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UNITED STATES
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, 2004 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, New York 11101
---------------------------------
(Address of Principal Executive Offices)
(718) 937-3700
----------------
(Registrant's Telephone Number)
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 as
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act). YES [X] NO
As of November 19, 2004, there were 9,492,856 shares of the registrant's common
stock outstanding.
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)........................................ 3
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Consolidated Condensed Balance Sheets .......................................... 3
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Consolidated Condensed Statements of Operations ................................ 5
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Consolidated Condensed Statements of Cash Flows ................................ 6
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Notes to Consolidated Condensed Financial Statements ........................ 8
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations .................................................................. 13
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Item 3. Quantitative and Qualitative Disclosures About Market Risk ............. 21
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Item 4. Controls and Procedures................................................................. 21
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings.. .................................................................... 22
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds............................. 23
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Item 3. Defaults Upon Senior Securities ...................................................... 23
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Item 4. Submission of Matters to a Vote of Security Holders............................... 23
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Item 5. Other Information ...................................................................... 23
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Item 6. Exhibits ................................................... 23
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Signatures ..................................................................................... 23
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, 2004 December 31, 2003
------------------ -----------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 3,738,365 $ 1,003,137
Short-term investments 431,740 430,325
Net investment in direct financing leases, current
Accounts receivable, net of allowance for doubtful accounts
of $688,155 and $608,595 12,885,663 11,204,480
Inventories
40,040,129 50,257,955
Due from related parties 1,903,207 2,515,749
Other current assets 282,517 277,942
---------------- --------------
Total current assets 59,400,312 65,902,899
Net investment in direct financing leases,
net of current portion 22,966 62,773
Property and equipment, net 5,081,499 4,899,059
Deferred income taxes 1,459,535 1,576,000
Excess of costs over net assets acquired 13,376,000 13,589,000
Due from officer 1,395,358 1,395,358
Notes receivable and other assets 254,807 187,850
---------------- --------------
Total assets $ 80,990,477 $ 87,612,939
================ ==============
See accompanying notes to condensed consolidated financial statements.
3
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - floor plan $ 39,016,941 $ 49,599,366
Accounts payable 9,023,781 7,761,992
Accrued expenses 6,396,753 4,955,215
Current maturities of long-term debt 1,981,584 701,741
Customer deposits and other current liabilities 458,749 567,846
---------------------- ------------------
Total current liabilities 56,877,808 63,586,160
Long-term debt, less current maturities 5,580,604 7,156,125
---------------------- ------------------
Total liabilities 62,458,412 70,742,285
---------------------- ------------------
Contingencies
Stockholders' equity
Preferred stock, $.01 par value- 2,000,000 shares
authorized; 0 shares issued and outstanding
in 2004 and 2003 - -
Common stock, $.01 par value- 50,000,000 shares
authorized; 9,720,047 and 9,702,047 shares issued;
9,492,856 and 9,474,856 shares outstanding in 2004
and 2003, respectively 97,200 97,020
Additional paid in capital 40,189,749 40,175,709
Deficit (19,791,120) (21,438,311)
Treasury stock, at cost; 227,191 shares in 2004 and 2003 (1,963,764) (1,963,764)
---------------------- ------------------
Total stockholders' equity 18,532,065 16,870,654
---------------------- ------------------
Total liabilities and stockholders' equity $ 80,990,477 $ 87,612,939
====================== ==================
See accompanying notes to condensed consolidated financial statements.
4
THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Sales $ 292,912,584 $ 293,976,023 $ 104,117,742 $ 103,957,296
Cost of sales 245,815,740 246,010,023 88,124,462 86,681,296
------------------ ------------------- ---------------- -----------------
Gross profit 47,096,844 47,966,000 15,993,280 17,276,000
Operating expenses 44,706,361 46,350,232 15,091,922 16,205,748
Interest expense, net of interest income 558,998 588,040 185,326 192,640
------------------ ------------------- ---------------- -----------------
Income before income taxes 1,831,485 1,027,728 716,032 877,612
Income tax expense 184,294 93,000 124,079 66,000
------------------ ------------------- ---------------- -----------------
Net income $ 1,647,191 $ 934,728 $ 591,953 $ 811,612
================== =================== ================ =================
Net income per common share:
Basic $ 0.17 $ 0.10 $ 0.06 $ 0.09
Diluted $ 0.17 $ 0.10 $ 0.06 $ 0.09
================== =================== ================ =================
Average number of shares used in computation:
Basic 9,484,907 9,424,201 9,492,856 9,474,856
Diluted 9,494,217 9,427,048 9,505,551 9,477,741
================== =================== ================ =================
See accompanying notes to condensed consolidated financial statements.
