UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
ýx      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarter ended SeptemberJune 30, 20102011
 
or
 
¨      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______to _________
 
Commission File Number:  000-53911
 
MK AUTOMOTIVE, INC.
(Exact Name of Registrant as Specified in Its Charter)

Nevada
(State or Other Jurisdiction of
Incorporation or Organization)
 
43-1965656
(IRS Employer
Identification No.)
   
5833 West Tropicana Avenue
Las Vegas, Nevada
(Address of principal executive offices)
 
89103
(Zip Code)

(702) 227-8324
(Registrant’s Telephone Number, Including Area Code)
 
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                    ýx Yes  ¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).ý x Yes  ¨ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
 
Large accelerated filer  ¨
Accelerated filer ¨
Non-accelerated filer  ¨
Smaller reporting company ýx
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  ¨ Yes  ýx No
 
There were 29,847,10031,139,145 shares of issuer’s Common Stock outstanding as of SeptemberJune 30, 2010.2011.

 
 
 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains forward-looking statements.  These statements relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology.  Forward-looking statements are speculative and uncertain and not based on historical facts.  Because forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.  These uncertainties and other factors are more fully described under Part I, Item 1A of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on July 6, 2010 and include:
 
 ·the continued availability of key personnel
 ·consumer acceptance of franchised operations in the automotive repair business
 ·location and appearance of owned and franchised outlets
 ·availability and cost of qualified automotive technicians
 ·ability to attract and retain qualified technicians, managers and franchisees
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements, and you are advised to consult any further disclosures made on related subjects in our future filings.
 
i
 

TABLE OF CONTENTS
 
TABLE OF CONTENTS
  Page
PART I
Item 1.Financial Statements1
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
5
Item 3.Quantitative and Qualitative Disclosures about Market Risk76
Item 4.Controls and Procedures76
PART II
Item 5.Other Information76
Item 6.Exhibits76
 
ii

PART I
 
Item 1.  Financial Statements.
 
MK Automotive, Inc.AUTOMOTIVE, INC.
Balance Sheets
(Unaudited)
September 30, 2010 and March 31, 2010
Unaudited
 
       
  September 30,  March 31, 
ASSETS 2010  2010 
CURRENT ASSETS      
Cash $39,028  $111,658 
Accounts receivable  41,808   28,088 
Prepaid expenses and other current assets  43,090   35,432 
Total current assets  123,926   175,178 
         
PROPERTY AND EQUIPMENT        
Building  480,620   480,620 
Furniture, fixtures and equipment  158,079   158,079 
   638,699   638,699 
Less - accumulated depreciation  (215,769)  (207,727)
   422,930   430,972 
Land  919,380   919,380 
   1,342,310   1,350,352 
GOODWILL  1,218,379   1,218,379 
Total Assets $2,684,615  $2,743,909 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
CURRENT LIABILITIES        
Accounts payable – trade $192,342  $181,032 
Accrued expenses and other current  liabilities  140,243   209,325 
Accrued interest – related party  219,475   214,256 
Line of credit  96,513   103,288 
Advances from shareholders  225,857   244,157 
Current portion of long-term debt – related party  36,890   103,062 
Current portion of long-term debt – third party  584,990   423,676 
Total Current Liabilities  1,496,310   1,478,796 
         
LONG-TERM LIABILITIES        
Long-term debt – third party, net of current portion  1,093,280   1,273,985 
Long-term debt – related party, net of current portion  177,165   201,573 
Total Long Term  Liabilities  1,270,445   1,475,558 
Total Liabilities  2,766,755   2,954,354 
STOCKHOLDERS’ DEFICIT        
Common stock, $0.001 par value, 50,000,000 shares authorized; 29,847,100        
 shares issued and outstanding  29,847   29,847 
Additional paid in capital  1,991,340   1,935,784 
Accumulated deficit  (2,103,327)  (2,176,076)
Total Stockholders’ Deficit  (82,140)  (210,445)
Total Liabilities and Stockholders’ Deficit $2,684,615  $2,743,909 
ASSETS June 30, 2011  March 31, 2011 
       
