to $42,795,611 or 99.5% for the comparable period in 2008. Thus, our gross
margin was 6.80% for the year ended December 31, 2009 as compared to 0.51 % for
the comparable period in 2008. 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, 2009 as compared to the comparable period in 2008. 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 comprised primarily of salaries, consulting fees and
sales, general and administrative expenses.
Sale,
General and Administrative
Sale,
general and administrative ("SGA") expenses are composed principally of
commission, salaries of administrative personnel, fees for professional services
and facilities expenses. These expenses were $600,729 for the year ended
December 31, 2009 or 3.60% of net revenue as compared to $724,132 or 1.68 % of
net revenue for the comparable period in 2008, a decrease in such expenses of
$123,403 or (17.04%). 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 $239,159 for the year ended December 31, 2009 or 1.43% of
net revenue compared to the comparable period in 2008 when such expenses were
$642,019 or 1.49% of net revenue. The decrease in such expenses is attributable
to decreased officers’ salaries and interest expense.
Our
combined expenses for officers salaries, consulting
fees and interest was $642,019 for the year ended December 31, 2008 or 1.49% of
net revenue compared to the comparable period in 2007 when such expenses were
$945,649 or 1.28% of net revenue. The decrease in such expenses is attributable
to decreased officers’ salaries, consulting fees and interest expenses. The
following table shows the changes in the components these expenses during the
comparable periods.
ANNUAL OPERATING EXPENSES
|
Year Ended
|
Year Ended
|
Variance
|
|||||||||||||
|
December 31, 2009
|
December 31, 2008
|
Amount
|
%
|
||||||||||||
Sale,
General and Administrative Expenses
|
$
|
600,729
|
724,352
|
$
|
(123,623
|
)
|
(17.07
|
)%
|
||||||||
Officers
Salaries
|
92,026
|
315,955
|
(223,929
|
)
|
(70.87
|
)%
|
||||||||||
Consulting
Fees
|
-
|
20,000
|
(20,000
|
)
|
(100.00
|
)% | ||||||||||
Interest
Expense
|
147,133
|
306,064
|
(158,931
|
)
|
(51.93
|
)%
|
||||||||||
Total
Costs and Expenses
|
$
|
839,888
|
1,366,371
|
$
|
(526,483
|
)
|
(38.53
|
)%
|
Operating
Gain (Loss)
Operating
profit (loss) from operations is calculated as our revenues less all of our
operating expenses. Our operating profit (loss) for the year ended December 31,
2009 was $297,603 or 1.78% of net revenue as compared to an operating loss of
($1,146,311) or (2.67%) of net revenue for comparable period in 2008. This
increase in operating gain was primarily as a result of an increase in gross
revenues combined with a decrease in operating expense.
11
Off
Balance Sheet Arrangements
There are
no off-balance sheet arrangements.
Recent
Accounting Pronouncements
In
June 2009, the Financial Accounting Standards Board (FASB) issued a
standard that established the FASB Accounting Standards Codification (ASC)
and amended the hierarchy of generally accepted accounting principles (ASC)
and amended the hierarchy of generally accepted accounting principles (GAAP)
such that the ASC became the single source of authoritative nongovernmental U.S.
GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify
user access to all authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. All previously existing
accounting standard documents were superseded and all other accounting
literature not included in the ASC is considered non-authoritative. New
accounting standards issued subsequent to June 30, 2009 are communicated by
the FASB through Accounting Standards Updates (ASUs). The Company adopted the
ASC on July 1, 2009. This standard did not have an impact on the Company’s
consolidated results of operations or financial condition. However, throughout
the notes to the consolidated financial statements references that were
previously made to various former authoritative U.S. GAAP pronouncements have
been changed to coincide with the appropriate section of the ASC.
No other
recently issued accounting standards will have an impact on its consolidated
results of operations, financial position or cash flows.
For
the Three Months Ended
December 31, 2009 and December 31, 2008
The
following table sets forth certain data derived from the unaudited consolidated
statements of operations, expressed as a percentage of net revenues for each of
the three month periods ended December 31, 2009 and December 31,
2008.
