UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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(Mark
One)
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x
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QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended June
30, 2008
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r
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
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For
the transition period from __________________ to
______________
Commission file number: 1-14088
Acacia
Automotive, Inc.
(Exact
name of small business issuer as specified in its charter)
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Texas
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75-2095676
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(State or other
jurisdiction of incorporation or organization)
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(IRS Employer
Identification No.)
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1200
East Buena Vista Avenue, North Augusta, SC
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29841
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(Address of
principal executive
offices)
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(Zip
Code)
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(352)
427-6848
(Registrant's
telephone number)
The Gardner Building – Suite 104, 5214 Maryland Way, Brentwood, TN,
37027
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the 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 r
No x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (Check one):
Large
accelerated filer r Accelerated
filer r
Non-accelerated
filer r Smaller
Reporting Company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes r
No x
APPLICABLE
ONLY TO ISSUERS INOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant HAS FILED ALL DOCUMENTS AND REPORTS
REQUIRED TO BE FILED BY Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes x No
r
APPLICABLE
ONLY TO CORPORATE ISSUERS
State the number of shares outstanding
of each of the issuer's classes of common equity, as of June 30,
2008: 11,997,524.
PART
I FINANCIAL INFORMATION
Item
1. Financial Statements
ACACIA
AUTOMOTIVE, INC.
CONSOLIDATED
BALANCE SHEETS
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June
30,
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December
31,
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|||||||
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2008
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2007
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(Audited)
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ASSETS
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CURRENT
ASSETS
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Cash
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$ | 234,150 | $ | 203,077 | ||||
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Accounts
receivable
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256,481 | 210,130 | ||||||
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Employee
receivables
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294 | 294 | ||||||
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Inventory
repurchases
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16,735 | - | ||||||
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Deposits
and prepaid expenses
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12,530 | 33,562 | ||||||
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Total
Current Assets
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520,190 | 447,063 | ||||||
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PROPERTY
AND EQUIPMENT, net of accumulated depreciation of $30,477
and $13,707 in 2008 and 2007, respectively
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159,111 | 203,142 | ||||||
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OTHER
ASSETS
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Goodwill
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427,929 | 427,929 | ||||||
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Customer
list and Non-Compete Agreement, net of amortization of $170,567
and $85,283, respectively
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470,567 | 555,850 | ||||||
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Total
Other Assets
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898,496 | 983,779 | ||||||
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TOTAL
ASSETS
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$ | 1,577,797 | $ | 1,633,984 | ||||
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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CURRENT
LIABILITIES
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Accounts
payable
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$ | 567,206 | $ | 224,927 | ||||
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Accrued
liabilities
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216,752 | 87,238 | ||||||
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Line
of credit
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4,900 | 139,900 | ||||||
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Capital
lease obligations, current portion
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11,913 | 11,706 | ||||||
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Shareholder
payables
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31,788 | 47,104 | ||||||
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Total
Current Liabilities
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832,559 | 510,875 | ||||||
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NONCURRENT
LIABILTIES
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Capital
lease obligations, less current portion
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31,871 | 32,078 | ||||||
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TOTAL
LIABILITIES
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864,430 | 542,953 | ||||||
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STOCKHOLDERS'
EQUITY
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Preferred
Stock, $0.001 par value,
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1,475,000
shares authorized, none issued and outstanding
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- | - | ||||||
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Common
stock, $0.001 par value, 150,000,000 shares authorized;
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11,997,524
shares issued and outstanding.
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11,997 | 11,997 | ||||||
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Additional
paid-in capital
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11,561,598 | 10,918,722 | ||||||
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Redeemable
Common Stock
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130,000 | - | ||||||
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Retained
deficit
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(10,990,228 | ) | (9,839,688 | ) | ||||
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TOTAL
STOCKHOLDERS' EQUITY
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713,367 | 1,091,031 | ||||||
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TOTAL
STOCKHOLDERS' EQUITY AND LIABILITES
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$ | 1,577,797 | $ | 1,633,984 | ||||
The
accompanying notes are an integral part of these financial
statements.