5
THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,647,191 $ 934,728
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Depreciation and amortization 301,974 278,246
Reduction of deferred income taxes 116,465 --
Additions to (reductions of) allowance for doubtful accounts 79,560 (18,058)
Stock issued for compensation and services 14,220 53,321
Reduction of excess of costs over net assets acquired 213,000 --
(Increase) decrease in assets:
Net investment in direct financing leases 134,427 77,225
Accounts receivable, net (1,760,742) 4,268,666
Inventories 10,217,826 1,342,233
Due from related parties 612,542 (1,482,332)
Other assets (73,843) 83,729
Increase or (decrease) in liabilities
Accounts payable 1,261,789 1,979,060
Accrued expenses 1,441,538 (646,571)
Customer deposits and other liabilities (109,097) (285,783)
Notes payable - floor plan (10,582,425) (3,956,795)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,514,425 2,627,669
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from certificate of deposit (1,415) 425,930
Purchase of certificate of deposit -- (428,364)
Purchase of property and equipment (512,263) (140,376)
Proceeds from sale of leased equipment 30,159 --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (483,519) (142,810)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt (295,678) (455,508)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (295,678) (455,508)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,735,228 2,029,351
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,003,137 796,074
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,738,365 $ 2,825,425
============ ============
6
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest 1,798,120 2,128,009
Income taxes 73,000 43,000
Non-cash financing activity
Common stock issued as stock compensation 14,220 --
See accompanying notes to condensed consolidated financial statements.
7
THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
September 30, 2004
1. Basis of Presentation and Significant Accounting Policies
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting primarily of normal
recurring adjustments) necessary to fairly present, in all material respects,
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 consolidated financial statements and
related notes included in the Company's Form 10-K for the year ended December
31, 2003. The results of operations for the interim periods are not necessarily
indicative of the operating results for the full year.
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.
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
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.
The Company has presented basic and diluted earnings per share, where
applicable. Basic earnings per share excludes potential dilution and is
calculated by dividing income available to common stockholders by the weighted
average number of outstanding common shares. Diluted earnings per share
incorporates the potential dilutions from all potential dilutive securities that
would have reduced earnings per share.
2. Floor Plan Interest, Floor Plan Assistance and Advertising Assistance
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. Advertising assistance payments, which were previously accounted for
as a reduction of floor plan interest expense, together with floor plan
assistance payments, have been included as offsets to inventory and cost of
sales, as appropriate. Floor plan interest expense is included as a component of
operating expense in the accompanying consolidated condensed statement of
operations.
For the nine months ended September 30, 2004 and 2003, aggregate floor plan
interest included in operating expenses was approximately $1,440,000 and
$1,539,000, respectively. For the three months ended September 30, 2004 and
2003, aggregate floor plan interest included in operating expenses was
approximately $554,000 and $361,000, respectively.
8
THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
September 30, 2004
(Continued)
For the nine-month and three-month periods ended September 30, 2004 and 2003,
aggregate floor plan assistance received was, as follows:
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Total floor plan assistance received $1,359,060 $1,115,556 $ 732,264 $ 390,007
========== ========== ========== ==========
Amount included in cost of sales $1,168,934 $1,044,556 $ 243,482 $ 409,007
========== ========== ========== ==========
For the nine-month and three-month periods ended September 30, 2004 and 2003,
aggregate advertising assistance received was, as follows:
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Total advertising assistance received $1,230,462 $ 830,340 $ 818,234 $ 209,209
========== ========== ========== ==========
Amount included in cost of sales $ 770,940 $ 778,340 $ 265,692 $ 233,209
========== ========== ========== ==========
3. Inventories
Inventories are comprised of the following:
September 30, 2004 December 31, 2003
------------------ -----------------
New automobiles $10,367,236 $16,339,679
New trucks and vans 11,337,659 15,785,288
Used automobiles, vans and
trucks 17,078,117 16,618,207
Parts and accessories 1,155,333 1,473,761
Other 101,784 41,020
----------- -----------
$40,040,129 $50,257,955
=========== ===========
9
THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
September 30, 2004
(Continued)
4. Related Party Transactions
Amounts due from related parties result from sales and purchases of vehicles to
and from dealerships owned by Bruce Bendell, the Company's President, Chief
Executive Officer, Acting Chief Financial Officer and Chairman, and his brother,
Harold Bendell, a key employee, (the "Bendell Dealerships"), as well as previous
advances made in the ordinary course of business. All of the sales and purchases
to and from the Bendell Dealerships are made at wholesale cost plus related fees
and have, therefore, resulted in no significant profit or loss to the Company.
For the nine-month and three-month periods ended September 30, 2004 and 2003,
the related party sales and purchases were as follows:
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Related party sales $ 4,441,365 $ 3,916,597 $ 1,477,741 $ 1,679,939
=========== =========== =========== ===========
Related party purchases $ 4,747,498 $11,825,096 $ 1,136,627 $ 2,169,911
=========== =========== =========== ===========
Pursuant to an agreement in principal, effective January 1, 2004, with HB
Automotive, Inc., a company controlled by Harold Bendell, and a management
agreement with Harold Bendell, the Company has accrued management fees for
services performed for the Company by HB Automotive, Inc. and Harold Bendell.
For the nine months ended September 30, 2004 and 2003, such fees amounted to
$2,053,600 and $422,050, respectively. For the three months ended September 30,
2004 and 2003, such fees amounted to $1,041,200 and $205,306, respectively. At
September 30, 2004, the Company is indebted to HB Automotive, Inc. in the
aggregate amount of $1,041,145, in connection with such fees, which is included
in accrued expenses.