Current assets:      
Cash $49,578  $80,260 
Accounts receivable  59,564   56,913 
Prepaid expenses and other current assets  28,905   29,655 
Deferred Offering Cost  20,000   - 
     Total current assets  158,047   166,828 
         
Property and Equipment:        
Building  480,620   480,620 
Furniture, fixtures, and equipment  158,079   158,079 
   638,699   638,699 
Less - accumulated depreciation  (227,572)  (223,629)
   411,127   415,070 
Land  919,380   919,380 
     Total property and equipment  1,330,507   1,334,450 
         
Goodwill  1,228,379   1,228,379 
Total Assets $2,716,933  $2,729,657 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
Current liabilities:        
Accounts payable - trade $221,254  $198,233 
Accrued expenses and other current liabilities  49,576   60,241 
Accrued interest - related party  236,595   223,766 
Line of credit  93,397   96,601 
Payable to Related Party  220,857   220,857 
Current portion of long-term debt  541,100   612,145 
     Total current liabilities  1,362,779   1,411,843 
         
Long-term Liabilities        
Long-term debt - third party, net of current portion  1,263,227   1,227,863 
Total Long-Term Liabilities  1,263,227   1,227,863 
Total Liabilities  2,626,006   2,639,706 
         
Stockholders' Equity
        
Common stock, $0.001 par value, 50,000,000 shares authorized;        
31,139,145 and 30,414,145 shares issued and outstanding  31,140   30,415 
Additional paid in capital  2,143,929   2,119,654 
Accumulated deficit  (2,084,142)  (2,060,118)
Total stockholders' equity  90,927   89,951 
Total Liabilities and Stockholders' Equity $2,716,933  $2,729,657 
 
The accompanying footnotes are an integral part of these unaudited financial statements.
The accompanying notes are an integral part of the financial statements
 
- 1 --1-
 
MK Automotive, Inc.AUTOMOTIVE, INC.
Unaudited Interim Statements of Operations
(Unaudited)
For the Three and Six Months ended SeptemberJune 30, 20102011 and 20092010
 
  Three Months Ended  Six Months Ended 
  September 30,  September 30, 
  2010  2009  2010  2009 
             
Net Sales $1,237,529  $1,306,294  $2,390,424  $2,471,352 
Cost of Goods Sold  1,056,681   1,216,566   1,953,280   2,243,816 
Gross Profit  180,848   89,728   437,144   227,536 
                 
Selling, general and administrative expenses                
Salaries, wages and employee benefits  32,964   39,132   58,977   77,390 
Advertising  9,529   14,543   20,959   32,655 
Bank charges  22,579   20,604   40,651   38,988 
Professional fees  68,602   44,026   159,956   56,783 
Bad debt  341   -   1,930   (710)
   134,015   118,305   282,473   205,106 
                 
Income (loss) from operations  46,833   (28,577)  154,671   22,430 
                 
Other income (expense)                
Interest income  586   -   1,183   - 
Interest expense  (45,266)  (35,954)  (83,105)  (81,392)
                 
Total other expense  (44,680)  (35,954)  (81,922)  (81,392)
                 
Net income (loss)  2,153   (64,531)  72,749   (58,962)
                 
Basic and diluted earnings per share  0.00   (0.00)  0.00   (0.00)
                 
Weighted average shares outstanding  29,847,100   29,202,110   29,847,100   29,202,110 
  2011  2010 
Net Sales $936,318  $1,152,895 
Cost of Goods Sold  820,299   896,599 
Gross Profit  116,019   256,296 
         
         
Selling, general and administrative expenses        
Salaries, wages, and employee benefits  30,654   26,013 
Advertising and marketing  7,965   11,430 
Bank charges  16,115   18,072 
Professional fees  31,209   91,354 
Bad debt  -   1,589 
   85,943   148,458 
         
Income from Operations  30,076   107,838 
         
Other income (expense)        
Interest income  -   597 
Interest expense  (54,100)  (37,839)
Total other expense  (54,100)  (37,242)
         