QUARTERLY RESULTS OF
OPERATIONS
|
Three Months ended December 31
|
|||||||||||||||
|
2009
|
2008
|
||||||||||||||
(In thousands)
|
Amount
|
%
|
Amount
|
%
|
||||||||||||
Net
Revenues
|
$
|
3,591
|
100.00
|
%
|
$
|
4,629
|
100.00
|
%
|
||||||||
Cost
of Revenues
|
3,300
|
91.90
|
%
|
4,956
|
107.06
|
%
|
||||||||||
Gross
Profit
|
291
|
8.1
|
%
|
(327
|
)
|
(7.06)
|
%
|
|||||||||
Sales,
general and administrative expenses
|
152
|
4.23
|
%
|
155
|
3.35
|
%
|
||||||||||
Other
expenses
|
16
|
0.45
|
%
|
94
|
2.03
|
%
|
||||||||||
Total
costs and expenses
|
168
|
4.68
|
%
|
249
|
5.37
|
%
|
||||||||||
Profit
(loss) from operations
|
$
|
123
|
3.42
|
%
|
$
|
(575
|
)
|
(12.43)
|
%
|
Revenues
Revenue
for the three month period ended December 31, 2009 were $3,591,042 a decrease of
$1,038,113 or 22.43 % as compared to revenues for the three month period ended
December 31, 2008 of $4,629,155. The decrease in revenue was a result of a
decrease in the number of vehicles we sold in the three month period in 2009
over 2008. Specifically, in the three month period ended December 31, 2009 we
sold 236 vehicles at an average sales price of $15,216 as compared to 330
vehicles at an average sales price of $14,028 during the comparable period in
2008. Despite a significant drop in the price of fuel, market
conditions did not improve as we had hoped they would in the fourth
quarter. Relief from high fuel prices was met with a further
worsening of the economy in general. Our customer’s appetite for our product did
not return, and we were unable to successfully implement our business
strategies.
Cost of Sales and Gross Profit
Margin
The
Company's cost of sales is composed primarily of the cost of purchasing vehicles
for resale. Cost of revenues was $3,299,507 or 91.88% of net revenues during the
three month period ended December 31, 2009 as compared to $4,955,906 or 107.06%
for the comparable period in 2008, a decrease of $1,656,399 or 33.42%. Thus, our
gross margin was 8.12% for the three month period ended December 31, 2009 as
compared to (7.06%) for the comparable period in 2008. The decrease in our cost
of revenue as a percent of revenue is attributable to a decrease in the cost of
the vehicles sold during the three month period ended September 30, 2009 as
compared to the comparable period in 2008. Our cost of sales and gross profit
margin were impacted by our inability to purchase and sell vehicles in an
unstable used vehicle market. Supply of late model used vehicles outstripped
demand in the fourth quarter, and we were unable to find new customers given a
market that was so overly saturated.
Operating
Expenses
Our
operating expenses are comprised primarily of salaries, consulting fees and
sales, general and administrative expenses.
Sale,
General and Administrative
Sale,
general and administrative ("SGA'') expenses are composed principally of
commission, salaries of administrative personnel, fees for professional services
and facilities expenses. These expenses were $152,478 for the three month period
ended December 31, 2009 or 4.25% of net revenue as compared to $154,882 or 3.35%
of net revenue for the comparable period in 2008, a decrease in such expenses of
$2,404 or (0.9%). The decrease in the ratio of SGA expenses to net
revenue was primarily due to a decrease in operating expenses. We aggressively
implemented cost saving measures in the fourth quarter of 2009 in an effort to
reduce our operating expense. These measures included the elimination of full
time positions, as well as the termination of our relationships with certain
independent contractors.
Other
Expenses
Our
combined expenses for officers salaries, consulting fees and interest was
$15,868 for the three month period ended December 31, 2009 or 0.44 % of net
revenue compared to the comparable period in 2008 when such expenses were
$93,849 or 2.03% of net revenue. The decrease in such expenses is attributable
to decreased officers' salaries, interest expense and consulting fees in 2009.
Given the challenges the company experienced in 2009, the company’s officers
accepted a significant decrease in compensation in the third and fourth quarter
of 2009 as compared to 2008. The following table shows the changes in the
components of these expenses during the comparable periods.