As of September 30, 2004, Bruce Bendell was indebted to the Company in the net
amount of $22,697. This indebtedness arose from a series of cash advances, for
which no interest has been charged, aggregating $1,395,358, the latest of which
was made prior to June 30, 2002. At September 30, 2004, the Company has accrued,
but unpaid, an aggregate of $1,372,661, due to Bruce Bendell for bonuses and
credit enhancement, which amount is included in accrued expenses. Included in
the amount, is a credit enhancement of $787,500, of which $337,500 and
$112,500, respectively, was accrued in the nine months and three months ended
September 30, 2004. This amount was approved, previously, by the Company's Board
of Directors.
On June 10, 2004, Bruce Bendell sent a proposal letter to the Company offering
to buy all of the Company's outstanding common stock, not already owned by him,
for cash consideration of approximately $0.70 per share. Mr. Bendell had granted
the Company, until September 7, 2004 to consider the terms of his proposal. On
September 7, 2004, Mr. Bendell withdrew his offer. For a detailed discussion of
such proposal see the Company's Current Reports on Forms 8-K filed on June 10,
2004, June 18, 2004, July 7, 2004, July 26, 2004, August 17, 2004 and September
10, 2004.
10
THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
September 30, 2004
(Continued)
5. Franchise Terminations
In February 2004, the Company sold its Subaru franchise and certain Subaru parts
to an unrelated third party for a cash purchase price of $450,000. Additionally,
the purchaser received the Company's inventory of new 2004 Subaru vehicles and
assumed the related floor liability. All proceeds from this transaction were put
in escrow pending receipt of certain approvals from third parties. In the second
quarter of 2004, the Company closed the sale and recorded a gain of $237,000 and
a reduction of excess of costs over net assets acquired of $213,000 as a result
of this transaction.
In March 2004, the Company received notice from American Suzuki Motor
Corporation, the franchisor of the Company's Suzuki dealership in Hempstead, New
York, of a proposed termination of their franchise agreement with the Company.
At the time, the Company had a potential buyer for the franchise and requested
that Suzuki delay the termination pending completion of the sale. When the
potential sale negotiations were terminated the Company requested that Suzuki
reinstate the termination and purchase the Company's inventory of new Suzuki
vehicles. The Suzuki dealership was not material to the Company's operations and
management does not expect the termination of such dealership to have a
significant effect on results of operations or cash flow.
6. Nasdaq Delisting
On April 29, 2004, the Company received a Notification of Deficiency from the
Nasdaq Stock Market, Inc. ("Nasdaq") indicating that the Company was not in
compliance with Nasdaq Marketplace Rule 4310(c)(4), relating to minimum bid
price per share ($1.00) for continued listing on The Nasdaq SmallCap Market.
The Company had until October 26, 2004 to demonstrate compliance with this rule
(and maintain compliance with all other listing requirements) or face possible
delisting from The Nasdaq SmallCap Market. Such compliance was not achieved by
the deadline date and, accordingly, the Company's common stock was delisted from
the Nasdaq SmallCap Market. On November 10, 2004, the Company's common stock
commenced trading on the Over-the-Counter Bulletin Board.
7. Contingencies
The Company is involved in a number of legal proceedings arising out of the
conduct of its business, including litigation with customers, current and former
business associates and employment-related lawsuits. The Company intends to
vigorously defend itself and assert available defenses with respect to each of
these matters. Where necessary, management has accrued its estimate of the
probable costs for the resolution of these proceedings based on consultation
with outside counsel, assuming various strategies. Further, the Company has
certain insurance coverage and rights of indemnification with respect to certain
aspects of these matters. During the quarter, there were no significant
developments in the Company's legal proceedings, which are discussed in detail
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2003, except for the cases entitled GRIT, LLC vs. Major Automotive
Companies, Inc. and Daniel Tepper v. Fidelity Holdings, Inc; Fidelity Holdings,
Inc. (Third Party Plaintiff) v. InvestAmerica et al. (the "Tepper Litigation"),
both of which were adjudicated in the Company's favor and, consequently,
dismissed. In the Tepper Litigation, however, plaintiff filed a notice of appeal
of the court's decision on November 3, 2004.
11
THE MAJOR AUTOMOTIVE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
September 30, 2004
(Continued)
A settlement or an adverse resolution of one or more of the other matters may
result in the payment of significant costs and damages, which could have a
material adverse effect on the Company's business, financial condition, results
of operations, cash flows and prospects at September 30, 2004.
8. Excess of Costs Over Net Assets Acquired
The Company's policies related to long-lived assets, such as goodwill and
property and equipment, which constitute a significant component of its
consolidated condensed balance sheets, require that an evaluation of such assets
for impairment when events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. If any impairment is
found to exist, the related assets will be written down to fair value.
Additionally, these policies affect the amount and timing of future
amortization. In accordance with Statements of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141"), and Statements of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"), goodwill and intangible assets deemed to have indefinite lives are no
longer amortized but, instead are subject to impairment tests at least annually.
