MAJOR AUTOMOTIVE COMPANIES INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 2002 or

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

For the transition period from _______________ to ____________________

Commission File Number: 000-29182

THE MAJOR AUTOMOTIVE COMPANIES, INC.
--------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)

Nevada 11-3292094
--------------------------------- ------------------
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)

43-40 Northern Boulevard
Long Island City, NY 11101
---------------------------------
(Address of Principal Executive Offices)

(718) 937-3700
----------------
(Registrant's Telephone Number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of
securities under a plan confirmed by court. Yes [X] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares of the registrant's common stock outstanding as of November
18, 2002 was 9,564,371.

INDEX

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Page No.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements 3
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Consolidated Balance Sheets 3
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Consolidated Statements of Operations 5
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Consolidated Statements of Cash Flows 6
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Notes to Consolidated Financial Statements 8
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
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Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
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Item 4. Controls and Procedures 16
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PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 1. Legal Proceedings 17
- -------------------------------------------------------------------------------
Item 2. Changes in Securities 17
- -------------------------------------------------------------------------------
Item 3. Defaults Upon Senior Securities 17
- -------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders 17
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Item 5. Other Information 17
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Item 6. Exhibits and Reports on Form 8-K 17
- -------------------------------------------------------------------------------
Signatures 18
- -------------------------------------------------------------------------------
Exhibit 99.1
- -------------------------------------------------------------------------------

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS

September 30, December 31,
2002 2001
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 4,894,428 $ 4,294,826
Net investment in direct
financing leases, current 153,864 135,122
Accounts receivable, net 13,729,631 15,744,096
Inventories 37,892,546 32,673,901
Due from related parties 7,166,386 5,577,097
Other current assets 519,661 520,574
----------- ----------
Total current assets 64,356,516 58,945,616
----------- ----------

Net investment in direct financing
leases, net of current portion 241,902 191,053
Property and equipment, net 5,147,315 8,901,218
Deferred income taxes 1,046,000 1,576,000
Excess of costs over net assets acquired 13,589,000 13,589,000
Due from officer 938,100 1,113,979
Notes receivable and other assets 686,591 1,666,081
---------- ----------
Total assets $86,005,424 $85,982,947
=========== ===========

3

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - floor plan $34,425,080 $33,963,903
Line of credit 500,000 500,000
Accounts payable 8,893,715 9,318,409
Accrued expenses 7,004,563 5,469,192
Due to related party 5,235,000 4,135,000
Current maturities of long-term debt 2,731,345 912,221
Customer deposits and other current
liabilities 880,836 770,671
----------- ------------
Total current liabilities 59,670,539 55,069,396
----------- ------------

Long-term debt, less current maturities 5,861,311 9,853,587
Obligations under capital lease -- 3,111,643
----------- ------------
Total liabilities 65,531,850 68,034,626
----------- ------------
Commitments
Stockholders' equity
Preferred stock, $.01 par value-2,000,000
shares authorized; 0 and 100,000 shares issued and
outstanding in 2002 and 2001, respectively -- 1,000
Common stock, $.01 par value- 100,000,000 shares
authorized; 9,568,871 and 7,994,338 shares issued and
outstanding in 2002 and 2001, respectively 95,689 79,943
Unearned stock based compensation (35,196) (115,946)
Additional paid in capital 40,123,720 39,964,363
Deficit (17,746,875) (20,017,275)
Treasury stock, at cost; 227,191 shares
in 2002 and 2001, respectively (1,963,764) (1,963,764)
----------- -----------
Total stockholders' equity 20,473,574 17,948,321
----------- -----------
Total liabilities and stockholders' equity $86,005,424 $85,982,947
=========== ===========

4

THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)

5

THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)

2002 2001
------ ------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income 2,270,400 1,520,933
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities
Amortization of intangible assets 45,000 302,706
Depreciation 308,626 337,324
Amortization of stock-based compensation 80,750 113,061
Stock issuances for services -- 645,771
Discontinued operations 206,000 --
Bad debt expense 137,000 --
(Increase) decrease in assets:
Net investment in direct financing leases (69,591) 401,336
Accounts receivable 1,877,465 (4,006,063)
Inventories (5,218,645) 16,203,349
Due from related parties (1,589,289) (3,805,000)
Other assets 3,023,863 3,583,532
Increase or (decrease) in liabilities
Accounts payable (424,694) 4,713,252
Accrued expenses 535,371 (742,818)
Customer deposits and other liabilities 110,165 296,179
Notes payable - floor plan 461,177 (17,010,043)
Due to related parties 1,100,000 1,050,000
---------- -----------