Net (Loss) Income  (24,024)  70,596 
         
Basic and diluted (loss) earning per share  (0.00)  0.00 
         
Weighted average shares outstanding  30,699,145   29,847,100 
 
The accompanying footnotes are an integral part of these unaudited financial statements.
The accompanying notes are an integral part of the financial statements
 
- 2 --2-
 
MK Automotive, Inc.AUTOMOTIVE, INC.
Unaudited Interim Statements of Cash Flows
(Unaudited)
For the SixThree Months ended SeptemberJune 30, 20102011 and 2009
  2010  2009 
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income (loss) $72,749  $(58,962)
Adjustments to reconcile net income to net cash from operating activities::     
Stock-based compensation  55,556   - 
Depreciation  8,042   17,883 
Changes in operating assets and liabilities:        
Accounts receivable  (13,720)  (8,176)
Prepaid expenses and other current assets  (7,658)  2,872 
Accounts payable - trade  11,310   56,792 
Accrued expenses and other current liabilities  (63,863)  9,504 
Net cash provided by operating activities  62,416   19,913 
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from sale of stock  -   112,097 
Payment of advances from shareholders  (18,300)  (15,000)
Proceeds (payments) on line of credit, net  (6,774)  11,128 
Proceeds of long-term debt  -   50,000 
Repayments of long-term debt  (109,972)  (45,609)
Net cash provided (used) in financing activities  (135,046)  112,616 
         
NET INCREASE (DECREASE) IN CASH  (72,630)  132,529 
         
CASH AT BEGINNING OF PERIOD  111,658   68,291 
         
CASH AT END OF PERIOD $39,028  $200,820 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION        
Cash paid during the year for interest $68,684  $72,387 
Income taxes paid  -   - 
The accompanying footnotes are an integral part of these unaudited financial statements.2010
 
       
  2011  2010 
Cash Flows from Operating Activities      
  Net (Loss) Income $(24,024) $70,596 
  Adjustments to reconcile net loss to net cash from operating activities        
Stock-based compensation  5,000   55,556 
Depreciation  3,943   - 
Changes in operating assets and liabilities:        
Accounts receivable  (2,651)  (5,680)
Prepaid expenses and other current assets  750   2,144 
Accounts payable - trade  23,021   (11,772)
Accrued expenses and other current liabilities  2,164   (52,790)
Net cash provided by operating activities  8,203   58,054 
         
Cash Flows from Financing Activities        
Payment of advances from shareholders/related parties  -   (8,300)
Payments on line of credit, net  (3,204)  (3,471)
Repayments of debt  (35,681)  (71,917)
Net cash used in financing activities  (38,885)  (83,688)
         
Net Increase (decrease) in cash  (30,682)  (25,634)
         
Cash at Beginning of Period  80,260   111,658 
         
Cash at End of Period $49,578  $86,024 
         
Supplemental Disclosure of Cash Flow Information        
Cash paid during the period for interest $35,620  $31,581 
Income taxes paid  -   - 
Deferred Offering Cost  20,000   - 
The accompanying notes are an integral part of the financial statements
- 3 --3-
MK Automotive, Inc.
Notes to Condensed Financial Statements
For the Quarter ended June 30, 2011
 
MK AUTOMOTIVE, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Note 1. Basis of Presentation and Use of Estimates

The accompanying unaudited interim financial statements of MK Automotive, Inc. (“we”, “our” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the SEC and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in MK Automotive’sour Annual Report on Form 10-K for the year ended March 31, 20102011 filed on July 6, 2010.June 27, 2011.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the year ended March 31, 2010, as reported in the Form 10-K have been omitted.