These rules on accounting for goodwill have been applied beginning in the first
quarter of 2002. During 2002, the required impairment tests of goodwill were
performed as of January 1, 2002 and December 31, 2002. Additionally, such tests
have been performed as of December 31, 2003. Management has concluded, based, in
part, on the analysis performed and conclusions reached by an independent
valuation appraiser retained by the Company, that there is no impairment of
goodwill as of any of the dates for which such tests were performed. The Company
remains, however, subject to financial statement risk to the extent that
intangible assets become impaired due to decreases in the fair market value of
the related underlying business.
12
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 Condensed 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., 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. Until
November 3, 2000, when our Board of Directors determined to sell our
non-automotive operations, including our Technology division, we operated in two
divisions: Automotive and Technology. Since that time, our 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").
The first nine months of 2004 saw a decline in revenues and gross profits.
Nevertheless, we generated a pre-tax profit of $1,831,485 this period, compared
with a pre-tax profit of $1,027,728 in the comparable 2003 period. This was an
increase of $803,757 from the first nine months of 2003. The most significant
factor contributing to this result was our $1.6 million decrease in operating
expenses. This was partially offset by the $869,000 decline in our gross profit
for the period. As our revenues and gross profits decreased, we instituted the
necessary steps, including the closing of unprofitable dealerships, to reduce
our overhead costs and have been successful in those efforts.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated condensed financial statements in conformity with
accounting principles generally accepted in the United States. Such principles
require that we make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Operating results in the future could vary
from the amounts derived from those estimates and assumptions. We have
identified the policies below that are critical to our business operations and
the understanding of our results of operations and involve significant
estimates. For detailed discussion of other significant accounting policies see
Note 1, Basis of Presentation and Significant Accounting Policies, of the Notes
to Consolidated Condensed Financial Statements included elsewhere, herein, and
in our Form 10-K for the year ended December 31, 2003, filed with the Securities
and Exchange Commission (the "Commission").
Revenue Recognition. The majority of our revenue is from the sales of new and
used vehicles, including any commissions from related vehicle financings. We
recognize revenue upon delivery of the vehicle to the customer. At time of
delivery, all financing arrangements between and among the parties have been
concluded. Currently, there are a number of states that have passed legislation
that limits the amounts car dealers can earn from vehicle financing and several
other states' attorneys general have either proposed similar legislation or have
evidenced interest in this area. If this trend
13
continues and becomes an issue in New York, it may be a limiting factor on our
ability to generate revenues and profits. Commission revenue on warranty and
insurance products sold in connection with vehicle sales is recognized upon
sale. Additionally, we record income from direct financing leases based on a
constant periodic rate of return on the net investment in the lease. Income
earned from operating lease agreements is recorded evenly over the term of the
lease.
Inventory. Our inventory policy determines the valuation of inventory, which is
a significant component of our consolidated balance sheets. Our inventory
consists primarily of retail vehicles held for sale valued at the lower of cost
or market with new vehicles valued on the first-in, first-out basis and used
vehicles and vehicles held for lease with cost determined using the specific
identification method, net of reserves. Cost includes the actual price paid for
each vehicle plus reconditioning and transportation expenses. We establish
reserves based on vehicle inventory aging and management's estimate of market
values. While we believe that our estimates of market value are appropriate, we
are subject to the risk that our inventory may be overvalued from time to time
primarily with respect to used vehicles, which could require additional reserves
to be recorded.
Long-lived Assets. Our policies related to long-lived assets, such as goodwill
and property and equipment, which constitute a significant component of our
consolidated condensed balance sheets, require that we evaluate such assets for
impairment when events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. If any impairment is found to
exist, the related assets will be written down to fair value. Additionally,
these policies affect the amount and timing of future amortization. In
accordance with Statements of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS 141"), and Statements of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS 142"), goodwill and
intangible assets deemed to have indefinite lives are no longer amortized but,
instead are subject to impairment tests at least annually. We have applied the
new rules on accounting for goodwill beginning in the first quarter of 2002.
During 2002, we performed the required impairment tests of goodwill as of
January 1, 2002 and December 31, 2002. Additionally, we have performed such
tests as of December 31, 2003. We have concluded, based, in part, on the
analysis performed and conclusions reached by an independent valuation appraiser
we retained, that there is no impairment of goodwill as of any of the dates for
which such tests were performed. We remain, however, subject to financial
statement risk to the extent that intangible assets become impaired due to
decreases in the fair market value of the related underlying business.
Floor Plan and Advertising Assistance. Floor plan and advertising assistance
received from manufacturers are recorded as reductions of inventory or offsets
to the cost of the vehicle, as appropriate, and recognized as income upon the
sale of the vehicle or when earned under a specific manufacturer's program,
whichever is later. Floor plan assistance payments have been included as offsets
to cost of sales and inventory, as appropriate. Floor plan interest expense is
presented as a component of operating expense in the accompanying consolidated
condensed statement of operations to provide more meaningful information
regarding our margin performance.