F-1
ACACIA
AUTOMOTIVE
STATEMENTS
OF OPERATIONS
(UNAUDITED)
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Three Months Ended
June 30,
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Six Months
Ended
June 30,
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2008
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2007
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2008
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2007
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REVENUES
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$ | 307,137 | $ | - | $ | 522,057 | $ | - | ||||||||
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OPERATING
EXPENSES
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Cost
of fees earned
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113,047 | - | 148,591 | - | ||||||||||||
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Employee
Compensation
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484,872 | 106,250 | 952,455 | 1,221,765 | ||||||||||||
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General
and administrative expenses
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239,795 | 35,377 | 441,336 | 87,061 | ||||||||||||
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Depreciation
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56,706 | 1,822 | 112,470 | 3,644 | ||||||||||||
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Beneficial
Conversion of Preferred Stock
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- | 500,000 | - | 500,000 | ||||||||||||
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Operating
Loss
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(474,238 | ) | (643,409 | ) | (1,132,755 | ) | (1,812,470 | |||||||||
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Interest
Income
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827 | 2,944 | 2,848 | 2,944 | ||||||||||||
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Interest
Expense
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(4,124 | ) | - | (6,050 | ) | - | ||||||||||
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Loss
on disposal of asset
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(14,583 | ) | - | (14,583 | ) | - | ||||||||||
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Net
Loss Before Income Taxes
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(492,136 | ) | (690,465 | ) | (1,150,540 | ) | (1,809,526 | ) | ||||||||
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Income
Tax Expense
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- | - | - | - | ||||||||||||
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NET
LOSS
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$ | (492,136 | ) | $ | (690,465 | ) | $ | (1,150,540 | ) | $ | (1,809,526 | ) | ||||
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BASIC
AND FULLY DILUTED
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||||||||||||||||
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LOSS
PER SHARE
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Loss
Per Share
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$ | (0.04 | ) | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.17 | ) | ||||
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Weighted
Average Number of Common Shares Outstanding
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11,997,524 | 10,681,898 | 11,997,524 | 10,361,808 | ||||||||||||
The
accompanying notes are an integral part of these financial
statements.
F-2
ACACIA
AUTOMOTIVE, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
SIX
MONTHS ENDED JUNE 30, 2008 AND 2007
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2008
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2007
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Cash
Flow From Operating Activities
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Net
Loss
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$ | (1,150,540 | ) | $ | (1,809,526 | ) | ||
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Adjustment
to reconcile net loss to net cash used in operating
activities
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Depreciation
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112,470 | 3,644 | ||||||
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Loss
on disposal of asset
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14,583 | - | ||||||
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Write-down
of software
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(25,000 | ) | - | |||||
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Common
stock issued for services
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- | 1,000,000 | ||||||
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Stock
options and warrants issued for services
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642,876 | 48,725 | ||||||
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Beneficial
Conversion
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- | 500,000 | ||||||
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Changes
in Operating Assets and Liabilities
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Inventory
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(16,735 | ) | - | |||||
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Accounts
Receivable
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(46,351 | ) | - | |||||
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Accounts
Payable
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342,249 | 41,465 | ||||||
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Accrued
Liabilities
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129,514 | 175,499 | ||||||
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Due
to Stockholder
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(15,316 | ) | (10,765 | ) | ||||
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Prepaid
Expense
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21,032 | 469 | ||||||
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Net
Cash Flow Provided by (Used in) Operating Activities
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8,812 | (50,489 | ) | |||||
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Cash
Flow Provided by (Used from) Investing Activities
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Proceeds
from sale of equipment
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27,261 | - | ||||||
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Purchase
of Equipment
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- | (422 | ) | |||||
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Net
Cash Flow Provided by (Used in) Investing Activities
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27,261 | (422 | ) | |||||
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Cash
Flow Provided (Used) by Financing Activities
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Borrowings
on line of credit
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1,504,000 | - | ||||||
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Repayments
on line of credit
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(1,639,000 | ) | - | |||||
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Sale
of Common Stock
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130,000 | 925,000 | ||||||
| (5,000 | ) | 925,000 | ||||||
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Change
in Cash
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31,073 | 874,089 | ||||||
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Cash
at Beginning of Period
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203,077 | 1,432 | ||||||
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Cash
at End of Period
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$ | 234,150 | $ | 875,521 | ||||
The
accompanying notes are an integral part of these financial
statements.
F-3
ACACIA
AUTOMOTIVE, INC.