NET CASH PROVIDED (USED IN) IN OPERATING ACTIVITIES 2,753,598 3,603,519
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Business combinations -- (70,000)
Purchase of property and equipment (45,080) (641,526)
---------- --------
NET CASH PROVIDED (USED IN) IN INVESTING ACTIVITIES (45,080) (711,526)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt (2,173,152) (385,414)
Capital lease reduction 111,643 (105,509)
Purchase of treasury stock -- (1,089,632)
Payment of notes -- (650,000)
Loans to officers 175,879 (122,047)
---------- ----------

NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES (2,108,916) (2,352,602)
---------- ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 599,602 539,391

6

2002 2001
------ -------

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,294,826 2,786,312
---------- ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD $4,894,428 $3,325,703
========== ==========

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $1,576,472 $3,208,815

7

THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
September 30, 2002

1. Basis of Presentation

In the opinion of the Company, the accompanying consolidated condensed
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to fairly present the Company's financial
position and its results of operations and cash flows as of the dates and for
the periods indicated.

Certain information and footnote disclosure normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed consolidated financial statements should be
read in conjunction with the audited December 31, 2001 consolidated financial
statements and related notes included in the Company's Form 10-K for the year
ended December 31, 2001. The results of operations for the nine-month and
three-month periods are not necessarily indicative of the operating results for
the full year.

2. Reclassifications

In order to maintain consistency and comparability of financial information
between periods presented, certain reclassifications have been made to the
Company's prior year financial statements.

Floor plan and advertising assistance received from manufacturers are
recorded as offsets to the cost of the vehicle and recognized into income upon
the sale of the vehicle or when earned under a specific manufacturer's program,
whichever is later. Floor plan assistance payments, which were previously
accounted for as a reduction of floor plan interest expense, have been included
as offsets to cost of sales and the impact on cost of sales was not material to
the financial statements. Floor plan interest expense, which was previously
classified as interest expense below operating income, is now presented as a
component of operating expense in the accompanying consolidated statement of
operations to provide more meaningful information regarding the Company's margin
performance.

For the nine months ended September 30, 2002 and 2001, aggregate floor plan
interest included in cost of sales was $929,974 and $2,539,536, respectively.
For the three months ended September 30, 2002 and 2001, aggregate floor plan
interest included in cost of sales was $374,978 and $568,340, respectively.

For the nine months ended September 30, 2002 and 2001, aggregate floor plan
assistance included in cost of sales was $785,670 and $1,097,687, respectively.
For the three months ended September 30, 2002 and 2001, aggregate floor plan
assistance included in cost of sales was $335,487 and $322,800, respectively.

3. Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of income and
expenses during the reporting periods. Operating results in the future could
vary from the amounts derived from management's estimates and assumptions.

4. Impact of Change in Accounting for Intangible Assets

The following table shows the effect on net income and net income per share
for the nine and three months ended September 30, 2002, compared with net income
and net income per share for the nine and three months ended September 30, 2001,
as if the provisions of Statement of Financial Accounting Standards No. 142
eliminating goodwill amortization had been applied as of January 1, 2001:

8

THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
September 30, 2002
Continued

Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- -------------------------------

2002 2001 2002 2001
------------ ----------- ----------- ---------

Reported net income $2,270,400 $1,520,933 $1,210,771 $797,216
Add back: amortization of goodwill,
net of tax - 262,793 - 84,197
---------- ---------- ---------- --------
Net income, as adjusted $2,270,400 $1,783,726 $1,210,771 $881,413

Basic earnings per share:
Reported net income $ 0.25 $ 0.24 $ 0.13 $ 0.11
Amortization of goodwill, net of tax - 0.04 - 0.01
---------- ---------- ---------- --------
Basic earnings per share, as adjusted $ 0.25 $ 0.28 $ 0.13 $ 0.12
========== ========== ========== ========
Diluted earnings per share:
Reported net income $ 0.24 $ 0.20 $ 0.13 $ 0.10
Amortization of goodwill, net of tax - 0.03 - 0.01
---------- ---------- ---------- --------