Note 2. Subsequent EventsAccounting Policies:

OnWe have evaluated recent accounting pronouncements and believe none will have a material effect on our financial statements upon implementation.
Note 3. Stockholders’ Equity:
During the three months ended June 30, 2011, we issued 725,000 shares to consultants, whose services were valued at $25,000. Due to the light trading and high price volatility of our stock, management determined that the fair value of the consulting services was more reliably measurable than the fair value of the stock issued. $20,000 of these services have been classified as deferred offering costs at June 30, 2011.
Three employees had been granted 400,000 shares on November 16, 2010, the Company’s Boardwhich were held in escrow during a vesting period and not considered outstanding at March 31, 2011. The compensatory value of Directors granted 900,000 shares of restrictedthis employee stock compensation was to four employees and service providers.have been recognized over 36 months starting June 1, 2011, based on a vesting schedule. During May 2011, these three stock grants were cancelled prior to any vesting.
 
At June 30, 2011, we had 31,139,145 shares outstanding.
On July 9, 2010, the Company hired a consulting firm to perform franchise sales and/or brokerage services over a one year term.  As part of the compensation, the company granted warrants which vested based on the consultant’s performance. The contract expired July 9, 2011 without any of these warrants being vested. No stock compensation expense was ever recorded by the Company related to this agreement.
- 4 -
-4-

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the financial statements and the notes to those statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on July 6, 2010.June 27, 2011.  This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties.  Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed under Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K.
 
Overview
 
We operate full service automotive maintenance and repair service shops in sixfive company-owned and two franchise locations in the greater Las Vegas, Nevada, metropolitan area and have onetwo franchise location in Las Vegas, Nevada, and one franchise locationlocations in St. Louis, Missouri.  Expansion is planned through both the establishment of additional locations that we will operate and by granting franchises to independent businesses.  The term “fiscal 2010”2011” refers to the twelve months ended March 31, 2010,2011, and the term “fiscal 2011”2012” refers to the twelve months ending March 31, 2011.2012.
 
Results of Operations
 
Three Months Ended SeptemberJune 30, 20102011 compared to the Three Months Ended SeptemberJune 30, 20092010
 
Net sales for the three months ended SeptemberJune 30, 20102011 were $1,237,529,$936,318, a decrease of $68,765,$216,577, or 5.3%19%, over net sales of $1,306,294$1,152,895 for the three months ended SeptemberJune 30, 2009.2010.  The decrease in net sales was due primarily to the continuing recession during fiscal 20112012 and the continued deferral by consumers of maintenance and repair on personal automobiles.  In addition, the sale of our “Henderson”“Decatur” location to a former employee and conversion of that location to a franchise location in the fourth quarter of fiscal 20102011 resulted in a decrease in net sales from company-operated locations for the three months ended SeptemberJune 30, 20102011 that was offset by an increase in net sales from franchise operations of $14,439$9,053 for the three months ended SeptemberJune 30, 2010.2011.
 
Cost of goods sold during the three months ended SeptemberJune 30, 20102011 was $1,056,681,$820,299, a decrease of $159,885,$76,300, or 13.1%9%, compared to cost of goods sold of $1,216,566$896,599 for the three months ended SeptemberJune 30, 2009.2010.  Cost of goods sold as a percentage of sales improvedincreased to 85.4%87.6% for the three months ended SeptemberJune 30, 20102011 compared to 93.1%77.8% for the three months ended SeptemberJune 30, 2009.2010.  The reduction inconversion of the Decatur location to a franchise location reduced both sales and cost of goods sold, both in absolute terms and as a percentage of sales, was primarily because we renegotiated the leases relating tobut our “Durango” and “Henderson” locations during fiscal 2010 to reduce the minimum rents and the conversion of our “Henderson” location to franchise operation.  In addition, there was no material cost of goods sold associated with the revenue from franchise operations includedincludes some fixed-cost components (such as rents and onsite salespeople) that suppresses our profit margin during times of reduced sales. The decline in net sales during the three months ended September 30, 2010 so the addition of $14,439 in revenue from franchise operations contributed to the improvement in cost of goods sold as a percentage of sales.  The improvementand increase in cost of goods sold as a percentage of sales more than offset the effects of the decline in net sales and resulted in gross profit for the three months ended SeptemberJune 30, 20102011 of $180,848, an increase$116,019, a decrease of $91,120,$140,277, or 101.6%55%, compared to gross profit of $89,728$256,296 for the three months ended SeptemberJune 30, 2009.2010.
 