12
QUARTERLY OPERATING
EXPENSES
|
Three Months Ended
|
Variance
|
||||||||||||||
|
December 31, 2009
|
December 31, 2008
|
Amount
|
%
|
||||||||||||
Sale,
General and Administrative Expenses
|
$
|
152,477
|
154,882
|
$
|
(2,405
|
)
|
(1.55)
|
%
|
||||||||
Officers
Salaries
|
-
|
34,756
|
(34,756
|
)
|
-
|
%
|
||||||||||
Consulting
Fees
|
-
|
8,667
|
(8,667
|
)
|
-
|
|||||||||||
Interest
Expense
|
15,868
|
50,426
|
(34,558
|
)
|
(68.53)
|
%
|
||||||||||
Total
Operating Expenses
|
$
|
168,345
|
248,731
|
$
|
(80,386
|
)
|
(32.32)
|
%
|
Operating
Gain (Loss)
Operating
gain or loss is calculated as our revenues less all of our operating expenses.
Our operating gain for the three month period ended December 31, 2009 was
$123,189 or 3.43% of net revenue as compared to an operating loss of ($575,482)
or (12.43%) of net revenue for comparable period in 2008, a increased gain of
$698,671. This increase in operating profit was primarily as a result of an
increase in gross revenues which was greater than the decrease of operating
expense.
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.
13
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.
14
Item
7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
As of
December 31, 2009, we had cash and cash equivalents of $341,629 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, 2009, we had an outstanding balance of $325,588
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, 2009, 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%.
15
Item
8. Financial Statements and Supplementary
Data.
NORTHEAST
AUTOMOTIVE HOLDINGS, INC
FINANCIAL
STATEMENTS
DECEMBER
31, 2009
NORTHEAST
AUTOMOTIVE HOLDINGS, INC
INDEX
PAGE
|
||
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
F2
|
|
CONSOLIDATED
BALANCE SHEETS
|
F4
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
F5
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
F6
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
|
F7
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F8-F14
|
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. (the “Company”) as of December 31, 2009 and the related
consolidated statements of operations, changes in stockholders’ deficit and cash
flows for the year ended December 31, 2009. 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 audit.
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 the Company as of
December 31, 2009 and the results of its operations and its 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, 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 14,
2010
KEMPISTY
& COMPANY
|
CERTIFIED
PUBLIC ACCOUNTANTS, P.C.
|
15
MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272 - FAX
(212) 513-1930
|
F2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Northeast
Automotive Holdings, Inc.
We have
audited the accompanying consolidated balance sheets of Northeast Automotive
Holdings, Inc. as of December 31, 2008 and the related consolidated statements
of operations, changes in stockholders' equity (deficit) and cash flows for the
yearended December 31, 2008. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required at
this time, 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 audit provides 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 Auto
Acceptance Corp. at December 31, 2008 and the results of its operations and its
cash flows for the year ended December 31, 2008 in conformity with accounting
principles generally accepted in the in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has an accumulated deficit of $4,349,817 and a
working capital deficiency of $402,192 at December 31, 2008. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Kempisty
& Company
|
Certified
Public Accountants PC
|
New
York, New York
|
April
15, 2009, except for Note 1, Note 3, Note 9 are as of August 6,
2009
|
F3
NORTHEAST
AUTOMOTIVE HOLDINGS, INC
CONSOLIDATED
BALANCE SHEETS
December 31,
|
||||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
|
$
|
341,629
|
$
|
934,118
|
||||
Inventory
|
1,554,549
|