For the nine months ended September 30, 2004 and 2003, aggregate floor plan
interest included in operating expense was $1,440,000 and $1,539,000,
respectively. For the three months ended September 30, 2004 and 2003, aggregate
floor plan interest, included in operating expense, was $554,000 and $361,000,
respectively. The decrease in floor plan interest expense incurred in the nine
months ended September 30, 2004 compared with the same period in 2003 reflects
both a decline in sales and a decline in inventory levels, as partially offset
by higher interest rates. The increase of floor plan interest for the three
months ended September 30, 2004 compared with the same 2003 period is reflective
of the higher interest rates during the current period.
For the nine months ended September 30, 2004 and 2003, aggregate floor plan
assistance, included as a reduction of cost of sales, was $1,169,000 and
$1,045,000, respectively. For the three months
14
ended September 30, 2004 and 2003, aggregate floor plan assistance, included as
a reduction of cost of sales, was $243,000 and $409,000, respectively.
Advertising assistance received from manufacturers for the nine months ended
September 30, 2004 and 2003, included as a reduction of cost of sales, was
$771,000 and $778,000, respectively. Advertising assistance received from
manufacturers for the three months ended September 30, 2004 and 2003, included
as a reduction of cost of sales, was $266,000 and $233,000, respectively.
Contingencies. We are involved, and will continue to be involved, in a number of
legal proceedings arising out of the conduct of our business, including
litigation with customers, current and former business associates and
employment-related lawsuits. We intend to vigorously defend ourselves and assert
available defenses with respect to each of these matters. Where necessary, we
have accrued our estimate of the probable costs for the resolution of these
proceedings based on consultation with outside counsel, assuming various
strategies. Further, we have certain insurance coverage and rights of
indemnification with respect to certain aspects of these matters. However, a
settlement or an adverse resolution of one or more of these matters may result
in the payment of significant costs and damages, which could have a material
adverse effect on our business, financial condition, results of operations, cash
flows and prospects.
Income Taxes. Our income tax policy requires that we compute the provision for
income taxes on the pretax income (loss) based on the current law. We provide
for deferred income taxes to show the effect of tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates. We use valuation allowances to reduce the value of deferred
tax assets when we believe that their recovery is in doubt.
15
SELECTED OPERATING DATA (UNAUDITED)
($ in millions, except NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
per vehicle data) ------------------------------ --------------------------------
Variance - Variance -
Favorable % Favorable %
2004 2003 (Unfavorable) Variance 2004 2003 (Unfavorable) Variance
---- ---- ------------- -------- ---- ---- ------------- --------
Revenues
New vehicles $ 117.3 $ 102.8 $ 14.5 14.1 $ 41.9 $ 37.6 $ 4.3 11.4
Used vehicles 161.8 178.5 (16.7) (9.4) 57.5 62.4 (4.9) (7.9)
Service and parts 12.4 11.9 0.5 4.2 4.1 3.9 0.2 5.1
Other 1.4 0.8 0.6 75.0 0.6 0.1 0.5 500.0
----------- ----------- ------------- ----------- ----------- ---------- ------------ ---------
Total revenues $ 292.9 $ 294.0 $ (1.1) (0.4) $ 104.1 $ 104.0 $ 0.1 0.1
=========== =========== ============= =========== =========== ========== ============ =========
GROSS PROFIT
New vehicles $ 10.9 $ 10.8 $ 0.1 0.9 $ 3.2 $ 3.8 $ (0.6) (15.8)
Used vehicles 30.9 30.7 0.2 0.7 10.6 12.1 (1.5) (12.4)
Service and parts 3.8 4.0 (0.2) (5.0) 1.1 1.3 (0.2) (15.4)
Other 1.5 2.5 (1.0) (40.0) 1.1 0.1 1.0 1,000.0
----------- ----------- ------------- ----------- ----------- ---------- ------------ ----------
Total gross profit $ 47.1 $ 48.0 $ (0.9) (1.9) $ 16.0 $ 17.3 $ (1.3) (7.5)
=========== =========== ============= =========== =========== ========== ============ ==========
NEW VEHICLES
Unit sales 4,091 3,929 162 4.1 1,496 1,426 70 4.9
Average revenue per vehicle $ 28,665 $ 26,168 $ 2,497 9.5 $ 27,994 $ 26,348 $ 1,646 6.2
Average cost per vehicle $ 25,996 $ 23,425 $ 2,571 11.0 $ 25,860 $ 23,713 $ 2,147 9.1
Gross profit per vehicle $ 2,669 $ 2,743 $ (74) (2.7) $ 2,134 $ 2,635 $ (501) (19.0)
Gross profit percentage 9.3% 10.5% -1.2% (11.4) 7.6% 10.0% -2.4% (24.0)
USED VEHICLES
Unit sales 10,996 12,678 (1,682) (13.3) 3,870 4,854 (984) (20.3)
Average revenue per vehicle $ 14,713 $ 14,081 $ 632 4.5 $ 14,869 $ 12,861 $ 2,008 15.6
Average cost per vehicle $ 11,902 $ 11,657 $ 245 2.1 $ 12,126 $ 10,377 $ 1,749 16.9
Gross profit per vehicle $ 2,811 $ 2,424 $ 387 16.0 $ 2,743 $ 2,484 $ 259 10.4