Selling, general and administrative expenses during the three months ended SeptemberJune 30, 20102011 were $134,015, an increase$85,943, a decrease of $15,710,$62,515, or 13.3%42%, compared to selling, general and administrative expenses during the three months ended SeptemberJune 30, 20092010 of $118,305.  Professional fees increased by $24,576 (55.8%)$148,458.  The decrease was primarily due to an agreement entered intostock compensation classified as professional fees. Total professional fees decreased by $60,145 (66%) from $91,354 in the three months ending June 30, 2010 to provide franchise brokerage$31,209 in the three months ending June 30, 2011. Of these amounts, $55,556 (2010) and development services.$5,000 (2011) was stock-based (non-cash) and $35,798 (2010) and $26,209 (2011) was cash-based. Our stock-based professional fees were higher as we engaged consultants to help us find investors to fund our plans to create new compay-owned locations. Reductions in Advertising and Marketing of $3,465 (30%), Bank charges increased by $1,975 (9.6%Charges of $1,957 (11%) as a result in increased credit card sales.  These increasesand bad debt of $1,589 (100%) were offset by a decreasean increase in salaries, wages and employee benefitsbenefit costs of $6,168 (15.8%$4,641 (18%), reflecting salary reductions at the corporate executive and administrative level in response to recessionary pressures, and a decrease in advertising expenses of $5,014 (34.5%), reflecting the deferral of certain advertising expenses..
 
Despite the decline in net revenue, incomeWe posted a profit from operations improved to $46,833of $30,076 for the three months ended SeptemberJune 30, 20102011 compared to a lossprofit of $28,577$107,838 for the three months ended SeptemberJune 30, 2009.2010.  The improved results aredecrease in profit was primarily the result of decreased sales due to the increaseeconomic conditions in gross profits.our primary market, Las Vegas, erosion of our profit margin as we struggle to contain our cost of sales, and increased stock-based professional fees expense. Interest expense for the three months ended SeptemberJune 30, 2010 were $45,266,2011 was $54,100, an increase of $9,312$16,261 or 25.9%43% compared to interest expense of $35,954$37,839 for the three months ended SeptemberJune 30, 2009.2010.  The increase in interest expense is a result of costs associated with the sale of future credit card receivables, an agreement that we entered into just before the start of fiscal 2012 and are treating as a current note payable.  Net incomeloss for the three months ended SeptemberJune 30, 20102011 was $2,153$24,024 ($0.00 per share) compared to a lossincome of $64,531$70,596 ($0.00 per share) for the three months ended SeptemberJune 30, 2009.
Six Months Ended September 30, 2010 compared to the Six Months Ended September 30, 2009
Net sales the six months ended September 30, 2010 were $2,390,924, a decrease of $80,928, or 3.3%, over net sales of $2,471,352 for the six months ended September 30, 2009.  The decrease in net sales was due primarily to the continuing recession during fiscal 2011 and the continued deferral by consumers of maintenance and repair on personal automobiles.  In addition, the sale of our “Henderson” location to a former employee and conversion of that location to a franchise location in the fourth quarter of fiscal 2010 resulted in a decrease in net sales from company-operated locations for the six months ended September 30, 2010 that was offset by an increase in net sales from franchise operations of $45,072 for the six months ended September 30, 2010.
- 5 -
Cost of goods sold during the six months ended September 30, 2010 was $1,953,280, a decrease of $290,536 or 12.9%, compared to cost of goods sold of $2,243,816 for the six months ended September 30, 2009.  Cost of goods sold as a percentage of sales improved to 81.7% for the six months ended September 30, 2010 compared to 90.8% for the six months ended September 30, 2009.  The reduction in cost of goods sold, both in absolute terms and as a percentage of sales, was primarily because we renegotiated the leases relating to our “Durango” and “Henderson” locations during fiscal 2010 to reduce the minimum rents and the conversion of our “Henderson” location to franchise operation.  In addition, there was no material cost of goods sold associated with the revenue from franchise operations included in net sales during the six months ended September 30, 2010 so the addition of $45,072 in revenue from franchise operations contributed to the improvement in cost of goods sold as a percentage of sales.  The improvement in cost of goods sold as a percentage of sales more than offset the effects of the decline in net sales and resulted in gross profit for the six months ended September 30, 2010 of $437,144, an increase of $209,608, or 92.1%, compared to gross profit of $227,536 for the six months ended September 30, 2009.
Selling, general and administrative expenses during six months ended September 30, 2010 were $282,473, an increase of $77,367, or 37.7%, compared to selling, general and administrative expenses during six months ended September 30, 2009 of $205,106.  The increase in selling, general and administrative expenses was primarily the result of an increase in professional fees of $103,173 (181.7%).  The increase in professional fees during six months ended September 30, 2010 occurred because of the increase in consulting services relating to becoming a public company, an agreement entered into to provide franchise brokerage and development services which was $18,252, and stock-based compensation, which was $55,556 for six months ended September 30, 2010 compared to none for the six months ended September 30, 2009.  Stock-based compensation for the six months ended September 30, 2010 consisted of the recognition of certain shares issued to Bobby Vavla for consulting services following the registration of our common stock with the state of Nevada in 2009.  In addition to the increase in professional fees, bank charges increased by $1,663 (4.3%).   The increases in professional fees and bank charges were partially offset by a decrease in salaries, wages and employee benefits of $18,413 (23.8%), reflecting salary reductions at the corporate executive and administrative level in response to recessionary pressures, and a decrease in advertising expenses of $11,696 (35.8%), reflecting the deferral of certain advertising expenses.
Despite the decline in net revenue, income from operations improved to $154,671 for six months ended September 30, 2010 compared to $22,430 for six months ended September 30, 2009.  The improved results are primarily the result of the increase in gross profits.  Interest expense for the six months ended September 30, 2010 were $83,105, an increase of $1,713 or 2.1% compared to interest expense of $81,392 for six months ended September 30, 2009.  Interest-bearing debt during six months ended September 30, 2010 declined slightly compared to interest-bearing debt outstanding during the six months ended September 30, 2009.  However, the decline in interest bearing debt was offset by an increase in the average cost of indebtedness as a result of a shift in obligations from indebtedness to related parties to indebtedness to third parties.  Net income for six months ended September 30, 2010 was $72,749 ($0.00 per share) compared to a loss of $58,962 ($0.00 per share) for six months ended September 30, 2009.
 