1,907,157
|
||||||
Total
Current Assets
|
1,896,178
|
2,841,275
|
||||||
Equipment,
net
|
16,251
|
21,698
|
||||||
Other
assets
|
7,773
|
8,479
|
||||||
TOTAL
ASSETS
|
$
|
1,920,202
|
$
|
2,871,452
|
||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$
|
136,711
|
$
|
159,040
|
||||
Note
payable to bank
|
100,000
|
100,000
|
||||||
Credit
line
|
325,588
|
198,006
|
||||||
Demand
loans payable
|
770,861
|
904,246
|
||||||
Due
to stockholders
|
584,115
|
1,746,269
|
||||||
Accrued
expenses
|
75,023
|
133,946
|
||||||
Payroll
taxes withheld and accrued
|
2,316
|
1,960
|
||||||
Total
Current Liabilities
|
1,994,614
|
3,243,467
|
||||||
Commitments
and contingencies
|
-
|
-
|
||||||
Stockholders'
Deficit
|
||||||||
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
|
||||||
Deficit
|
(4,052,214
|
)
|
(4,349,817
|
)
|
||||
(73,236
|
)
|
(370,839
|
)
|
|||||
Less:
Treasury stock (6,667 common shares)
|
(1,176
|
)
|
(1,176
|
)
|
||||
Total
Stockholders' Deficit
|
(74,412
|
)
|
(372,015
|
)
|
||||
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$
|
1,920,202
|
$
|
2,871,452
|
See Notes
to Financial Statements
F4
NORTHEAST
AUTOMOTIVE HOLDINGS, INC
CONSOLIDATED
STATEMENTS OF OPERATIONS
2009
|
2008
|
|||||||
Net
sales
|
$
|
16,692,590
|
$
|
43,015,451
|
||||
Cost
of sales
|
15,555,099
|
42,795,611
|
||||||
Gross
profit
|
1,137,491
|
219,840
|
||||||
Operating
expenses:
|
||||||||
Officers
salaries
|
92,026
|
315,955
|
||||||
Consulting
fees
|
-
|
20,000
|
||||||
Selling,
general and administrative
|
600,729
|
724,132
|
||||||
Total
operating expenses
|
692,755
|
1,060,087
|
||||||
Profit
(loss) from operations
|
444,736
|
(840,247)
|
||||||
Interest
expense
|
147,133
|
306,064
|
||||||
Net
profit (loss)
|
297,603
|
(1,146,311
|
)
|
|||||
Deemed
preferred dividend
|
-
|
401,061
|
||||||
Net
income (loss) attributable to common stockholders
|
$
|
297,603
|
$
|
(1,547,372
|
)
|
|||
Net
income (loss) per common share, basic
|
$
|
0.430
|
$
|
(2.23
|
)
|
|||
Weighted
average number of shares outstanding, basic
|
692,879
|
692,879
|
||||||
Net
income (loss) per common share, diluted
|
$
|
0.430
|
$
|
(2.23
|
)
|
|||
Weighted
average number of shares outstanding, diluted
|
692,879
|
692,879
|
See Notes
to Financial Statements
F5
NORTHEAST
AUTOMOTIVE HOLDINGS, INC
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
profit (loss)
|
$
|
297,603
|
$
|
(1,547,372)
|
)
|
|||
Adjustments
to reconcile net loss to net cash provided (used) by operating
activities:
|
||||||||
Depreciation
and amortization
|
5,447
|
5,113
|
||||||
Stock
issued for consulting fees
|
-
|
20,000
|
||||||
Deemed
preferred dividend
|
-
|
401,061
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
Decrease
in accounts receivable
|
-
|
407,589
|
||||||
Decrease
in inventory
|
352,608
|
3,318,880
|
||||||
Increase
in other assets
|
706
|
17,674
|
||||||
Decrease)
in accounts payable
|
(22,329)
|
(139,128)
|
||||||
Decrease
in accrued expenses
|
(58,923)
|
(239,411)
|
||||||
Increase
(decrease) in payroll taxes
|
356
|
(138,694)
|
||||||
CASH
PROVIDED (USED) BY OPERATING ACTIVITIES
|
575,468
|
2,105,712
|
||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase
of fixed assets
|
-
|
(3,347)
|
||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
of line of credit
|
3,355,179
|
5,113,005
|
||||||
Repayment
of line of credit
|
(3,227,597)
|
(5,764,841)
|
||||||
Proceeds
of stockholders loans
|
884,415
|
|||||||
Repayment
of stockholders loan
|
(1,162,155)
|
(643,854)
|
||||||
Proceeds
of demand loans
|
-
|
257,214
|
||||||
Repayment
of demand loans
|
(133,384)
|
(1,169,545)
|
||||||
Proceeds/(Repayments)
on credit card loan
|
-
|
(173,299)
|
||||||
CASH
PROVIDED (USED) BY FINANCING ACTIVITIES
|
(1,167,957)
|
(1,496,905)
|
||||||
NET
INCREASE (DECREASE) IN CASH
|
(592,489)
|
605,460
|
||||||
CASH,
beginning of year
|
934,118
|
328,658
|
||||||
CASH,
end of year
|
$
|
341,629
|
$
|
934,118
|
||||
SUPPLEMENTAL
CASH FLOW INFORMATION
|
||||||||
Cash
paid for:
|
||||||||
Income
tax payments
|
$
|
-
|
$
|
-
|
