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
      1934For
      the quarterly period ended September 30,
      2009r
              TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACTFor
      the transition period from __________________ to
  ______________
 
 Commission
file number: 1-14088
 
 Acacia
Automotive, Inc.
 (Exact
name of small business issuer as specified in its charter)
 
 Texas
              75-2095676(State
      or other jurisdiction of incorporation or organization)
              (IRS
      Employer Identification No.)3512 E. Silver Springs Blvd. -
      #243  Ocala, FL
              34470(Address
      of principal executive
      offices)
              (Zip
      Code)
 
 (352)
502-4333
 (Registrant's
telephone number)
 
 
 (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 September 30, 2009:  12,062,524.













PART
I - FINANCIAL INFORMATION





Item
1. Financial Statements





ACACIA
AUTOMOTIVE, INC.


BALANCE
SHEETS





September
      30,
            
            
            December
      31,2009
            
            
            2008(Unaudited)
            
            
            (Audited)ASSETSCurrent
      AssetsCash
            
            $
            12,554
            
            
            $
            5,586Certificate
      of Deposit (Restricted)
            
            
            151,157
            
            
            
            157,255Accounts
      receivable
            
            
            542,275
            
            
            
            236,524Due
      from Stockholder
            
            
            17,192
            
            
            
            -Inventory
      repurchases
            
            
            -
            
            
            
            -Deposits
      and prepaid expense
            
            
            5,566
            
            
            
            3,481Total
      Current Assets
            
            
            728,744
            
            
            
            402,846PROPERTY
      AND EQUIPMENT, net of accumulated depreciation of $79,699and
      $52,103, for 2009 and 2008 respectively
            
            
            190,842
            
            
            
            172,346OTHER
      ASSETSGoodwill
            
            
            427,929
            
            
            
            427,929Customer
      list and Non-Compete Agreement, net of amortization of$350,509
      and $255,850, for 2009 and 2008 respectively
            
            
            290,625
            
            
            
            385,284Total
      Other Assets
            
            
            718,554
            
            
            
            813,213Total
      Assets
            
            $
            1,638,140
            
            
            $
            1,388,405LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesCash
      overdraft
            
            $
            69,539
            
            
            $
            42,893Accounts
      payable
            
            
            571,830
            
            
            
            277,561Accrued
      liabilities
            
            
            368,506
            
            
            
            404,374Line
      of credit
            
            
            254,000
            
            
            
            275,000Capital
      lease obligations, current portion
            
            
            12,288
            
            
            
            14,619Due
      to Stockholder
            
            
            -
            
            
            
            -Total
      Current Liabilities
            
            
            1,276,163
            
            
            
            1,014,447NONCURRENT
      LIABILITIESCapital
      lease obligations, less current portion
            
            
            73,067
            
            
            
            16,900Total
      Liabilities
            
            
            1,349,230
            
            
            
            1,031,347Stockholders'
      EquityCommon
      Stock, $0.001 par value, 150,000,000shares
      authorized; 12,062,524shares
      issued and outstanding, respectively
            
            
            12,062
            
            
            
            12,062Paid-In-Capital
            
            
            11,143,712
            
            
            
            11,095,181Retained
      Deficit
            
            
            (10,866,864
            )
            
            
            (10,750,185
            )Total
      Stockholders' Equity
            
            
            288,910
            
            
            
            357,058Total
      Liabilities and Stockholders' Equity
            
            $
            1,638,140
            
            
            $
            1,388,405





The
accompanying notes are an integral part of these financial
statements.





F-1





ACACIA
AUTOMOTIVE, INC.


STATEMENTS
OF OPERATIONS


(UNAUDITED)





Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      30,
            
            
            September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008REVENUES
            
            $
            371,166
            
            
            $
            387,343
            
            
            $
            1,169,182
            
            
            
            909,400OPERATING
      EXPENSESCost
      of fees earned
            
            
            126,313
            
            
            
            44,629
            
            
            
            334,929
            
            
            
            193,220Employee
      Compensation
            
            
            73,676
            
            
            
            502,191
            
            
            
            266,952
            
            
            
            1,454,606General
      AndAdministrative
      Expenses
            
            
            233,393
            
            
            
            210,739
            
            
            
            535,754
            
            
            
            652,075Depreciation
      and amortization
            
            
            22,834
            
            
            
            53,051
            
            
            
            132,617
            
            
            
            165,521Operating
      Loss
            
            
            (85,050
            )
            