Liquidity and Capital Resources
 
We had cash on hand as of SeptemberJune 30, 20102011 of $39,028,$49,578, a decrease of $72,630$30,682 compared to cash on hand as of March 31, 20102011 of $111,658.$80,260.  Our operating activities during sixthe three months ended SeptemberJune 30, 20102011 provided $62,416.$8,203.  Cash provided by operating activities was the result of oura net incomeloss of $24,024 for sixthe three months ended SeptemberJune 30, 2010 of $72,749,2011 which included $55,556was offset by $8,943 in non-cash compensation expenses.and depreciation expenses and changes in balance sheet items of $23,284.  Changes in balance sheet items used $62,416include an increase of cash provided by operating activities and include a decrease of $52,553$25,185 in accounts payable and other accrued expenses, and a $13,720$2,651 increase in accounts receivable.  The cash provided by these balance sheet changes was partially offset byreceivable, and a $7,658$750 decrease in prepaid expenses.expenses and other current assets.  We used net cash from operating activities and $72,630$30,682 of the cash available at September 30, 2010March 31, 2011 to reduce outstanding advances from related parties, reduce the amount outstanding under our line of credit of line, and repay long-term debt.
 
As of SeptemberJune 30, 2010,2011, we had outstanding obligations to banks and other unrelated persons in the amount of $1,774,783$2,168,554 and obligations payable to stockholders and related parties in the amount of $439,912.$457,452.  Substantially all of our assets are subject to a security interest and mortgage to secure the repayment of the obligations to banks and other unrelated persons.  During the three months ended SeptemberJune 30, 2010,2011, we refinanced and consolidated tworepaid $35,681 of our outstanding loans to banks and structured the principal payments to begin in October 2010 and changed the maturity date to September 17, 2011.debt principle.
 