||||
Interest
payments
|
$
|
194,362
|
$
|
306,064
|
||||
NON-CASH
FINANCING ACTIVITIES
|
||||||||
Debt
exchange for preferred stock
|
$
|
-
|
$
|
(100,000)
|
||||
Preferred
stock issued for debt
|
$
|
-
|
$
|
100,000
|
||||
Deemed
preferred dividend
|
$
|
-
|
$
|
401,061
|
See Notes
to Financial Statements
F6
NORTHEAST
AUTOMOTIVE HOLDINGS, INC
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
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
|
|||||||||||||||||||||||||||||||
Balances,
December 31, 2007
|
-
|
-
|
887,285
|
887
|
-
|
-
|
3,457,030
|
(2,802,445
|
)
|
(1,176
|
)
|
654,296
|
||||||||||||||||||||||||||||
Reverse
split adjustment (Note 9)
|
-
|
-
|
65
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||
Cancellation
of loan due to shareholder (Note 8)
|
10,000,000
|
1,000
|
(333,333
|
)
|
(333
|
)
|
-
|
-
|
99,333
|
-
|
-
|
100,000
|
||||||||||||||||||||||||||||
Common
stock issued for consulting fees
|
-
|
-
|
-
|
-
|
500,000
|
20,000
|
-
|
-
|
-
|
20,000
|
||||||||||||||||||||||||||||||
Deemed
preferred dividend
|
-
|
-
|
-
|
-
|
-
|
-
|
401,061
|
(401,061
|
)
|
-
|
-
|
|||||||||||||||||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,146,311
|
)
|
-
|
(1,146,311
|
)
|
||||||||||||||||||||||||||||
Balance,
December 31, 2008
|
10,000,000
|
1,000
|
554,017
|
554
|
500,000
|
20,000
|
3,957,424
|
(4,349,817
|
)
|
(1,176
|
)
|
(372,015
|
)
|
|||||||||||||||||||||||||||
Net
profit
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
297,603
|
-
|
297,603
|
||||||||||||||||||||||||||||||
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
|
)
|
See Notes
to Financial Statements
F7
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 it’s 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 deficiency of
$98,436 at December 31, 2009 and an accumulated deficit of $4,052,214 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.
F8
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.
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.
Reverse Stock
Split
The
Company effected a 1-for-5 reverse stock split of its common stock no par value
on February 20, 2004 and a 1-for-30 reverse stock split of its common stock,
$0.001 par value on June 17, 2008. Accordingly all share and per share
information included in the consolidated financial statements has been adjusted
to reflect the reverse stock split.
F9
NORTHEAST
AUTOMOTIVE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting
Pronouncements
In
June 2009, the Financial Accounting Standards Board (FASB) issued a
standard that established the FASB Accounting Standards Codification (ASC)
and amended the hierarchy of generally accepted accounting principles (ASC)
and amended the hierarchy of generally accepted accounting principles (GAAP)
such that the ASC became the single source of authoritative nongovernmental U.S.
GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify
user access to all authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. All previously existing
accounting standard documents were superseded and all other accounting
literature not included in the ASC is considered non-authoritative. New
accounting standards issued subsequent to June 30, 2009 are communicated by
the FASB through Accounting Standards Updates (ASUs). The Company adopted the
ASC on July 1, 2009. This standard did not have an impact on the Company’s
consolidated results of operations or financial condition. However, throughout
the notes to the consolidated financial statements references that were
previously made to various former authoritative U.S. GAAP pronouncements have
been changed to coincide with the appropriate section of the ASC.
No other
recently issued accounting standards will have an impact on its consolidated
results of operations, financial position or cash flows.
NOTE
3 – INVENTORIES
Inventory
consists of the following:
December 31,
|
||||||||
2009
|
2008
|
|||||||
Automobiles
purchased for resale
|
$
|
1,554,549
|
$
|
1,907,157
|
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.
