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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2010

¨	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 333-137755

LOGO

General Automotive Company

(Exact name of small business issuer as specified in its charter)

Nevada

20-3893833

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

5422 Carrier Drive, Suite 309 Orlando, FL 32819

(Address of principal executive offices)

407-363-5633

(Issuer’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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 18,354,417 common shares as of August 16, 2010.

TABLE OF CONTENTS


Item 1.	Financial Statements	3
	Consolidated Balance Sheet at June 30, 2010 (unaudited) and December 31, 2009 (audited)	3
	Consolidated Statements of Operations – Three and six months ended June 30, 2010 and 2009 (unaudited)	4
	Consolidated Statement of Shareholder’s Deficit - Six months ended June 30, 2010 (unaudited)	5
	Consolidated Statements of Cash Flows – Six months ended June 30, 2010 and 2009 (unaudited)	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 4T.	Controls and Procedures	17

Item 6.	Exhibits	18
	Signatures	19

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

GENERAL AUTOMOTIVE COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS


	June 30, 2010			December 31, 2009
	(Unaudited)			(Audited)
Assets
Current assets:
Cash	$	173,629		$	3,701
Accounts receivable, net		1,439,838			1,424,711
Inventories		554,034			224,333
Other current assets		367,972			506,740

Total current assets		2,535,473			2,159,485
Property and equipment, net		22,540			26,099
Other assets, net		195,459			188,434

	$	2,753,472		$	2,374,018


Liabilities and Shareholders’ Deficit
Liabilities
Current liabilities:
Accounts payable	$	1,619,597		$	1,246,666
Line of credit		1,153,853			1,177,686
Accrued expenses		463,640			299,167
Notes payable -current		106,842			6,898
Notes payable to related parties		510,000			460,000

Total current liabilities		3,853,932			3,190,417


Long-term liabilities		361,778			120,002

Shareholders’ deficit:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding		—			—

Common stock; $0.001 par value; 90,000,000 shares authorized, 18,354,417 issued and outstanding at June 30, 2010 and 23,854,417 issued and outstanding at December 31, 2009		18,354			23,854
Additional paid-in capital		10,316,486			10,522,312

Accumulated deficit		(11,797,078	)		(11,482,567	)

Total shareholders’ deficit		(1,462,238	)		(936,401	)

	$	2,753,472		$	2,374,018

See accompanying notes to consolidated financial statements

ITEM 1. Financial Statements (continued)

GENERAL AUTOMOTIVE COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Revenues	$	2,798,772		$	3,373,999		$	5,329,355		$	6,456,865
Costs of goods sold		2,448,729			2,952,828			4,718,748			5,605,371

Gross profit		350,043			421,171			610,607			851,494


Expenses:
Selling, general and administrative		351,732			557,398			833,590			1,059,240
Stock-based compensation		2,538			—			5,076			—

Total expenses, net		354,270			557,398			838,666			1,059,240

Loss from operations		(4,227	)		(136,227	)		(228,059	)		(207,746	)

Other income (expense):
Interest expense		(50,581	)		(288,135	)		(86,208	)		(304,161	)
Other, net		—			5,836			—			5,836

Total other expense, net		(50,581	)		(282,299	)		(86,208	)		(298,325	)


Net loss	$	(54,808	)	$	(418,526	)	$	(314,266	)	$	(506,071	)


Loss per share
Basic and diluted:
Continuing operations	$	(0.00	)	$	(0.03	)	$	(0.01	)	$	(0.03	)
Discontinued operations		—			—			—			—

Basic and diluted loss per share	$	(0.00	)	$	(0.03	)	$	(0.01	)	$	(0.03	)


Weighted average number of common shares outstanding:
Basic and diluted		20,554,417			15,854,417			21,104,417			15,841,084

See accompanying notes to consolidated financial statements

ITEM 1. Financial Statements (continued)

GENERAL AUTOMOTIVE COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIT (Unaudited)