            
            (423,267
            )
            
            
            (101,070
            )
            
            
            (1,556,022
            )Interest
      Income
            
            
            434
            
            
            
            667
            
            
            
            1,653
            
            
            
            3,515Interest
      Expense
            
            
            (2,858
            )
            
            
            (3,330
            )
            
            
            (14,624
            )
            
            
            (9,380
            )Gain
      (loss) on disposal of asset
            
            
            872
            
            
            
            958
            
            
            
            (2,638
            )
            
            
            (13,625
            )Net
      Loss Before Income Taxes
            
            
            (86,602
            )
            
            
            (424,972
            )
            
            
            (116,679
            )
            
            
            (1,575,512
            )Income
      Tax Expense
            
            
            –
            
            
            
            -
            
            
            
            -
            
            
            
            -NET
      LOSS
            
            $
            (86,602
            )
            
            $
            (424,972
            )
            
            $
            (116,679
            )
            
            $
            (1,575,512
            )BASIC
      AND FULLY DILUTEDLOSS
      PER SHARELoss
      Per Share
            
            $
            (0.01
            )
            
            $
            (0.04
            )
            
            $
            (0.01
            )
            
            $
            (0.13
            )Weighted
      Average NumberOf
      Common Share Outstanding
            
            
            12,017,524
            
            
            
            11,997,524
            
            
            
            12,017,524
            
            
            
            11,997,524





The
accompanying notes are an integral part of these financial
statements.




F-2




ACACIA
AUTOMOTIVE, INC.


STATEMENT
OF CASH FLOWS


(UNAUDITED)








Nine
      Months Ended September 30,2009
            
            
            2008Cash
      Flow From Operating ActivitiesNet
      Loss
            
            $
            (116,679
            )
            
            $
            (1,575,512
            )Adjustment
      to reconcile net loss to net cashused
      in operating activitiesDepreciation
            
            
            132,617
            
            
            
            165,521Loss
      on disposal of asset
            
            
            2,638
            
            
            
            13,625Write-down
      of software
            
            
            -
            
            
            
            (25,000
            )Stock
      options and warrants issued for services
            
            
            48,531
            
            
            
            964,314Changes
      in Operating Assets and LiabilitiesInventory
            
            
            -
            
            
            
            (10,160
            )Accounts
      Receivable
            
            
            (305,751
            )
            
            
            53,686Employee
      Receivables
            
            
            -
            
            
            
            294Deposits
      and Prepaid Expense
            
            
            (2,085
            )
            
            
            28,862Accounts
      Payable
            
            
            320,915
            
            
            
            17,200Accrued
      Liabilities
            
            
            17,968
            
            
            
            219,950Due
      to/from Stockholder
            
            
            (17,192
            )
            
            
            (28,787
            )Net
      Cash Flow Provided by (Used) in Operating Activities
            
            
            80,962
            
            
            
            (176,007
            )Cash
      Flow Provided (Used) by Investing ActivitiesRestricted
      CD interest earned (withdrawn)
            
            
            6,098
            
            
            
            -Proceeds
      from sale of equipment
            
            
            33,077
            
            
            
            27,261Purchase
      of equipment
            
            
            (92,169
            )
            
            
            (21,360
            )Net
      Cash Flow Provided (Used) by Investing Activities
            
            
            (52,994
            )
            
            
            5,901Cash
      Flow Provided by (Used) from Financing ActivitiesBorrowings
      and repayments on line of credit
            
            
            (21,000
            )
            
            
            70,100Sale
      of Common Stock
            
            
            -
            
            
            
            130,000Cash
      Flow Provided by (Used) from Financing Activities
            
            
            (21,000
            )
            
            
            200,100Change
      in Cash
            
            
            6,968
            
            
            
            29,994Cash
      at Beginning of Period
            
            
            5,586
            
            
            
            203,077Cash
      at End of Period
            
            $
            12,554
            
            
            $
            233,071Supplemental
      Cash Flow DisclosuresCash
      paid during year for:Interest
            
            $
            14,624
            
            
            $
            9,380Non-Cash
      Investing and Financing ActivitiesAdditional
      paid-in capital
            
            $
            48,531
            
            
            $
            964,314Legal
      fees payable
            
            
            (930)
            
            
            
            -Accounts
      payable
            
            
            -
            
            
            
            802,929Officer
      salaries payable
            
            
            (11,214
            )
            
            
            (926,409
            )Directors
      fees payable
            
            
            (36,387
            )
            
            
            (37,905
            )$
            -
            
            
            $
            -





The
accompanying notes are an integral part of these financial
statements.