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We lease property in sixfive locations under non-cancelable operating leases.  All lease agreements provide for minimum lease payments and some lease agreements provide for additional rents contingent upon prescribed sales volumes or constitute net leases, which require us to pay additional rent relating to real estate taxes, insurance, rental taxes, and common area maintenance.  During fiscal 2010,2012, we renegotiated the leases relating to eliminate scheduled periodic increases in our “Durango” and “Henderson” locations to reduce the minimum annual rents.lease payments.
 
Since April 1, 2010,2011, we have required cash of approximately $376,000$310,000 per month and we generated cash from operating activities of approximately $404,000$312,000 per month.  The difference was used primarily to reduce our outstanding indebtedness.  We will incur additional expenses in the future relating to the reporting and corporate governance requirements as a public company, including the cost of establishing and documenting the effectiveness of internal control over financial reporting as required by the Securities Exchange Act of 1934 and preparing and filing periodic reports with the Securities and Exchange Commission.We expect to pay additional professional fees of between $25,000$50,000 and $50,000$75,000 over the next 12 months relating to the expenses of being publically traded.
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We will incur approximately $75,000$25,000 in additional costs relating to franchise operations during fiscal 2011.2012, exclusive of commissions we might incur on the sale of franchise locations.  We plan to expand our franchise operations if they are successful.  We plan to use fees paid by existing franchisees and franchise fees from new franchisees to fund any expansion of our franchise operations.  If fees generated by franchise operations are not sufficient to fund expansion of franchise operations, we may borrow additional funds to support expansion of franchise operations or delay, reduce or terminate franchise operations.
 
We expect revenue to increase during the next 12 months as consumers undertake deferred maintenance and repairs.  In addition, we believe our gross profit will continue to increase during the next 12 months as a result of increased franchise operations.  We do not expect to incur any material capital expenditures during the next 12 months.months unless we succeed in attracting new investment.
 
We believe that cash available at SeptemberJune 30, 2010,2011, together with cash generated from operating activities will be sufficient to fund our cash requirements for the next 12 months, including all debt service, lease payments and additional expenses relating to being a public company.  If funds from operations and available cash are not sufficient, we may borrow additional funds from related parties, defer salaries payable to executives, refinance or renegotiate our existing indebtedness, incur additional indebtedness to banks or unrelated parties, delay payments to our vendors, delay advertising and other expenses, or sell or close some of our operations.
 
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
 
Not applicable.
 
Item 4.  Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures.  In accordance with Exchange Act Rules 13a-15 and 15a-15, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2010.2011.
 
Changes in Internal Control over Financial Reporting.  There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II
 
Item 5.  Other Information.
On November 16, 2010, the Company’s Board of Directors approved the grant of 900,000 restricted shares of the Company’s Common Stock to four employees and service providers.  The grant was exempt from the registration requirements of the Securities Act of 1933 (the “Act”) because there was no sale of the shares within the meaning of Section 2(a)(3) of the Act, as interpreted by the Commission.  All shares subject to the grants were issued without contribution by the grantee, vest over a period of 42 months and are subject to restrictions on transfer without registration.
Item 6.  Exhibits.
 
The following documents are filed as exhibits to this report.
 
Exhibit No.Description
  
31.1*Certification of our Principal Executive Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*Certification of our Principal Financial Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*Certification under Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed with this Report

 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Date:  September 14, 2011 MK AUTOMOTIVE, INC.
   
Date: November 17, 2010
By:/s/ Michael R. Murphy
  Michael R. Murphy
  President and Chief Executive Officer

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EXHIBIT INDEX

NumberDescription
31.1Certification of our President and Chief Executive Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification of our Principal Financial Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification of our President and Principal Executive Officer and Principal Financial Officer, under Section 906 of the Sarbanes-Oxley Act of 2002.