NOTES
TO FINANCIAL STATEMENTS
JUNE
30, 2008 AND 2007
NOTE
1 – THE COMPANY AND BASIS OF PRESENTATION
Acacia
Automotive, Inc. (“Acacia” or the “Company”) is engaged in acquiring and
operating automotive auctions, including automobile, truck, equipment, boat,
motor home, RV, motorsports, and other related vehicles.
BASIS OF
PRESENTATION – The Company has elected to prepare its financial statements in
accordance with generally accepted accounting principles (United States) with
December 31, as its year end. The financial statements and notes are
representations of the Company’s management who are responsible for their
integrity and objectivity.
The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
annual financial information and with the instructions to Form 10-Q and Article
10 of Regulation SX. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete consolidated financial statements. In the opinion of
management, all adjustments considered necessary for a full presentation have
been included. All such adjustments are of a normal and recurring
nature.
Historically,
the Company had issued warrants to purchase shares of our common stock in
connection with certain of its debt and equity financings, in exchange for the
conversion of certain preferred stock, and for certain non-compete
agreements. The Company records each of the securities issued on a
relative fair value basis up to the amount of the proceeds
received. The Company estimates the fair value of the warrants using
the Black-Scholes option pricing model. The Black-Scholes model is
dependent on a number of variables and estimates including: interest rates,
dividend yield, volatility and the expected term of the warrants. The
estimates are based on market interest rates at the date of issuance, our past
history for declaring dividends, the Company’s estimated stock price volatility
and the contractual term of the warrants. The value ascribed to the
warrants in connection with debt offerings is considered a cost of capital and
amortized to interest expense over the term of the debt.
CONSOLIDATION
– The Company owns 100% of the voting stock of Acacia Augusta Vehicle Auction,
Inc. The consolidated financial statements include the accounts of
the Company and Acacia Augusta Vehicle Auction, Inc. dba / Augusta Auto Auction,
Inc. All significant intercompany accounts and transactions are
eliminated in consolidation.
NOTE
2– OPERATING SOFTWARE SYSTEM
On June
30, 2008, the Company took a charge of $78,157 against 2008 operating results,
representing the devaluation of certain accounts receivable determined to be
uncollectible. This resulted, in substantial part, from the issues the Company
encountered in utilizing a new operating software system during the first half
of 2008. During that period, the Company experienced problems in deriving
accurate operating information from that system and also suffered from
inconsistencies in the system to automatically deduct charges from client
transactions in real time. The operating software system was replaced in the
third quarter of 2008. The Company will seek to effect recovery of a portion of
these charges in coming periods.
NOTE
3 – GOING CONCERN CONSIDERATIONS
The
Company neither has sufficient cash on hand nor is it generating sufficient
revenues to cover its operating overhead. These facts raise doubt as
to the Company’s ability to continue as a going concern. The Company
has been operating over the past year based on the proceeds from the sale of
Common stock in private offerings, loans from its officers/directors, and
revenues from its auction operating unit. There is no guarantee that
such officers/directors will continue to provide operating funds for the
Company. In order to pursue its goals and commitments, the Company
will be required to obtain significant funding to meet its projected minimum
expenditure requirements. Management’s plans include raising funds
from the public through a private placement stock offering or securing debt
financing, acquiring additional auto auction operations that will provide
profitability and liquidity, and attempting to increase the revenues from its
current auction operations. Management intends to make every effort
to identify and develop sources of funds, but there is no assurance that
Management’s plans will be successful.
F-4
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-Looking
Information
The
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of the Form 10-Q contain forward-looking
information. The forward-looking information involves risks and uncertainties
that are based on current expectations, estimates, and projections about the
Company's business, management's beliefs and assumptions made by management.
Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", and variations of such words and similar expressions are intended
to identify such forward-looking information. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking information due to numerous factors, including, but not limited
to, availability of financing for operations, successful performance of internal
operations, impact of competition and other risks detailed below as well as
those discussed elsewhere in this Form 10-Q and from time to time in the
Company's Securities and Exchange Commission filings and reports. In addition,
general economic and market conditions and growth rates could affect such
statements.
General
With the
acquisition of the Augusta Auto Auction on July 10, 2007, we commenced
operations, ceased being a shell company, and conducted our first weekly auction
on July 11, 2007. Our only operations in 2007 were those operations, and those
operations remain our only operations.