Gross profit percentage 19.1% 17.2% 1.9% 11.0 18.4% 19.3% -0.9% (4.7)
PERCENTAGE OF TOTAL REVENUES
New vehicles 40.0% 35.0% 5.0% 14.3 40.2% 36.2% 4.1% 11.2
Used vehicles 55.2% 60.7% -5.5% (9.1) 55.2% 60.0% -4.8% (8.0)
Service and parts 4.2% 4.0% 0.2% 5.0 3.9% 3.8% 0.1% 2.6
Other 0.6% 0.3% 0.3% 100.0 0.7% 0.1% 0.6% 1,300.0
----------- ----------- ------------- ----------- ----------- --------- ------------ ---------
100.0% 100.0% 0.0% 0.0% 100.0% 100.0% 0.0% 0.0%
=========== =========== ============= =========== =========== ========= ============ =========
OTHER OPERATING DATA
Total operating expenses $ 44.7 $ 46.3 $ (1.6) (3.5) $ 15.1 $ 16.2 $ (1.1) (6.8)
Floor plan interest, included
in operating expenses 1.4 1.5 (0.1) (6.7) 0.6 0.4 0.2 50.0
16
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2004 AND NINE MONTHS
ENDED SEPTEMBER 30, 2003
Revenues. Revenues for the nine-month period ended September 30, 2004 had a net
decrease to approximately $292.9 million, which is $1.1 million, or 0.4%, less
than the prior comparable period's revenues of $294.0 million. The primary
reasons for the net decrease in revenues was the decrease in the number of used
vehicles sold, which was not totally offset by increases in average unit selling
prices of both new and used vehicles. New vehicles sold increased by 162 units
in the first three quarters of 2004 to 4,091 units from 3,929 units in the first
three quarters of 2003, while used vehicle sales declined significantly by 1,682
units (13.3%) to 10,996 units in the first three quarters of 2004 from 12,678
units, retail and wholesale, in the prior year's comparable nine months.
Although selling prices of new vehicles increased approximately $2,500 per
vehicle, this increase was not sufficient to offset the decline in used vehicle
units sold. The average selling price of used vehicles increased by only $632
per unit, which, also, did not have a significantly offsetting effect to the
steep decline in unit sales. We believe that, due, in large part, to the
significant factory incentives offered to purchasers of new vehicles, a large
number of potential used vehicle purchasers were able to buy new vehicles. We
are a significant factor in the retail used vehicle sales business in our
operating area, but of lesser significance as a new vehicle retailer. As a
result, our mix of new and used vehicle sales to total revenues went from 60.7%
used vehicle sales and 35.0% new vehicle sales during the first nine months of
2003 to 55.2% used vehicle sales and 40.0% new vehicle sales during the first
nine months of 2004.
Cost of sales. The cost of sales decrease of $194,000, or 0.1%, to $245.8
million in the first three quarters of 2004 from $246.0 million for the nine
months ended September 30, 2003, is reflective of the significant decline in
used vehicle unit sales as offset by the higher costs of the increased volume of
new vehicle sales. The large decline in costs based on reduced sales volume was
partially offset by an increase in the average cost of new vehicles sold of
$2,571, or 11.0%, and the relatively smaller increase in the average cost of
used vehicle of $245, or 2.1%.
Gross profit. Our operations generated total gross profit of $47.1 million for
the nine months ended September 30, 2004, a decrease of approximately $900,000,
or 1.9%, from gross profits of $48.0 million in the prior year's comparable
period. The decrease in gross profit was primarily attributable to the decline
in used vehicle unit sales and, to a lesser extent, a decline of less than $74
per vehicle in the average gross profit of new vehicles sold and an increase in
average gross profit of $387 per used vehicle sold. Total gross profit as a
percentage of revenues declined to 16.1% from 16.3% in the nine months ended
September 30, 2004 and 2003, respectively.
Operating expenses. In the nine months ended September 30, 2004, operating
expenses decreased approximately $1.6 million, or 3.5%, to approximately $44.7
million, from $46.3 million in the prior year's comparable period. This decrease
is attributable, in large part, to the cost-cutting efforts initiated throughout
our dealership group, with the most significant decreases resulting from the
closing of unprofitable dealerships and reductions in advertising expenditures.
The overhead reductions in the nine months ended September 30, 2004, were more
than able to offset the additional expenses that we incurred that were related
to the compensation earned by HB Automotive, Inc. and Bruce Bendell. Interest
expense, related to our floor plan and included in operating costs, also
decreased by approximately $100,000 in the 2004 nine-month period.
Interest expense. Net interest expense had a net decrease of approximately
$29,000 in the first nine months of 2004 compared with the same 2003 period. The
decrease in interest is attributable to repayments of long-term debt.