	Common Stock					Additional Paid-in Capital			Accumulated Deficit			Total
	Shares		Amount			Additional Paid-in Capital			Accumulated Deficit			Total

Balance, December 31, 2009	23,854,417		$	23,854		$	10,522,312		$	(11,482,567	)	$	(936,402	)

Compensatory common stock options issued to employees							5,076						5,076

Warrants issued in connection with debt	—			—			3,598						3,598

Recession of common stock options issued to Bryd Financial Group	(2,500,000	)		(2,500	)		(97,500	)					(100,000	)

Recession of common stock options issued to Emerging Markets Consulting	(3,000,000	)		(3,000	)		(117,000	)					(120,000	)

Net loss										(314,266	)		(314,266	)

Balance, June 30, 2010	18,354,417		$	18,354		$	10,316,486		$	(11,797,078	)	$	(1,462,238	)

See accompanying notes to consolidated financial statements

ITEM 1. Financial Statements (continued)

GENERAL AUTOMOTIVE COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Six months ended June 30,
	2010			2009
Cash flows from operating activities:
Net loss	$	(314,266	)	$	(506,071	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		3,559			4,000
Stock-based compensation		5,076			—
Recission of common stock issued services		(220,000	)		—

Decrease (increase) in assets:
Accounts receivable		(15,127	)		(461,478	)
Inventories		(329,947	)		158,011
Other current assets		138,768			146,911
Increase (decrease) in liabilities:
Accounts payable		372,930			(226,470	)
Accrued expenses		164,471			38,452

Decrease in other assets		(194,534	)		(846,645	)


Cash flows from investing activities:
Purchase of property, plant and equipment		—			—
Decrease in other assets		(7,024	)		(141,307	)

Net cash provided by investing activates		(7,024	)		(141,307	)


Cash flows from financing activities:
Net borrowings under lines of credit		(23,832	)		300,209
Borrowings on notes payable		541,720			—
Warrants issued issuance of debt		3,598			260,000
Borrowings (payments) on notes payable to related parties		(150,000	)		300,000

Net cash provided by financing activities		371,486			860,209


Net increase (decrease) in cash		169,928			(127,743	)
Cash, beginning of year		3,701			151,482

Cash, end of period	$	173,629		$	23,739


Supplemental disclosure of cash flow information:
Interest paid	$	82,610		$	28,135

Supplemental schedule of noncash financing activities:
Common stock issued for services	$	—		$	40,500

See accompanying notes to consolidated financial statements

ITEM 1. Financial Statements (continued)

GENERAL AUTOMOTIVE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Consolidated Financial Statements. In the opinion of management, the accompanying consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position of General Automotive Company and its subsidiary (collectively, the “Company”) at June 30, 2010 and December 31, 2009 and the results of its (i) operations for the three month periods ended June 30, 2010 and 2009 and (ii) cash flows for the three month periods ended June 30, 2010 and 2009. The financial information included herein is taken from the books and records of the Company.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2009. The results of operations for the three month period ended June 30, 2010 are not necessarily indicative of the operating results for the full year.

Merger and Offering. The Company completed a reverse merger into a publicly traded shell company on February 22, 2008 (the “Merger”) and reported the Merger and the related transactions on a current report on Form 8-K, filed February 28, 2008.

Going Concern. The Company incurred losses in the current quarter of $54,808 and has an accumulated deficit of $11,797,078 at June 30, 2010. The Company’s current liabilities exceeded its current assets by $1,318,459 as of June 30, 2010. Additionally the Company is reporting a shareholders’ deficit of $1,462,238 as of June 30, 2010 as compared to a shareholders’ deficit of $936,401 at December 31, 2009. The Company the increase in shareholders’ deficit to delivery rescheduling practices in a larger customer’s overall supply chain. New sales initiatives and product lines are being developed to support the expansion of our core customer bases. New Asian suppliers are being identified and qualified to accomplish significant cost savings that is allowing the Company to offer reduced prices to its current customer base for larger quantity orders while increasing gross profit margins. Additionally the Company decided to eliminate the continuing losses from one of its subsidiaries, Global Parts Direct, Inc. (“GPD”), by the sale of its assets which occurred on November 14, 2008. Management believes that it will be successful in its plans to return the Company to profitability; however there can be no assurances that we will be able to obtain additional financing, increase revenues and improve gross margins in order to be able to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. The financial statements do not include any adjustments that might result if the Company was forced to discontinue its entire operations.