F-3




ACACIA
AUTOMOTIVE, INC.


NOTES
TO FINANCIAL STATEMENTS


SEPTEMBER
30, 2009 AND 2008





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 in exchange for the conversion of certain
preferred stock, for certain non-compete agreements, and with the purchase of
Common shares of stock in conjunction with certain of its debt and equity
financings.  The Company has also issued options to purchase Common
stock to directors, employees, and certain others providing services to the
Company. The Company records each of the securities issued on a fair value basis
up to the amount of the proceeds received.  The Company estimates the
fair value of the options and 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
as well as the expectation of future dividends, the Company’s estimated stock
price volatility, and the contractual term of the options and
warrants.  The value ascribed to the options issued under the
Company’s Stock Option Program and warrants issued 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.   The Company also owns 100% of the voting stock of Acacia
Chattanooga Vehicle Auction, Inc.  Following December 26, 2009, the
Company’s consolidated financial statements will include the accounts of the
Company, Acacia Augusta Vehicle Auction, Inc., and Acacia Chattanooga Vehicle
Auction, Inc.   All significant intercompany accounts and
transactions are eliminated in consolidation.  (See Note 3 –
Subsequent Events)


NOTE
2 – 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.




NOTE
3 – SUBSEQUENT EVENTS - BUSINESS COMBINATION
 
 On July
10, 2007, Acacia Automotive, Inc. (the “Company”) purchased certain assets and
liabilities of Augusta Auto Auction, Inc. through its wholly-owned subsidiary
Acacia Augusta Vehicle Auction, Inc., which operates an auto auction in the
Augusta, Georgia area from a leased facility located in North Augusta, South
Carolina.  The purchase was accounted for under the purchase method of
accounting.  The results of operations for the Acacia Augusta Vehicle
Auction, Inc. business are included in these financial statements from the date
of the purchase. That auction also does business under the tradename Augusta
Auto Auction, Inc.
 
 On August
31, 2009, the Company executed documents to purchase certain assets of
Chattanooga Auto Auction Limited Liability Company through its wholly-owned
subsidiary Acacia Chattanooga Vehicle Auction, Inc., which will operate the
auction from a leased facility in Chattanooga, Tennessee.  The
transfer of assets will occur on December 26, 2009, as the Company
simultaneously commences operations at that location and will be accounted for
under the purchase method of accounting.  The results of operations
for the Acacia Chattanooga Auto Auction, Inc. business will be included in
financial statements after that date.  That auction will also do
business under the tradename Chattanooga Auto Auction, Inc.




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





The
Company believes that vehicle auctions have historically shown that units they
sell do not generally decline substantially during a mild recession. We believe
this is attributable to, among other facts, that in a recession the overall
demand for used vehicles does not decline significantly, or at least declines
less than new car production would indicate, because some consumers that would
otherwise purchase new vehicles purchase used vehicles, acquiring vehicles
traditional purchasers of used vehicles may otherwise forgo or
delay.  For those reasons and more, we believe 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. However, the current recession has proven to be quite severe, and has
resulted in a greater loss of units for sale or sold at most auto auctions than
in recent recessionary periods, even though our auction operations have actually
seen an increase in volumes in most instances.
 
 Wholesale
automotive markets remain suppressed throughout the entire U.S. as compared to
previous year’s levels, although not so much as the retail markets. While lower
volumes of vehicles are generally available to the wholesale markets as compared
to the prior year, the constrictions are not sufficient to preclude
profitability, especially at auctions.  During previous periods of
economic downturns and recession, the automotive auction industry has
traditionally fared well compared to many other industries.
 