Diluted earnings per share, as adjusted $ 0.24 $ 0.23 $ 0.13 $ 0.11
========== ========== ========== ========

5. Related Party Transactions

Amounts due from related parties result from sales of vehicles to
dealerships owned by Bruce Bendell, the Company's President, Chief Executive
Officer, Acting Chief Financial Officer and Chairman, and his brother, Harold
Bendell, as well as advances made in the ordinary course of business. For the
nine months ended September 30, 2002 and 2001, the related party sales amounted
to $3,140,484 and $3,671,942, respectively. For the three months ended September
30, 2002 and 2001, such sales amounted to $1,385,094 and $1,223,981,
respectively. None of the amounts due from related parties is interest bearing.

Pursuant to a management agreement with Harold Bendell, the Company has
accrued a management fee for services performed by Harold Bendell. For the nine
months ended September 30, 2002 and 2001, such accrual amounted to $856,000 and
$838,499, respectively. For the three months ended September 30, 2002 and 2001,
such accrual amounted to $294,806 and $237,632, respectively. These amounts are
included in due to related party. Mr. Harold Bendell's management agreement
expires at December 31, 2002.

In connection with the Company's acquisition of its Nissan dealership in
Hempstead, New York, the Company obtained an option to acquire that dealership's
land and building from the landlord who held the lease on that property. The
Company exercised its option, but was unable to obtain the financing necessary
to effect the purchase. Since the lease expiration was concurrent with the
required property acquisition date and the Company was unsuccessful in obtaining
an extension of the lease term, it became imperative to the Nissan dealership's
operations to maintain its presence at that location.

9

THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
September 30, 2002
Continued

In order to ensure continuity of the dealership's operations, in a
transaction approved by the Company's Board of Directors, the Company's Chairman
and his brother agreed to personally acquire the property through a company they
formed and lease it back to the Company. The result of this transaction was to
eliminate the capitalized lease of approximately $3.6 million and the related
liability of $3.0 million that the Company had recorded in connection with this
property. The difference of $637,000, the book value of the purchase option, was
recorded as a long-term related party receivable, which is included in due from
related parties. The Company entered into a lease with the new landlord for
five years with a five-year renewal option for approximately the same monthly
rental it was previously paying.

An independent appraiser has been retained in order to determine a fair
market rent so that the current rent could be adjusted and the lease revised,
accordingly, if necessary. Similarly, the value of the purchase option will be
determined and an adjustment to the related party receivable will be made and a
gain or loss will be recorded at that time if the value of the option at the
date of transfer exceeded its book value of $637,000. The receivable will be
repaid, ratably, through monthly payments over the remaining term of the lease,
together with related interest at a market rate. Based on the preliminary report
of the appraiser, no adjustment is required for either the rental rate or the
receivable balance.

In unrelated transactions, in order to obtain floor plan financing at
favorable rates, each of Bruce Bendell and Harold Bendell has agreed to either
guarantee certain floor plan debt of the Company or provide certain collateral
in connection with the Company's floor plan or other borrowings. The Board of
Directors has agreed to obtain independent valuations of such credit enhancement
and collateral usage (together, "Credit Enhancements") and pay each of the
Bendell's the fair value of his respective contributions. The Company has
engaged an independent valuation firm and has received a preliminary valuation
from such firm of $160,000 for the economic risk value of the Credit
Enhancement. Accordingly, the Company has accrued such amount as a liability in
the third quarter of 2002. When the final such valuations have been completed,
and the Company's Board of Directors has reviewed the results and evaluated the
circumstances of the Credit Enhancement relative to the enterprise value of the
Company, adjustment, if necessary and warranted, will be made for any difference
from the preliminary estimate.

Additionally, Harold Bendell has acquired the right to an off premises
storage facility that was previously leased by the Company, on a month-to-month
basis, from an independent third party. Accordingly, the Company is now leasing
such facility from Mr. Bendell for approximately the same monthly rental it was
paying to the prior landlord.