Revenue. Revenue from product sales is recognized when the product is shipped and title to the product passes.

Allowance for Uncollectable Accounts. The Company maintains current receivable amounts and regularly monitors and assesses its risk of not collecting amounts owed to it by customers. This evaluation is based upon an analysis of amounts currently and past due along with relevant history and facts particular to the customer. Based upon the results of this analysis, the Company records an allowance for uncollectible accounts. This analysis requires the Company to make significant estimates and as such, changes in facts and circumstances could result in material changes in the allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

Inventories. Inventories consisting of primarily finished automotive parts are stated at the lower of cost or market, with cost being determined by the first-in, first-out (FIFO) method.

Property, Plant and Equipment. Property, plant and equipment is stated at cost, less accumulated depreciation. Expenditures for additions and improvements, which extend the life of the assets, are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Major replacements and improvements are capitalized. Gains and losses resulting from sales or retirements are recorded as incurred, at which time the cost and accumulated depreciation are removed from the accounts. Depreciation is provided using the straight-line method over the following average estimated useful lives of the assets: Electronic data processing equipment – 5 years and Furniture and Fixtures – 7 years.

Stock-based compensation. Stock-based compensation represents the cost related to common stock granted to employees and related parties of the Company. The Company measures stock-based compensation cost at the date the common stock was issued, based on the quoted market price of the Company’s common stock and recognizes the cost as expense over the requisite service period. The expense is recorded in selling, general and administrative expenses in the Consolidated Statement of Operations.

The Company records deferred tax assets for awards that result in deductions on the Company’s income tax returns, based on the amount of compensation cost recognized and the Company’s statutory tax rate in the jurisdiction in which it will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on the Company’s income tax return are recorded in Additional Paid-In Capital.

Income Taxes. Deferred income taxes are recognized for the tax consequences in future years for 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 applicable to the period in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Concentration of Credit Risk. The Company maintains its cash and cash equivalents in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.

Use of Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Subsequent Events. In May 2009, the FASB established general accounting standards and disclosure for subsequent events. The Company adopted ASC 855, Subsequent Events (formerly referenced as SFAS No. 165, Subsequent events) (“ASC 855”), during the third quarter ended September 30, 2009. The Company has evaluated subsequent events through the date and time the financial statements were issued on August 16, 2010.

Financial instruments. During the first quarter of fiscal 2009, the Company adopted ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) (formerly referenced as SFAS No. 157, Fair Value Measurements) to value its financial assets and liabilities. The adoption of ASC 820 did not have a significant impact on the Company’s results of operations, financial position or cash flows. ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be paid by an external party for an asset or liability (exit price). ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs may be used to measure fair value:

•

Level 1 – Active market provides quoted prices for identical assets or liabilities;

•

Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable with market data; and

•

Level 3 – Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2010. The Company uses the market approach to measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments which include cash, accounts receivables, inventories, related party notes payable, accounts payable and accrued expenses are valued using Level 1 inputs and are immediately available without market risk to principal. Fair values were assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company’s line of credit and notes payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value. The Company does not have any Level 2 or Level 3 assets and liabilities.

ASC 820 is effective for fiscal years beginning after November 15, 2007, except for non-financial assets and liabilities recognized or disclosed at fair value on a non-recurring basis, for which the effective date is fiscal years beginning after November 15, 2008. The Company adopted ASC 820 for non-financial assets that are recognized or disclosed on a non-recurring basis on July 1, 2009 in accordance with FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). The adoption of ASC 820 for non-financial assets that are recognized or disclosed on a non-recurring did not have a significant impact on the Company’s results of operations, financial position or cash flows.