During
the third and fourth quarter of 2007, we made substantial improvements to the
physical plant at our auction and attempted to upgrade our technology by
licensing new software, the SNaps operating system, and purchased related
computer hardware.
We
believe that the automobile auction business is seasonal with the first and
second quarters of the calendar year being the strongest but declining somewhat
in the third and fourth calendar quarters. However, at our auction, we did not
see that pattern in 2007. The number of units we sold in the last two quarters
of 2007 was 7.3% more than the number of units we sold in the first two quarters
of 2008; however, the number of units sold in Q2 of 2008 was 1.1% greater than
the number sold in Q4 2007 and 14.9% greater than the number sold in Q1
2008.
We
believe the initial increase in the last two quarters of 2007 showed a favorable
response to our ownership of the auction. But the Vemark SNaps® software we
installed proved unsatisfactory for many reasons. A major concern was the
control issues, discussed herein under Item 4T - Controls and Procedures. But
the software also caused major operational dislocations such as not providing
customers timely accounting of transactions and not being able to process
automatically title information on vehicles sold. We believe that such failures
caused much of the decreased sales that occurred from the last six months of
2007 to the first six months of 2008. In July 2008, we terminated our
relationship with the SNaps vendor and implemented other software solutions that
we believe are now providing sufficient operational support and better control
of our financial reporting. We anticipate the number of units sold by the
Augusta Auto Auction in the latter half of 2008 to match approximately those
sold in the latter half of 2007. In addition we have engaged our director, David
Bynum, to assist in the management of the Augusta auction and believe that his
efforts have improved the auctions operational efficiency and mitigated some of
the concerns of clients that were initially dissatisfied with our operation as a
result of the software difficulties we encountered.
Finally,
we believe that vehicle auctions have historically shown that units sold do not
generally decline substantially during a recession. We believe this is
attributable to, among other facts, that the auto auction industry is more
dependent upon the number of actual used vehicles in operation (VIO) in the
U.S., rather than upon retail vehicle sales and manufacturing
output. The table below depicts fluctuations through September 2008,
indicating that auction volumes remain nearly unchanged while used and new light
vehicle retail volumes are down approximately 10% and 13% respectively in the
same period.
* Text
and Chart reprinted with permission of the National Auto Auction
Association
Provided
by Ira A. Silver, Ph.D., NAAA Economist Publication
11/6/08
Six
months ended June 30
Our
revenues for the six month period ended June 30 are not comparable to the same
period in 2007 because we did not have operations until we acquired the Augusta
Auto Auction in July 2007. Nonetheless our revenues for the first six months of
2008 were approximately 23.3% more than those in the last six months of 2007
even though the number of units sold in the 2008 period declined approximately
7.3%. This increase in revenue is mostly attributable to an increase in the
average unit selling price and their attendant higher fees, as well as an
increase in the actual fee structure, the level of our new fees being more
consistent with auction fees in the surrounding area.
With
respect to our Augusta operations, our employee compensation is averaging
approximately $105,000 per quarter and other general and administrative expenses
are averaging approximately $75,000 per quarter. Cost of sales, absent charges
for uncollected receivables, are approximately $42,500 per quarter and
depreciation and amortization is about $55,000 per quarter leaving an operating
loss, assuming average revenues of about $250,000 per quarter, of about $22,000
per quarter but operating cash flow of about $33,000 per quarter. Nonetheless we
did not achieve those operating results in our Augusta operation because we took
a charge of approximately $78,000 mostly for uncollected receivables related to
our discontinued software.
While our
interest expenses at our Augusta operation is about $1900 per quarter, we
incurred additional charges for loss on the sale of equipment relating to the
removal of the Vemark SNaps® software in July 2008.
We incur
expenses at the corporate level in addition to those incurred at our operations
at the Augusta auction. Our compensation for executives as shown under Employee
Compensation runs about $88,000 per quarter, and our option and warrant expense,
which is amortized, has averaged in the six month period ended June 30, 2008,
approximately $388,000 per quarter. For the six months ended June 30,
2008 we incurred a loss of $1,150,540. Corporate G&A expenses accounted for
approximately $290,000 in the first six months, and included legal and
accounting fees of approximately $99,000, office rental costs of approximately
$14,500, non-cash amortized warrant and option expenses of approximately
$79,000, and other traditional expenses for travel, convention expenses,
equipment lease/rental, postage and shipping, printing and office supplies,
insurance, telephone, light heat power, etc.