7. Recently Issued Accounting Standards

In July 2002, FASB issued Statement of Financial Accounting Standards No.
146 Accounting for Costs Associated with Exit or Disposal Activities ("SFAS
146"). SFAS 146 address financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a company recognize a liability for a
cost associated with an exit or disposal activity only when it meets the
definition of liability (i.e., when the liability is incurred). SFAS 146 also
requires that the initial measurement of the liability be at its fair value.
This statement is effective on a prospective basis for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The Company has adopted the provisions of SFAS 146 in August 2002.
The adoption of SFAS 146 had no material impact on the financial statements of
the Company as reported in the prior periods. (See Note 7.)

9. Discontinued Operations

On November 3, 2000, the Board of Directors determined to sell the
Company's non-automotive operations within the next twelve months. Accordingly,
all non-automotive operations have been classified collectively as
"Discontinued Operations." Continuing operations are represented by the
Company's automotive dealership activities, including its automotive leasing
subsidiary, Major Fleet and Leasing, Inc. ("Major Fleet").

Selected Statement of Operations data for the Company's discontinued
operations are as follows:

During the quarter ended September 30, 2002, the Company incurred and
recognized $344,000 loss from discontinued operations due to resolution of
contingencies relating to purchase price adjustment of $119,000 and legal
proceedings of $225,000. (See Note 8)

10

THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
September 30, 2002
Continued

7. Termination of Franchise Agreements

In the third quarter of 2002, the Company voluntarily surrendered its
Hempstead Mazda dealership's franchise agreement with Mazda and received the
franchise-mandated payments for Mazda proprietary equipment, which was
approximately equal to the book value of those assets. Separately, the Company
voluntarily surrendered its Compass Lincoln Mercury franchise to the Ford Motor
Company and received, in addition to the franchise-mandated payments for Lincoln
Mercury proprietary equipment, which was approximately equal to the book value
of those assets, financial assistance of $600,000. Accordingly, a gain for
$600,000 was recognized in the third quarter of 2002. Previously, Daewoo USA
went out of business in the United States. Accordingly, the Company closed its
Daewoo dealership. In accordance with SFAS 146 (See Note 4), the Company
determined that the fair value of its aggregate liability in connection with
these franchise termination transactions was approximately $600,000, which was
provided for in the third quarter of 2002 and offset against the gain from the
sale of the related franchise.

6. Settlements of Litigation

In October 2002, in connection with the lawsuit entitled James R. Wallick
V. Bruce Bendell, Individually And In His Capacity As An Officer, Director And
Majority Shareholder Of The Defendant Corporations, Fidelity Holdings, Inc., et
al., the Company reached agreement with Mr. Wallick and settled all of the
related claims. The Company will pay Mr. Wallick an aggregate of $452,000 over a
fifteen-month period, beginning in October 2002 and Mr. Wallick will return
4,500 shares of the Company's stock. The amount of this settlement and related
costs were previously accrued and no additional expense has been incurred.

Two additional unrelated lawsuits were settled during the third quarter of
2002 for an aggregate amount of $225,000 to be paid over periods of six months
and ten months, respectively, beginning in October 2002. The total amount of
these settlements has been recorded as an operating expense in the third quarter
of 2002.

11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of our and our subsidiaries' ("we" or the
"Company") operations, financial condition, liquidity and capital resources
should be read in conjunction with our unaudited Consolidated Financial
Statements and related notes thereto included elsewhere herein.

This discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Our actual
results could differ significantly from the results discussed in the
forward-looking statements.

THE COMPANY

On May 14, 1998, The Major Automotive Companies, Inc. (f/k/a Fidelity
Holdings, Inc.), then a holding company involved in the acquisition and
development of synergistic technological and telecommunications businesses and
the regional consolidation of the retail automotive industry, acquired, from a
related party, the Major Automotive Group of dealerships ("Major Auto") and
related real property and leases. We have historically operated in two
divisions: Automotive and Technology.

On November 3, 2000, our Board of Directors determined to sell our
non-automotive operations, including our Technology operations, by the most
appropriate economically viable means, in order to maximize shareholders' value
from those operations and to maintain the Company's focus on the regional
consolidation of retail automotive dealerships. Accordingly, all non-automotive
operations have been classified collectively as "Discontinued Operations."
Continuing operations are represented by our automotive dealerships' activities,
including our Major Auto subsidiary and other dealerships, as well as our
automotive leasing subsidiary, Major Fleet and Leasing, Inc. ("Major Fleet").