Recent accounting pronouncements.

In December 2007, the FASB issued Statement 141R, “Business Combinations” (SFAS 141R-ASC 805-10), which applies to all transactions or other events in which an entity obtains control of one or more businesses, including those sometimes referred to as “true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration. This statement replaces FASB Statement No. 141 and applies to all business entities, including mutual entities that previously used the pooling-of-interests method of accounting for some business combinations. SFAS 141R (ASC 805-10) is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The Company believes that adoption of the FAS 141R (ASC 805-10) will have an effect on our operating results with respect to future acquisitions, if any.

In February 2008, the FASB issued FASB Staff Position 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (“FSP 157-1”). FSP 157-1 amends SFAS 157 to remove certain leasing transactions from its scope. In addition, on February 12, 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157, which amends SFAS 157 by delaying its effective date by one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. This pronouncement was effective upon issuance. We have deferred the adoption of SFAS 157 with respect to all non-financial assets and liabilities in accordance with the provisions of this pronouncement. On January 1, 2009, SFAS 157 will be applied to all other fair value measurements for which the application was deferred under FSP FAS 157-2. We are currently assessing the impact SFAS 157 will have in relation to non-financial assets and liabilities on our consolidated financial statements. SFAS 157 is now ASC 820-10.

2 Discontinued Operations. During the third quarter of 2008, the board of directors decided to discontinue the operations of GPD and sell selected assets of this operation. A continuing reduction in the demand for the type of electronic products that were provided by GPD during the prior year combined with customer pricing pressures and the inability to source low product quantities at favorable pricing resulted in this decision. The sale of selected assets of GPD was consummated on November 14, 2008, fundamentally at liquidation value resulting in a loss on disposal of $946,790 during the year ended December 31, 2008. The consolidated statement of operations for all prior periods has been reclassified to reflect the results of operations of this divested business as a discontinued operation.

3. Loss per Common Share. Common share equivalents of 20,554,417 at June 30, 2010 and 15,854,417 at June 30, 2009 representing outstanding warrants and options were not included in the computation of diluted earnings per share for the three month period ended June 30, 2010 and June 30, 2009 as their effect would have been anti-dilutive.

4. Debt. The Company’s wholly owned subsidiary, OES, operates under a revolving line of credit with a bank. The maximum borrowing under this OES Line is $2,000,000 and carries an interest rate of prime plus 1.0% (3.25% at June 30, 2010). The accounts receivable, inventory and other non-secured assets of OES secure the line. In addition, the OES Line is a note payable on demand, is subject to certain financial covenant ratios and was guaranteed by the Company. At June 30, 2010, the Company was not in default of the covenants agreements associated with the line of credit. At June 30, 2010, the outstanding balance of the OES Line was $1,153,853. Draws under these lines are limited to 85% of eligible accounts receivable and 50% of inventory.

On April 20, 2009 the Company secured a $300,000 loan from a related party. The principal was due and payable in full on May 5, 2009. As of June 30, 2010 $150,000 of the principal amount remains outstanding and accrued interest at an annual rate of 20% that is calculated based upon a 360-day year. Interest associated with this loan from a related party in the amount of $17, 167 has been recorded for the six months ending June 30, 2010.

During the quarter ended June 30, 2010, the Company entered into an additional 17 unsecured promissory note agreements with individuals, in principal amounts ranging from $5,000 - $40,000, that bear an annual interest rate of 12%, and require monthly payments of interest only totaling $2,450. Each promissory note matures in 24 month from the date of inception at which time the principal of the note is due and payable in full.