 As is
common with other auto auctions, the Company has experienced and expects to
continue to experience fluctuations in its quarterly results of operations due
to a number of factors, many of which are beyond the Company's control and which
are common to the auto auction industry. Generally, the volume of vehicles sold
at the Company's auctions is highest in the first and second calendar quarters
of each year and slightly lower in the third quarter. Fourth quarter volume of
vehicles sold is generally lower than all other quarters. This seasonality is
affected by several factors including weather, the timing of used vehicles
available for sale from selling customers, holidays, and the seasonality of the
retail market for used vehicles, which affect the demand side of the auction
industry. Used vehicle auction volumes tend to decline during prolonged periods
of winter weather conditions. Among the other factors that have in the past
and/or could in the future affect the Company's operating results are: general
business conditions; trends in new and used vehicle sales and incentives,
including wholesale used vehicle pricing; economic conditions including fuel
prices and interest rate fluctuations; trends in the vehicle remarketing
industry; the introduction of new competitors; competitive pricing pressures;
and costs associated with the acquisition of businesses or technologies. As a
result of the above factors, operations are subject to significant variability
and uncertainty from quarter to quarter, and revenues and operating expenses
related to volume will fluctuate accordingly on a quarterly basis.


Operating
Results of the Auction





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 and 2008 were those operations,
and those operations remain our only operations as of the close of the third
quarter of 2009.  On August 31, 2009, the Company executed agreements
to acquire the assets of Chattanooga Auto Auction, limited Liability
Company.  From September 1 until December 26, 2009, the Company will
manage the operations of the auction under a separate Management Agreement, and
the assets and ownership of the auction will transfer on December 26,
2009.  Details of the transaction are contained in an 8-K filed on
September 16, 2009.  With the acquisition of Chattanooga Auto Auction,
the Company will have two operating units in 2010, and continues to seek other
acquisition candidates. (See Note
3 to Financial Statements)
 
 Three
months ended September 30, 2009
  The
Auction earned an operating profit of $77,698 for the three months ended
September 30, 2009. Of that profit, $19,784 represented non-cash expenses for
amortization and depreciation, and interest expense of $2,078, resulting in a
positive cash flow for the period. The third quarter of 2009 saw a substantial
increase in the number of vehicles entered at our Augusta Auto Auction operation
versus the prior year, but more notable was a similar increase in the number of
units sold.  While the auction sold more vehicles during the period,
total revenues were off 4.17%.  Comments in the 10-Q for Q2 2009
indicated that more than $78,000 in charges were taken in Q2 2008 as a result of
uncollected receivables associated with problems with the Vemark software that
was discontinued and replaced with the ASI software the following quarter. While
those charges were recovered in Q3 of 2008 and may appear to indicate higher
revenues in that quarter, they were not actually part of the operating revenues
for that period.  Thus, by comparison, there appears to be a decline
in quarter-over-quarter revenues in the two periods when in fact there was a
gain in operating revenues.  Accounting for the recovered receivables
adding to the Q3 2008 revenue, the Company actually had an adjusted net
operating increase in revenues in Q3 2009 of approximately $80,000 versus the
previous year. The Company also attributes some variations to a lower average
selling price of units with attendant lower sale fees during the period,
partially because it instituted a weekly public auction of lesser-priced
vehicles, as well as the use of some fee-based promotional considerations to
increase activity during the current economic downturn.
 1
 
 The chart
below indicates a comparison of units entered and sold, conversion rates, and
total revenues generated in Q3 2009 versus the same period in 2008 without
adjusting for the recoveries made in Q3 of 2008 as noted above.  Also
shown is comparison of actual buyer and seller fee revenues for the
period.


2009Units
      Entered vs. Q3 2008
            
            
            +61.5
            %Units
      Sold vs. Q3 2008
            
            
            +32.0
            %Conversion
      Rate Q3 2008
            
            
            57.60
            %Conversion
      Rate Q3 2009
            
            
            47.10
            %Change
      in Total Revenues vs. Q3 2008  (Including Q3 2008 Recovery of
      Previous Charges)
            
            
            -4.17
            %Change
      in Actual Buyers and Sellers Fee Revenues vs. Q3 2008
            
            
            +32.0
            %




The third
quarter reflected a lower conversion rate than in the same period of 2008, but
the Company anticipated this as the typical result of a higher number of units
entered for sale and a weaker general economy, as well as factoring in a lower
conversion rate for vehicles offered at its weekly public auctions implemented
earlier this year. Considering the generally-weakening economic conditions,
reduced productivity at automotive manufacturers, tightening credit and higher
consumer interest rates, and other negative pressures affecting trade in
general, the Company considers any increase in units entered and sold for the
period to be noteworthy, and such a substantial increase to be
exceptional.
 