17
Income tax expense. We provide for income taxes based on current forecasts of
income before taxes for the year and the estimated effective tax rate for the
year. For the period ended September 30, 2004, the estimated effective tax rate
is lower than the normal effective tax rate as a result of an approximate
$600,000 reduction in the deferred tax valuation reserve. Income tax expense is
comprised of $85,000 of local income taxes and federal income taxes of $99,000
due to the use of net operating loss carryforwards. Deferred taxes, including
valuation allowances, are reviewed throughout fiscal 2004.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2004 AND THREE MONTHS
ENDED SEPTEMBER 30, 2003
Revenues. Revenues for the three-month period ended September 30, 2004 increased
to approximately $104.1 million, which is $160,000, or 0.1%, more than the prior
comparable period's revenues of $104.0 million. This relatively flat sales
level, however, reflects a continuing trend in which the number of new vehicles
sold is increasing, while the number of used vehicles sold is decreasing. In the
current quarter, we sold 70 more new vehicles than we did in the comparable
prior year's quarter. At the same time, the number of used vehicles sold
decreased by 984 units. The significantly higher revenue per new vehicle sold
was able to offset the decline in revenues from the decreased used vehicle
sales.
Cost of sales. Our cost of sales increase of $1.4 million, or 1.6%, to $88.1
million in the third quarter of 2004 from $86.7 million for the three months
ended September 30, 2003 is consistent with the change in sales mix, whereby we
are selling a greater percentage of the more expensive new vehicles to the lower
cost used vehicles, resulting in a higher cost of sales.
Gross profit. Total gross profit of $16.0 million for the three months ended
September 30, 2004, shows a decrease of $1.3 million, or 7.5%, from gross
profits of $17.3 million in the prior year's comparable quarter. This change in
gross profits is consistent with the change in costs of sales, resulting from
the change in product mix. In the 2004 third quarter, 40.2% of our total
revenues came from new vehicle sales and 55.2% came from used vehicle sales. In
the comparable 2003 period, the mix was 36.2% and 60.0%, new and used vehicle
sales, respectively. Because used vehicles sales, historically, have generated
higher gross profits per vehicle sold than new vehicles, the change in product
mix resulted in the gross profit decline. Additionally, primarily because of
competitive factors in the industry and in our marketing area, gross profits as
a percentage of revenues, for both new and used vehicles, declined in the
current quarter as compared with the third quarter of 2003.
Operating expenses. In the three months ended September 30, 2004, operating
expenses decreased approximately $1.1 million, or 6.8%, to approximately $15.1
million, from $16.2million in the prior year's comparable quarter. This decrease
is primarily a result of our continuing successful efforts to reduce or
eliminate unnecessary costs, throughout the dealership group, with the most
significant decreases resulting from the closing of unprofitable dealerships and
reductions in advertising expenditures. The overhead reductions in the current
quarter were more than able to offset the additional expenses that we incurred
that were related to the compensation earned by HB Automotive, Inc. and Bruce
Bendell.
Interest expense, net. Net interest expense had a net decrease of approximately
$7,000 to $185,000 in the third quarter of 2004 from $192,000 recorded in the
comparable prior period. This decrease is attributable to repayments of
long-term debt.
Income tax expense. We provide for income taxes based on current forecasts of
income before taxes for the year and the estimated effective tax rate for the
year. For the period ended September 30, 2004, the estimated effective tax rate
is lower than the normal effective tax rate as a result of an approximate
$600,000 reduction in the deferred tax valuation reserve. Income tax expense is
comprised of $25,000 of local income taxes and federal income taxes of $99,000
due to the use of net operating loss carryforwards. Deferred taxes, including
valuation allowances, are reviewed throughout fiscal 2004.
18
LIQUIDITY AND CAPITAL RESOURCES - SEPTEMBER 30, 2004
At September 30, 2004, our total assets were $81.0 million, a decrease of
approximately $6.6 million from total assets of $87.6 million at December 31,
2003. This aggregate decrease is primarily related to the decrease in our
inventories of $10.3 million, as partially offset by increases in our cash of
$2.7 million and net accounts receivable of $1.7 million.
For the nine months ended September 30, 2004, we had a net increase in cash and
cash equivalents of $2,735,228. The primary reason for this increase was the net
cash provided by our operating activities of $3,514,425.
The net cash provided by our operating activities of $3,514,425 was comprised of
our net income of $1,647,191, plus net non-cash charges of $725,219, aggregating
$2,372,410 and a net decrease in assets of $9,130,210 (attributable, primarily,
to the decreases in inventories of $10,217,826 and due from related parties of
$612,542, less an increase in accounts receivable of $1,760,742), as partially
offset by a net decrease in liabilities of $7,988,195 (primarily attributable to
a decreases in floor plan notes payable of $10,582,425 and customer deposits and
other liabilities aggregating $109,097, as partially offset by an increase in
accounts payable of $1,261,789 and accrued expenses of $1,441,538). This is
primarily the result of our reduced level of inventory and the related floor
plan liability in the first nine months of 2004.
Our net cash use of $483,519 from our investing activities is primarily
attributable to purchases of property and equipment.
Additionally, we used $295,678 in our financing activities for payments of
long-term debt.