Three
months ended June 30, 2008
Again,
our revenues for the three month period ended June 30 are not comparable to the
same period in 2007 because we did not have operations until we acquired the
Augusta Auto Auction in July 2007. Our revenues for the second quarter were
$307,137, the largest of any quarter since our acquisition of the auction,
although the number of units sold exceeded only those of the first quarter of
2008 and the fourth quarter of 2007, while not exceeding the third quarter of
2007, the increase in revenues also being attributable to increases in fees as
discussed above.
While our
cost of fees earned was $113,047, this included approximately $78,000 for
uncollected receivables. Our employee compensation was typical,
approximately $100,000 for parent company compensation, approximately $265,000
for expensing of options and approximately $110,000 for employee compensation in
our operating company.
With the
addition of a $14,000 loss related to the discontinued Vemark SNaps® software,
our net loss was $492,136 for the quarter.
Liquidity
and Capital Resources
Our
liquidity has been provided through private placements, one for $1,025,000 which
closed in the second quarter of 2007 and another for $130,000 which closed in
the Spring of 2008. These placements have been supplemented by a line of credit
for $300,000 with Wachovia Bank, this line of credit supporting short term cash
requirements at our Augusta operations.
We are
striving to make our Augusta operations have positive cash flow and believe that
that goal can be achieved. But these improvements would have to be substantial,
although plausibly achievable, to support our existing overhead cost
structure.
In
addition, we desire to expand through acquisition of other automobile auctions
and are seeking funding for that purpose. We believe that any modest addition of
other auctions will enable us to operate on a positive cash flow
basis.
We are,
accordingly, seeking additional funding to expand our auctions.
Item
4T. Controls and Procedures
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company's Securities Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms,
and that such information is accumulated and communicated to the Company's
management, including its Chief Executive Officer who acts as our Chief
Financial Officer to allow timely decisions regarding required
disclosure. During the 90-day period prior to the date of this
report, an evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer concluded that the Company's disclosure controls and
procedures were effective. Nonetheless, we have identified areas that
we are addressing which we believe need to be rectified.
Changes
in Internal Control over Financial Reporting
In the
course of conducting our audit for the fiscal year 2007, our auditor, Killman,
Murrell & Company, P.C. identified to us material weaknesses involving
internal control, although it did not identify to us any report that
necessitated restatement. These material weaknesses related to our accounting
personnel, accounting for cash, documentation with respect to options and
warrants as well as the issuance of common stock.
We
believe that two factors most affect these reported material weaknesses, namely,
the lack of accounting personnel and the lack of integration of software that
manages our operations and our accounting software. Our lack of senior
accounting personnel affected the adequacy our general systems and practices.
While the failure of the processes and systems affected our documentation of
options and warrants as well as one issuance of common stock, all matters of
which have been rectified, its most critical manifestation was in the software
integration referred to above. We have identified and largely rectified matters
regarding the issuance and reporting of checks, although we are yet making
certain that our actions will be adequate in that area.
All of
these issues, we believe, relate most to the lack of experienced accounting
personnel, particularly senior accounting personnel. In that regard, we have
identified a certified public accountant who is helping us on a part time basis
and who has extensive experience in accounting and auditing.
PART
II OTHER INFORMATION
Item
5. Other Information.
In
December 2008, Mr. Moorby resigned to pursue his commercial interests in the
Nashville area. Mr. Moorby will remain a director and active consultant and
advisor to the Company. On January 1, 2009, the Company will appoint Mr. David
Bynum to the post of Vice President and Chief Operating Officer of the
corporation. With these changes, Mr. Sample will also assume the office of
President in addition to serving as CEO and Chairman of the Board.
SIGNATURES
Pursuant
to the requirements of the Securities exchange Act of 1934, registrant has duly
caused this report to be signed on its behalf by the undersigned.
|
Acacia
Automotive, Inc.
|
|||
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Dated:
December 31, 2008
|
By:
|
/s/ Steven L. Sample | |
| Steven L. Sample | |||
| Chief Executive Officer and Principal Financial Officer | |||