F10
NORTHEAST
AUTOMOTIVE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – NOTES AND LOANS PAYABLE
December 31,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Line
of credit (On October 4, 2004, the Company was approved for a line of
credit of $975,000, as an inventory financing ("Floor Plan") loan with
interest set at 2% above the Wall Street Journal Prime rate. The agreement
requires any advances to be repaid for a vehicle on the earliest of forty
eight (48) hours from the time of sale or within twenty four (24) hours
from the time the Company receives payment by or on behalf of the purchase
of such vehicle or demand. The agreement is personally guaranteed by the
officers and their respective spouses. The collateral for the loan is any
vehicle owned by the Company) The agreement does not have any other
restrictive covenants.
|
$
|
325,588
|
$
|
198,006
|
||||
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
|
||||||
Convertible
demand notes - The convertible demand notes in the amounts of $150,000,
$250,000 and $75,000, issued September 15, 2004, December 19, 2005 and
June 15, 2007 respectively, earn interest at the rate of 9% through May
31, 2008, and at the rate of 6% thereafter, The notes are convertible at
$0.25 per share. Interest is payable monthly.
|
-
|
100,000
|
||||||
6%
unsecured demand notes payable
|
770,861
|
804,246
|
||||||
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)
|
584,115
|
1,746,269
|
||||||
$
|
1,780,564
|
$
|
2,948,521
|
F11
NORTHEAST
AUTOMOTIVE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – 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.
To
determine the Fair Value of the Series A Preferred stock, the Company sets out
to value each of the preferences of the Series A Preferred stock since there was
no market for the Series A Preferred.
First
preference: (i) voting rights equal to 30 times the number of Common
stock votes.
A value
can be associated to these voting rights when the Company, as a shell, would be
worth about $100,000 especially in consideration of the $ 5,106,455 of
liabilities at March 31, 2008 that would have to be taken over by any new
owners.
Second
preference: (ii) not entitled to receive dividends paid on the Common
stock.
The
Company believes this preference has no value.
Third
preference: (iii) liquidation preference equals to eight times the sum available
for distribution to Common stock holders.
The
estimated maximum liquidation value would approximate the stockholders equity
since any gross profit on liquidation of the inventory would be offset by
operating and liquidating expenses. With the deterioration of the
used vehicle market during late 2007 and into 2008, the chance of a breakeven
liquidation was extremely unlikely in the near future. Since the
preferred stock will automatically convert to common shares in a short three
years, this liquidation preference right is of limited value especially to an already
controlling shareholder
. The Company therefore places no value on this
preference.
Fourth
preference: (iv) automatically convert after three years to one share of Common
stock.
Fifth
preference: (v) not to be subject to reverse stock splits and other changes to
the Common stock capital of the Company
Sixth
preference: (vi) convertible at the option of the holder after forty-five (45)
days.
The
Company believes their preference has no value since it is a forced conversion
at the same ratio as the voluntary conversion that is available after June 6,
2008.
On April
22, 2008, at the time of issuance, the Preferred stock was not readily tradable
in an open market. The Company determined the fair value of the 333,333 Common
shares canceled was $254,702 at $0.764 per share based on the Company’s net
assets of $677,980 as at March 31, 2008 divided by 887,286 shares issued and
outstanding (the “Net asset approach”). The Company believes that it was
appropriate to determine the fair value of its common stock at $0.764 based on
the Net asset approach rather the available market stock price based on the fact
that (1) there were limited stock trading activities on the market, (2) the
relevant historic and current financial conditions of the Company, and (3) the
industry and Company’s outlook for the future. Accordingly, the Company believes
that the Net asset approach represented a more accurate and objective criteria
for evaluating the Common shares of the Company. In addition, the Holder forgave
a loan in the amount of $100,000 that was owed to the Holder by the
Company.
F12
NORTHEAST
AUTOMOTIVE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – PREFERRED STOCK (continued)
On June
17, 2008, the Board of Directors approved a 1 for 30 reverse stock splits for
the common stock. The Company reevaluated the fair market value of the
10,000,000 Preferred stock that was issued on April 22, 2008 because the
Preferred stock that was convertible into Common stock at 1:1 ratio was not
affected by the reverse stock split.
The
Company determined the fair value of the Common shares at $0.0401 based on the
Company’s adjusted net assets of $423,278 divided by the total assumed number of
10,553,953 shares issued and outstanding (as if all Series A Preferred stock
were converted to Common stock).
As a
result, the Company recorded deemed preferred dividend of $401,601.