During the quarter ended March 31, 2010, the Company entered into unsecured promissory note agreements with 8 individuals, in principal amounts ranging from $10,000 - $50,000, that bear an annual interest rate of 12%, and require monthly payments of interest only totaling $2,000. Each promissory note matures in 24 month from the date of inception at which time the principal of the note is due and payable in full.

On February 8, 2010 the Company secured a $100,000 loan from a related party. The principal is due and payable in full on February 7, 2011. The principal accrues interest at an annual rate of 10% that is calculated based upon a 360-day year. Interest accrued and paid monthly. As of June 30, 2010, over a period of 6 months, interest in the amount of $3,889 has been recorded.

5. Common Stock and Equity Securities. On February 22, 2008, Global Automotive Supply, Inc. (“GAS”), merged with and into Utility Investment Recovery, Inc. (“UIR”), a public shell company. In connection with the Merger, UIR was the surviving corporation although GAS was the surviving operating entity. As a result of the Merger, UIR changed its name to General Automotive Company. The stockholders of GAS received the right to receive two (2) shares of the Company’s

common stock for each ninety-one (91) issued and outstanding shares of GAS common stock. As a result, at closing, in exchange for 100% of the outstanding capital stock of GAS, including 333,333 shares issued in connection with the conversion of a bridge loan, and 7,423,814 shares in connection with the conversion of related parties notes payable and accrued interest, the former shareholders of GAS received 8,778,112 shares of the Company’s common stock. Such holdings represented 55.7% of the outstanding common stock as of December 31, 2008.

At the time of the Merger, there were 3,919,789 shares of common stock outstanding in UIR, the shell company, after the cancellation of certain shares by several of the UIR shareholders. The certificates evidencing outstanding UIR shares were reissued as certificates for Company shares. Per board approved merger agreement each ninety-one (91) shares of GAS common stock issued and outstanding immediately prior to the closing of the merger was converted into the right to receive two (2) shares of the Company’s common stock.

Additionally, at the time of the Merger 266,667 warrants were issued to certain related parties that held $400,000 of GAS notes payable, which notes payable were converted into 533,333 shares of common stock as discussed in note 7 above. The warrants have a strike price of $2.00 per common share and expire three years from the date of issuance. The warrants also have a call feature, by which we can compel holders of the warrants to either exercise or surrender their warrants if our common stock trades at or above $3.50 for twenty (20) consecutive trading days. The fair market value of these warrants totaling $72,000 has been recorded as additional interest expense valued at the time of the grant using the Black-Scholes fair value estimation model.

During the twelve months ended December 31, 2008 the Company issued a total of 2,355,334 shares of common stock and 1,177,677 warrants to investors for net proceeds of $1,456,757 as a result of its private offerings which were exempt from registration under Rule 506 of Regulation D of the Securities Act of 1933, as amended. Each warrant has a strike price of $2.00 per common share and will expire three years from the date of issuance. The warrants also have a call feature, by which we can compel holders of the warrants to either exercise or surrender their warrants if our common stock trades at or above $3.50 for twenty (20) consecutive trading days. On July 30, 2008, the Company completed and closed an offering as reported on Form 8-K filed August 6, 2008. Pursuant to the Registration Rights Agreement executed in connection with this private placement, the Company was required to file a Registration Statement within 90 days of the closing date of the of the offering. The Company did not file this Registration Statement, and pursuant to the Registration Rights Agreement, the Company is required to pay to the stockholders party thereto liquidated damages in an amount equal to 0.5% of the stockholders’ investment, payable in cash or common stock valued at the original purchase price for the common stock, at the discretion of the Company, up to a maximum of 6% of the stockholders’ investment, for each month the Company continues to be in violation of this provision. As of May 12, 2009 the Company has not filed the Registration Statement and therefore has accrued penalties of approximately $62,000.

The Company also issued warrants to purchase 135,640 shares of common stock as commissions to the broker-dealer responsible for placing the shares and warrants in connection with this private offering. Each warrant has a strike price of $2.00 per common share and is exercisable for a period of five years from the date of issuance. Also in relation to the private offering, the Company issued options to a consultant to purchase 300,000 shares of common stock at an exercise price of $0.75 per share for a period of five years from the date of issuance.