 Nine
months ended September 30, 2009
 
 The
Auction earned an operating profit of $297,000 for the nine months ended
September 30, 2009. Of that profit, $126,000 represented non-cash expenses for
amortization and depreciation, and interest expense of $12000, resulting in a
substantial positive cash flow for the period. Revenues for the first nine
months of 2009 were $1,168,582, compared to $907,497 in the same period of 2008,
indicating an increase of 28.7% year-over-year. By reference, the auction
generated $645,712 in revenues in the first nine months of 2007, six of those
months being prior to its acquisition by the Company in July of that
year.
 
 With
respect to our Augusta operations in 2009, our total employee compensation is
averaging approximately $111,700 per quarter and other general and
administrative expenses are averaging approximately $128,000 per quarter. Cost
of sales, absent charges for and wages included above, are approximately $50,000
per quarter and depreciation and amortization is about $42,100 per quarter
leaving an average operating profit, assuming average revenues, of about $99,000
per quarter. Our interest expense at our Augusta operation is about $4,000 per
quarter.  The auction experienced additional expenses in towing to our
premises and then and arranging on our lot over 100 inoperative units consigned
as trade-ins from the Cash for Clunkers program at the end of the quarter, but
will not receive the benefit of revenues from sales of those units to offset
those expenses until they are offered and sold in the fourth quarter of the
year.
 
 2009Units
      Entered vs. Nine Months 2008
              
              
              +49.9
              %Units
      Sold vs. Nine Months 2008
              
              
              +28.7
              %Conversion
      Rate Nine Months 2008
              
              
              57.55
              %Conversion
      Rate Nine Months 2009
              
              
              49.41
              %Change
      in Total Revenues Nine Months 2009 vs. 2008 - Including Q3 2008
      Recovery of Q2 Charges
              
              
              +28.8
              %Change
      in Actual Buyers and Sellers Fee Revenues vs. Nine Months
    2008
              
              
              +20.3
              %
 
 The
conversion rate, while declining during the comparative periods, is also
consistent with a national trend believed by management to be related to a
slowing economy in the United States. We do believe that the current economic
environment could inhibit our present growth based upon (i) the negative
influences of higher consumer automotive interest rates, tighter credit, and
higher gasoline prices on the automotive industry, (ii) the unwillingness of
consumers to spend as freely on major purchases in an uncertain economy, and
(iii) the other wide-ranging negative impacts of a troubled general economy. In
addition, it is not uncommon for conversion rates to decline as volumes
increase.


Discussion
Regarding the Parent Company’s Operating Results




Three
months ended September 30, 2009




The
auction’s Q3 profit was the significant contributing component in reducing the
consolidated Q3 net loss to the parent company of $86,602, compared to a net
loss of $424,972 in Q3 of 2008. The Q3 consolidated financial results also
include $32,354 in non-cash charges for the issuance of Common stock as grants
or options for employee or outside director compensation, for warrants, and
$3,050 in additional depreciation and amortization by the parent company for a
consolidated total of $22,834 in that category.




2





Nine
months ended September 30, 2009


Our
revenues for the first nine months of 2009 were $1,169,182, or approximately
28.8% greater than the same period in 2008. This increase in revenue is
attributable to an increase in the number of units sold and the attendant
greater fees. The second quarter was bolstered by an infusion of additional
sales and fee revenues from a special offering of units for a vehicle
manufacturer and from a liquidation sale for the United States Bankruptcy Court
in disposing of the automotive assets of a bankrupt local auto
dealer.  Other sales and revenues in the period were up substantially
as well, in part because the Company’s Augusta Auto Auction unit also
implemented a weekly public auction in 2009, further adding to the units entered
and sold and the fee revenues from that additional volume.  It had
offered several public auto auctions in Q3 and Q4 of 2008 in preparation for the
weekly rollout of those services in 2009.
 
 We incur
expenses at the corporate level in addition to those incurred at our operations
at the Augusta auction.  Total corporate expenses for the period were
$413,696, including (approximately) legal and accounting fees of $57,000, office
rental costs of approximately $7,900, non-cash amortized warrant and option
expenses of $48,500, executive compensation of $186,000, other wages of $5,000.
The corporation also incurred amortization and depreciation expenses of $6,300,
interest expense of $2,400, and other G&A expense for the period was
approximately $100,000. For the nine months ended September 30, 2009 we incurred
a consolidated loss of $116,679 versus a loss of $1,575,512 for he same period
in 2008.  The Company generated a cash flow from operating activities
of approximately $81,000 and a total net cash flow of approximately $7,000
during the period.