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2002 AND NINE MONTHS
ENDED SEPTEMBER 30, 2001

Revenues. Revenues for the nine-month period ended September 30, 2002
increased to approximately $306.6 million, which is $25.0 million, or 8.9%, over
the prior comparable period's revenues of $281.6 million. Such increase was
solely attributable to the revenues of our automotive dealerships' operations.
The primary reasons for the growth in revenues was increased selling prices of
new vehicles and increased unit sales of used vehicles. New vehicle average unit
sales prices increased by $991 per unit while selling prices for used vehicles
were approximately the same in each of the periods. New vehicles sold declined
by 49 units in the first three quarters of 2002 to 4,390 units from 4,439 units
in the first three quarters of 2001, while used vehicle sales increased 1,434
units to 12,134 units in the 2002 first three quarters from 10,700 units, retail
and wholesale, in the prior year's comparable nine months. Management believes
that the increase in sales in the current period is significantly attributable
to our successful efforts in selling used vehicles at our expansive facility in
Long Island City, New York. This facility generated almost the entire increase
in used vehicle sales revenues. Our Hempstead, Long Island dealerships generated
more than the total increases in new vehicle revenues. An average of
approximately 1,348 used vehicles, retail and wholesale, were sold during each
of the months in the 2002 period, compared with an average of 1,189 units per
month in the 2001 comparable period. Major Auto's sales efforts included
extensive Internet promotions, local advertising in all local media and the
branding of its used car operation as "Major World." Management believes that
market acceptance of our Major World brand and our ability to sell more luxury
line used vehicles was a strong contributor to the 2002 sales volume
performance. Management believes that the results of the terrorist attack on
September 11, 2001 had only a small negative impact on revenues for the
nine-month period in 2001, but a more significant effect on the three-month
period ended September 30, 2001, as discussed below.

12

Cost of sales. The cost of sales increase of almost $20.6 million, or 8.8%,
to $255.1 million in the first three quarters of 2002 from $234.4 million for
the nine months ended September 30, 2001, is solely attributable to our
automotive dealerships' operations. This percentage increase is only slightly
less than the increased sales revenue percentage and reflects an increase of
$886 in the average cost of new vehicles sold and a decrease of $32 in the
average unit cost of used vehicles sold.

Gross profit. Our automotive dealerships' operations generated almost all
of the total gross profit of $51.6 million for the nine months ended September
30, 2002, an increase of approximately $4.3 million, or 9.1%, from gross profits
of $47.3 million in the prior year's comparable period. The increase in gross
profit was almost totally attributable to the sales volume increase on used
vehicles sold in the current period. Specifically, the Long Island City facility
generated more than the total increase in gross profit. Gross profit as a
percentage of revenues remained relative steady at 16.8% in the nine months
ended September 30, 2002 and 2001.

Operating expenses. In the nine months ended September 30, 2002, operating
expenses increased approximately $2.7 million, or 6.0%, to approximately $47.7
million, from $45.0 million in the prior year's comparable period. All of this
increase is attributable to our automotive dealerships' operations and is
primarily reflective of the additional administrative personnel necessary to
process the significant volume increase in the current period, as well as the
costs associated with increased sales efforts and results, principally,
advertising and compensation. Interest expense, relating to our floor plan and
included in operating costs, had a decrease of approximately $1,609,562, from
approximately $2,539,536 in the third quarter of 2001 to approximately $929,974
in the current comparable quarter. This decrease is primarily attributable to
the lower interest rates associated with our new floor plan arrangements.

Interest expense. Interest expense relates to short-term and long-term
borrowings and there was no significant change in the underlying borrowings'
amounts and rates.

Income tax expense. Income tax expense has been provided based on our
expected annual effective tax rate.