On September 9, 2008 the Company issued a total of 18,182 shares of common stock and 18,182 warrants to investors for net proceeds of $9,200 as a result of its private offerings which were exempt from registration under Rule 506 of Regulation D of the Securities Act of 1933, as amended. Each warrant has a strike price of $0.50 per common share and will expire three years from the date of issuance. The warrants also have a call feature, by which we can compel holders of the warrants to either exercise or surrender their warrants if our common stock trades at or above $3.50 for twenty (20) consecutive trading days.

On December 11, 2008, the Company issued a total of 428,571 shares of common stock and 214,285 warrants to a related party in settlement of a $150,000 outstanding note payable. The warrants carry a strike price of $2.00 and expire three years from date of grant. The fair market value of these warrants totaling $15,000 has been recorded as additional interest expense valued at the time of the grant using the Black-Scholes fair value estimation model.

In addition to the warrants described above, during the year ended December 31, 2007 the Company also granted a lender warrants to purchase 60,000 shares of the Company’s common stock at an exercise price of $0.75 per share for a period of three years. This warrant also contains a “cashless” exercise provisions under which the holder of the warrant can exercise it using shares of the Company’s common stock. In accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled in the Company’s Own Stock,” (ASC 815-40) and the terms of the lender warrants, the fair value of these warrants was accounted for as a liability, with an offsetting reduction to the carrying value of the Company’s common stock. The warrant liability will be reclassified to equity upon exercise or expiration of the related warrants. The fair value of the lender warrants on the grant date was estimated at $16,800. On March 31, 2009, the fair value of the warrants was re-measured and estimated at $5,400. The increase of $4,200 was recorded in selling, general and administrative expenses in the Consolidated Statement of Operations during the three months ended March 31, 2009.

Stock-Based Compensation. During the twelve months ended December 31, 2009, the Company granted 15,115,000 options to purchase stock of the company. As disclosed in an Form 8K, filed on November 4, 2009, the Company granted the president and CEO 10,000,000 options to purchase stock of the Company at a strike price of $.04 per share over a five year period. The Chief Financial Officer was granted the option to purchase stock of the Company at a strike price of $.04 per share over a five year period. The Chief Operating Officer was granted the option to purchase stock of the Company over a five year period at a strike price of $.04 per share. The total of options granted to officers of the Company was 15,000,000 shares and were fully vested at the grant date. In accordance with FAS 123R “Accounting for Stock-Based Compensation – Revised” (ASC 718-10 and ASC 505-50) the company calculated the fair value of these options at grant date. Based on the circumstances of the Company at the time, a volatility rate of 146 % and a risk free interest rate of 2.71% was used in the Black-Scholes model to compute a fair value of $300,000 for these options. An additional 115,000 options to purchase stock of the Company were issued in December 2009 to employees as an employment incentive. These shares were fully issued at the grant date and were issued at an exercise price of 10 day moving market average per share over a five year period.

During the three months ended March 31, 2008, the Company recognized the issuance of 37,500 shares of common stock to its president in connection with an employment agreement wherein the president would receive quarterly stock grants over a five year period for a total of 5% of the issued and outstanding common stock of the Company as of the closing of the merger and the currently ongoing private placement of securities. The total grant was estimated to be 750,000 shares, which would have vested at a rate of 5% per quarter. The compensation costs charged as operating expense for grants under the plan was $28,125 for the three months ended March 31, 2008. During the fourth quarter of 2008, the employment agreement with the Company’s president was amended and the stock grant was replaced with stock options. Accordingly the 37,500 shares issued were returned to the company and the $28,125, expense was reversed.

Stock Warrants and Options.