We had working capital of approximately $2.5 million and $2.3 million at
September 30, 2004 and December 31, 2003, respectively. We require cash to fund
our working capital needs and capital expenditures, as well as to meet existing
commitments. These cash requirements include payments on long-term debt of
$279,000 for the last three months of 2004, $2.3 million for 2005, $479,000 for
2006 and $4.5 million, thereafter, and lease payments of $353,000 for the last
three months of 2004, $1.3 million for 2005, $1.2 million for 2006 and $2.2
million, thereafter. In addition, pursuant to an employment agreement with our
President, Chief Executive Officer and Acting Chief Financial Officer, Bruce
Bendell, that expired on June 30, 2004, and which was extended, we are obligated
to pay him a minimum of $500,000 per year. Additionally, our Board of Directors
has approved the payments to Mr. Bendell, which is expected to approximate
$450,000, annually, for the continuation of his credit enhancement to us through
the provision of his personal guarantee on our floor plan financing. All of the
foregoing obligations are funded, principally, from cash flows from operations
and borrowings under floor plan financings.
We believe that the cash generated from existing operations, together with cash
on hand, available credit from our current lenders, including banks and floor
plan lenders, will be sufficient to finance our debt and lease obligations,
other commitments, current operations and internal growth for at least the next
twenty-four months.
19
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 of 1933, as
amended (the "Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended (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 Commission. We
disclaim any intent or obligation to update such forward-looking statements.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency Risk
Although we sell some vehicles in certain Eastern European countries,
principally, Ukraine, Belarus and Kazakhstan, 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.
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 Exchange Act Rules 13a-15 and 15d-15 as of the end
of the period covered by this report (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.
Changes in Internal Controls
There were no significant changes in our internal controls or in other factors
that have materially affected or are reasonably likely to materially 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.
Notwithstanding the foregoing, there can be no assurance that our disclosure
controls and procedures will detect or uncover all failures of our employees and
our consolidated subsidiaries to disclose material information otherwise
required to be set forth in our periodic reports.
21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a detailed discussion of our legal proceedings, please refer to Note 8 of
the Notes to our Consolidated Condensed Financial Statements contained herein,
and our Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
Tillroe Realty Co. vs. Compass Lincoln Mercury, Inc. and Fidelity Holdings Co.,
Inc.
On September 4, 2003, an action was commenced against us and one of our
subsidiaries, Compass Lincoln Mercury, Inc. ("Compass Lincoln Mercury") by the
landlord of the former Compass Lincoln Mercury, Inc. showroom in Orange, New
Jersey in the Superior Court of New Jersey, Essex County. The action alleged
monies owed to the landlord for rent and damages to the showroom space of
Compass Lincoln Mercury. On July 13, 2004, the action was settled for $115,000.
We have paid $25,000 of this settlement amount and will pay $7,500 per month for
one year, until full payment is made.
GRIT, LLC vs. The Major Automotive Companies, Inc.
On September 24, 2003, we received notice of a default judgment for the above
action in the Superior Court of the State of California, Los Angeles. Plaintiff
had previously alleged breach of contract, misrepresentation, fraud and
negligence, stemming from plaintiff's purchase of a Talkie Communication Server
from one of our former subsidiaries in 1998. We immediately retained counsel and
applied to reopen said default, which was granted. Accordingly, the we proceeded
to vigorously defend this action, claiming that the dispute had already been
settled by the parties pursuant to a settlement of a previous complaint filed by
plaintiff in August 2001. On August 16, 2004, the action was dismissed, without
prejudice, and no liability was imposed on us.
Daniel Tepper v. Fidelity Holdings, Inc; Fidelity Holdings, Inc. (Third Party
Plaintiff) v. InvestAmerica et al.
In and around July 10, 2001, Daniel Tepper commenced suit in the Southern
District of New York against Bruce Bendell, Doron Cohen, a former employee, and
Richard Feinstein, our former Chief Financial Officer. The initial complaint had
eight causes of action. Subsequently, five causes of action were dismissed and
three remained: (i) conversion; (ii) breach of fiduciary duty; and (iii)
negligence. The claims alleged that we failed to remove restrictive legends that
appeared on certain common stock certificates held by Mr. Tepper. This action
mirrored a Nevada action previously brought by Mr. Tepper for which he obtained
a judgment of $553,000, which was fully satisfied. In light of the satisfaction
of the Nevada judgment, the Court directed that a motion be made to dismiss the
New York action to ban a double recovery. The motion was made in July 2003 and
was denied in lieu of a settlement conference. The parties held a settlement
conference, but no settlement was reached.. Subsequently, we filed a second
motion to dismiss in July 2004. On September 30, 2004, the motion to dismiss was
granted and no liability was imposed on us. Plaintiff, however, filed a notice
of an appeal of the court's decision on November 3, 2004.
22
ITEM 2. UNREGISTERED SALES OF EQUITY 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
(a) Exhibits.
31.1 Chief Executive Officer's and Acting Chief Financial Officer's
Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer's and Acting Chief Financial Officer's
Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the 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 22, 2004 /s/ Bruce Bendell
------------------
Bruce Bendell
Chairman of the Board and Chief Executive Officer
and Acting Chief Financial Officer
23