Discontinued operations. We had a loss from discontinued operations of
$206,000 in the first three quarters of 2002, compared with no loss from
discontinued operations in the comparable prior period. This is because in the
current year, expenses in excess of amounts we had provided for the estimated
additional costs related to those operations.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2002 AND THREE MONTHS
ENDED SEPTEMBER 30, 2001

Revenues. Revenues for the three-month period ended September 30, 2002
increased to approximately $111.8 million, which is $20.5 million, or 22.5%,
over the prior comparable period's revenues of $91.3 million. Management
believes that the increase in sales volume for the three-month periods is
attributable, in large part, to the depressing effect on vehicle sales as a
result of the terrorist acts of September 11, 2001. Specifically, in the third
quarter of 2002, new vehicle units sold increased by 155 units and new vehicle
revenues increased by $5.7 million, or 17.2% from the comparable period in 2001.
Used vehicles units sold in the 2002 period increased by 1,005 units, retail and
wholesale, and the related revenues increased by $14.9 million, or 28.0% from
the 2001 third quarter.

Cost of sales. The cost of sales increase of $19.1 million, or 25.4%, to
$93.9 million in the third quarter of 2002 from $74.9 million for the three
months ended September 30, 2001 is solely attributable to our automotive
dealerships' operations. This increase is the result of the significant
increase in volume of new and used vehicles sold and increases in the average
cost of new and used vehicles of $1,438 and $413 per unit, respectively, in the
2002 third quarter as compared to the 2001 period.

Gross profit. Our automotive dealerships' operations generated the total
gross profit of $17.8 million for the three months ended September 30, 2002, an
increase of $1.5 million, or 9.2%, from gross profits of $16.3 million in the
prior year's comparable quarter. The increase in gross profit was primarily
attributable to the increase in higher dollar margins of used vehicles sold in
the period. Gross profit as a percentage of revenues decreased to 16.0% in the
three months ended September 30, 2002 from 17.9% in the prior comparable
quarter. This is primarily attributable to the lowering of margins in used
vehicle sales to help stimulate the large increases in sales volume of such
vehicles.

13

Operating expenses. In the three months ended September 30, 2002, operating
expenses increased approximately $54,000, or 5.4%, to approximately $16.25
million, from $16.19 million in the prior year's comparable quarter. All of this
increase is attributable to our automotive dealerships' operations. This
increase is primarily attributable to the additional personnel required to
respond to the higher sales volume during the current quarter, as well as the
costs associated with increased sales efforts and results, principally,
advertising and compensation. Interest expense, relating primarily to our floor
plan and included in operating costs, had a decrease of $193,362, from $568,340
in the third quarter of 2001 to $374,978 in the current comparable quarter. This
decrease is primarily attributable to the lower interest rates associated with
our new floor plan arrangements.

Interest expense. Interest expense relates to short-term and long-term
borrowings and there was no significant change in the underlying borrowings
amounts and rates.

Income tax expense. In the three-month period ended September 30, 2002,
income tax expense was adjusted to reflect the estimated annualized effective
tax rate.

Discontinued operations. We had a loss from discontinued operations of
$206,000 in the third quarter of 2002, compared with no loss from discontinued
operations in the comparable prior period. This is because in the current year,
expenses in excess of amounts we had provided for the estimated additional costs
related to those operations.

ASSETS, LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 2002

At September 30, 2002 and December 31, 2001 our total assets were $86.0
million. The significant changes within the assets were increases of $5.2
million in inventories and $1.6 million in due from related parties. These
increases were offset by decreases of $2.0 million in accounts receivable, $3.8
million in net property and equipment and $1.0 million in notes receivable. The
increase in inventory is primarily attributable to Management's decision to
maintain appropriate levels of inventory to support the increased volume of
vehicle sales. The accounts receivable reduction is reflective of our
collection efforts.

Our primary source of liquidity for the nine months ended September 30,
2002 was $2,753,598 from our operating activities. This was the result of cash
generated through our net profit of $2,270,400, non-cash charges of $571,376 and
a net increase in assets of $1,870,197 (primarily from an increase in
inventories of $5,218,645, partially offset by a decrease in accounts receivable
of $1,877,465 and a decrease in other assets of $1,685,574), less a net increase
in liabilities of $1,782,019 (primarily from an increase in accrued expenses
payable of $1,535,371 and an increase in notes payable-floor plan and customer
deposits aggregating $461,177, offset by a decrease in accounts payable of
$424,694).

Net cash provided from our operating activities was partially offset by
$2,108,916 of cash used in financing activities, primarily $2,173,152 and
$111,643 from reductions of long-term debt and a capital lease reduction,
respectively, offset by an increase in loans to officers of $175,879.

The Company used $45,080 in investment activities, primarily the purchase
of property and equipment, during the nine months ended September 30, 2002.