Stockholders'
Equity at March 31, 2008
|
$
|
677,980
|
||
Value
of Common Shares Canceled at April 22, 2008
|
(254,702
|
)
|
||
Adjusted
Stockholders' Equity at April 22, 2008
|
$
|
423,278
|
||
Common
Stock Outstanding at March 31, 2008
|
887,286
|
|||
Common
Stock Cancelled at April 22, 2008
|
(333,333
|
)
|
||
Assumed
all Preferred Stock Converted to Common Stock
|
10,000,000
|
|||
Adjusted
Common Stock Outstanding at June 17, 2008
|
10,553,953
|
|||
Fair
Value of Common Stock per share
|
$
|
0.0401
|
||
Deemed
Preferred Stock Dividend for 10,000,000 shares
|
$
|
401,061
|
NOTE
6 - COMMON 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.
All the shares have been restated for the reverse stock split.
On June
20, 2008, the Company agreed to file Form S-8 and to issue 500,000 common shares
for consulting services. The Company expensed the $20,000 over a six-month
period.
NOTE
7 - REVERSE STOCK SPLIT
The
Company enacted a 1-for-30 reverse share split of its common stock on June 17,
2008. All share amounts shown are adjusted.
F13
NORTHEAST
AUTOMOTIVE HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 - 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,
|
||||||||
2009
|
2008
|
|||||||
Numerator
|
||||||||
Net
income (loss) available to common stockholders
|
$
|
297,603
|
$
|
(1,547,372
|
)
|
|||
Denominator
|
||||||||
Weighted-average
shares outstanding for earnings per share, basic
|
692,879
|
692,879
|
||||||
Effect
of dilutive securities:
|
||||||||
Convertible
preferred stock
|
-
|
-
|
||||||
Weighted-average
shares outstanding for earnings per share, diluted
|
692,879
|
692,879
|
The
following were excluded from the computation of the diluted securities
outstanding as they would have been an anti-dilutive impact.
December 31,
|
||||||||
2009
|
2008
|
|||||||
Convertible
preferred stock
|
10,000,000
|
10,000,000
|
NOTE
9 - 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 $716,000 and $1,014,000 at December 31, 2009 and 2008,
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:
2009
|
2008
|
|||||||
Deferred
tax asset – NOL carryforward
|
$
|
243,000
|
$
|
345,000
|
||||
Less:
valuation allowance
|
(243,000
|
)
|
(345,000
|
)
|
||||
Total
|
$
|
-
|
$
|
-
|
NOTE
10 -COMMITMENTS AND CONTINGENCIES
The
Company rents office space on a month-to-month basis at two locations and
beginning during 2008, warehouse space on a month-to-month
basis. Rent expense was approximately $42,816 and $34,500 for 2009
and 2008, respectively.
F14
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 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, 2009 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, 2009.
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 2009 that
have materially affected, or are reasonably likely to material affect, our
internal control
Item
9B. Other Information.
None.
16
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 name and age of our sole executive officer and
director.
Name
|
Age
|
Position
|
Date of Appointment
|
|||
William
Solko
|
40
|
President,
Chief Executive Officer, Chairman, Treasurer
|
December
2004
|
|||
Michael
Shaw
|
40
|
Vice
President
|
December
2004
|
|||
Marsha
Solko
|
40
|
Director
of Administration
|
December
2004
|
Set forth
below is a brief description of the background and business experience of our
sole executive officer and 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 21 years of experience in the automobile industry including over
18 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 11 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 19 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.
17
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, 2009 in all capacities for the accounts of our
executives, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO):
18
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
|
2009
|
$
|
46,013
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
$
|
46,013
|
|||||||||||||||||||||||
Executive
Officer, Treasurer
|
||||||||||||||||||||||||||||||||||
Michael
Shaw, Vice President
|
2009
|
$
|
46,013
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
$
|
46,013
|
|||||||||||||||||||||||
159,511Marsha
Solko, Director of Administration
|
2009
|
-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, 2009, and the
subsequent period up to the date of the filing of this prospectus.
Compensation of
Directors
For the
fiscal year ended December 31, 2009, we did not compensate our directors for
their services.
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.
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
|
%
|
(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.
|
19
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
None.
Item
14.
|
Principal
Accounting Fees and Services.
|
Audit
Fees
For 2009
and 2008, 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 and tax fees paid to the auditors
with respect to fiscal year 2009 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
|
20
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
15, 2010
|
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, 2010
|
||
WILLIAM
SOLKO
|
21