Liquidity
and Need for Additional Capital


We look
for our operations to provide the cash flow and cash return on our
investment.  Presently, the cash flow from our Augusta operation is
sufficient to support those operations in the current manner, although we
anticipate having to move to a different, larger location as described
below.  Nonetheless, our current operations do not provide sufficient
cash flow to cover fully our corporate activity, essentially our executive
officers, administrative overhead, and overhead that includes the cost of
lawyers and accountants required to be publicly held.  We have
recently entered into a contract to acquire an auction in Chattanooga,
Tennessee, being an auction that is larger than the Augusta auction and one hose
operations we believe will also generate cash flow.
 
 The
Company will ultimately be forced to seek a larger operating facility for its
auction operations in the greater Augusta area, since the auction cannot
accommodate the anticipated growth at its present location.
 
 The
Company’s liquidity in 2007 and 2008 was provided through the closing of private
placements of common stock in the amounts of $1,112,500 and $130,000
respectively, and from the Company's auction operations since July 10, 2007.
Presently, the Company’s liquidity is supplemented by a $300,000 line of credit
with Wachovia Bank, N.A.  Although the Company presently has a
certificate of deposit with the same bank of just over $150,000, this line of
credit is used to cover some instances in which payments to dealers selling
vehicles through the auction exceeds collected payments for those
vehicles.  The Company anticipates increasing the size of the
available line as its sales volume grows.  The bank charges an
interest rate on the line of credit equal to prime plus 1.5% on the outstanding
daily balance, if any.  The line of credit is secured by all of the
Company’s deposits at the bank.
 
 Frequently,
when we hold an auction near the end of a quarter, our receivables and payables
will be large compared to prior quarters or as a ratio of receivables or
payables to revenues for that quarter and the other
quarters.  Receivables and payables for a given auction are
substantially liquidated within days of the auction process, but appear
distorted when occurring close to the end of an accounting period.  We
held an auction on the last day of the third quarter of this year, resulting in
this same situation as identified above.
 
 The
Company is currently engaged in its plan of seeking to grow through acquisitions
as well as through organic means.  To succeed in doing so, the Company
will require additional capital, anticipated to be through sale of Common
Stock.




Item
4T. Controls and Procedures




Management’s
Report on Internal Control over Financial Reporting




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.




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f).  Under the supervision and with the participation of our
management, particularly our chief executive officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting based on
the framework set forth in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).




3





Changes
in Internal Control over Financial Reporting




In the
course of conducting our audit for the fiscal year 2008, our auditor, Killman,
Murrell & Company, P.C. indicated that we have three material
weaknesses material weaknesses, although it did not identify to us any report
that necessitated restatement: (i) Our reconciliations and account analysis is
not performed in a timely manner because we do not have full time financial
accounting personnel; (ii) Our sales and accounts receivable software is not
integrated with our financial accounting software and our accounting personnel
do not perform routine reconciliations of data entered on the sales reporting
system to appropriate control accounts in the general ledger system with
reconciliations made in the aggregate without individual account scrutiny
regardless of materiality; and (iii) we made several adjusting entries relating
to the recording of options and the accrual of certain liabilities.




During
most of fiscal 2008, the Company had no full time financial accounting
personnel.  As such many reconciliations and account analysis were not
performed in a timely manner. However, contemporaneous to year-end, the Company
added a certified public accountant with financial reporting experience to its
staff.  The Company is also actively seeking a qualified CFO to join its
executive team, and feels that these additions will mitigate this
issue.





As with
many vehicle auction companies of its size, the Company’s sales and accounts
receivable software is not integrated with its financial accounting
software.  In 2008, the accounting personnel did not properly perform
routine reconciliations of the results of the data entered on the sales
reporting system to the appropriate control accounts in the general ledger
system.  As such, certain reconciliations to the control accounts were made
in the aggregate without individual account scrutiny, regardless of materiality.
With the addition of the accountant, the Company will require reconciliations of
the control accounts with each accounting period close.




The auditors proposed significant
adjusting entries to both the subsidiary and parent companies that comprise the
consolidated reporting entity. These entries were principally the result of
analyzing the Company’s recording of options and the accrual of certain
liabilities.  With the addition of the accountant, the Company will perform
this analysis on no less than a quarterly basis.




4








PART
II OTHER INFORMATION




Item
5. Other Information.




None





































5






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.Dated:
      November 16, 2009
            By:
            /s/ Steven L.
      SampleSteven
      L. SampleChief
      Executive Officer and Principal Financial Officer







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