The foregoing activities, i.e. financing, operating and investing,
resulted in a net cash increase of $599,602 for the nine months ended September
30, 2002.

We believe that the cash generated from existing operations, together with
cash on hand, available credit from our current lenders, including banks and
floor planning, will be sufficient to finance our current operations and
internal growth for at least the next twenty-four months.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Our Chief Executive
Officer, who is also our Acting Chief Financial Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date
within 90 days of the filing date of this quarterly report on Form 10-Q (the
"Evaluation Date")), has concluded that as of the Evaluation Date, our
disclosure controls and procedures were adequate and effective to ensure that
material information relating to the Company and its consolidated subsidiaries
would be made known to him by others within those entities, particularly during
the period in which this quarterly report on Form 10-Q was being prepared.

14

Changes in Internal Controls. There were no significant changes in our
internal controls or in other factors that could significantly affect our
disclosure controls and procedures subsequent to the Evaluation Date, nor any
significant deficiencies or material weaknesses in such disclosure controls and
procedures requiring corrective actions. As a result, no corrective actions were
taken.

FORWARD-LOOKING STATEMENTS

When used in the Quarterly Report on Form 10-Q, the words "may", "will",
"should", "expect", "believe", "anticipate", "continue", "estimate", "project",
"intend" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act regarding events, conditions and financial trends that
may affect our future plans of operations, business strategy, results of
operations and financial condition. We wish to ensure that such statements are
accompanied by meaningful cautionary statements pursuant to the safe harbor
established in the Private Securities Litigation Reform Act of 1995. Prospective
investors are cautioned that any forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties and that actual
results may differ materially from those included within the forward-looking
statements as a result of various factors including our ability to consummate,
and the terms of, acquisitions, if any. Such forward-looking statements should,
therefore, be considered in light of various important factors, including those
set forth herein and others set forth from time to time in our reports and
registration statements filed with the Securities and Exchange Commission (the
"Commission"). We disclaim any intent or obligation to update such
forward-looking statements.

15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Foreign Currency Risk

Although we sell a limited number of vehicles in the former Soviet Union,
substantially all our revenues come from sales of vehicles in the Unites States.
Consequently, foreign sales constitute a minimal amount of our revenues. Even
so, our financial results could be affected by changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Because
substantially all our revenues are currently denominated in U.S. dollars, a
strengthening of the dollar could make our vehicles less competitive in foreign
markets. Due to the nature of our operations, we believe that there is not a
material risk exposure.

Interest Rate Risk

Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since all of our investments are in short-term
instruments, including money market funds. Our interest rate expense is also
sensitive to changes in the general level of U.S. interest rates because the
interest rates charged vary with the prime rate or LIBOR. Due to the nature of
our investments and operations, we believe that there is not a material risk
exposure.

ITEM 4. CONTROLS AND PROCEDURES.

Our Chief Executive Officer, who is also our Acting Chief Financial Officer,
after evaluating the effectiveness of the Company's disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15d-14(c) as of a date within 90 days of the filing date of this quarterly
report on Form 10-Q (the "Evaluation Date")), has concluded that as of the
Evaluation Date, our disclosure controls and procedures were adequate and
effective to ensure that material information relating to the Company and its
consolidated subsidiaries would be made known to him by others within those
entities, particularly during the period in which this quarterly report on Form
10-Q was being prepared.

There were no significant changes in our internal controls or in other factors
that could significantly affect our disclosure controls and procedures
subsequent to the Evaluation Date, nor any significant deficiencies or material
weaknesses in such disclosure controls and procedures requiring corrective
actions. As a result, no corrective actions were taken.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

99.1 Certification of Chief Executive Officer and Acting Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K.

None.

17

SIGNATURES

In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

THE MAJOR AUTOMOTIVE COMPANIES, INC.

Date: November 19, 2002 /s/ Bruce Bendell
-----------------
Bruce Bendell
Chairman of the Board
and Chief Executive Officer
and Acting Chief Financial Officer

18

CERTIFICATION

I, Bruce Bendell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Major Automotive
Companies, Inc.

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;

5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

November 19, 2002 /s/ Bruce Bendell
-------------------------------
Bruce Bendell
President, Chief Executive Officer
and Acting Chief Financial Officer

19