As of June 30, 2010, there were outstanding warrants, consultant options and officer and director options for the purchase of 21,262,451 shares, with a weighted average strike price of $0.27 per share. The Company has issued warrants and options at various points from inception through the period ending June 30, 2010. The Company estimates the fair value of all warrants and optioned issued using the Black-Scholes option pricing model. Each material component of the Black-Scholes option pricing model is based on a calculated Beta score comprised of several similar companies in the Company’s industry to arrive at a representative volatility rate for each respective period.

The Company determines the industry comparative Beta by developing a composite Beta of Equity of organizations with similar operations. Generally, the Beta is a 3 year (36 month) compilation; from time to time the industry volatility must be reassessed prior to the 3 year interval. The Company originally had a composite Beta Volatility computed in 2008. This initial calculation was prepared by external consultants and audited as of December 31, 2008. Subsequently, and prior to accounting for the options issued in October 2009, the Beta Volatility was reviewed in response to material economic changes that have been realized in the automotive aftermarkets parts industry in general. As a result of this review, our management determined that the appropriate volatility should be adjusted to 1.46 from the 1.13 used in prior periods. We further assumed that no dividends would be issued.

The exercise term of each warrant or option grant can vary and is based on a number of factors. In general, warrants issued in conjunction with debt have a 3 year term; while employment contract granted options have a 5 year term. The 5 year term associated with the employment contracts reflects Management’s long-term commitment to business continuity and growth of the organization.

The following table summarizes the assumptions underlying our various option grants:

[TABLE TO COME]

Stock and options issued for services. During the three months ended March 31, 2009 the Company issued 90,000 shares of common stock in connection with investor relations and financial consulting services which were exempt from registration under Rule 506 of Regulation D of the Securities Act of 1933, as amended. These services are to be performed over various terms ranging from one to six months and have been valued at a total of $40,500 representing the quoted market price of the Company’s common stock on the date of the grant. $16,500 was expensed during the current quarter. The remaining $24,000 is included in other current assets on the consolidated balance sheet at March 31, 2009 and is being expensed over the remaining service period of four months.

During the twelve months ended December 31, 2009 the Company issued 8,090,000 shares of common stock in connection with marketing and financial consulting services which were exempt from registration under Rule 506 of Regulation D of the Securities Act of 1933, as amended. These services are to be performed over various terms ranging from one to twelve months and have been valued at a total of $360,500 representing the quoted market price of the Company’s common stock on the date of the grant. The Company granted 13,500,000 options to purchase stock of the Company at a strike price of $.04 per share over a three year period. These services are to be performed over a three year period and have been valued at $270,000. At March 31, 2010, $419,167 is included in other current assets and $82,500 was charged to SG&A expense for the three months ended March 31, 2010 for marketing and financial consulting services.

On October 30, 2009, 4,000,000 shares were issued to both Byrd Financial Group and EMC Consulting Group, respectively for consulting and marketing contracts as disclosed in form 8K, dated November 4, 2009. The resulting transaction reflected a fair market value of $160,000 for Byrd Financial Group’s consulting service and $160,000 for EMC’s marketing services to be amortized over a six month period. On April 29, 2010, 2,500,000 shares issued to Byrd Financial Group were rescinded. Additionally, 3,000,000 issued to EMC Consulting Group were also rescinded, on March 29, 2010. During the quarter ended, June 30, 2010, the $97,500 expense for Byrd Financial Group and the $117,000 for the EMC Consulting Group were reversed.

There was no additional stock, stock options or warrants issued for services for the three months ended June 30, 2010.

6. Joint Venture. On July 22, 2008, as reported on Form 8-K filed, July 25, 2008, the Company and SenCer Inc., a New York corporation (“SenCer”), formed General Automotive Advanced Technology Group, LLC (the “Joint Venture”). In connection therewith, the Company and SenCer entered into an Operating Agreement which sets forth the regulations, terms and conditions under which the Joint Venture will be operated.

The Operating Agreement provides that the Company and SenCer shall initially hold 50% membership interests in the Joint Venture. Initially, the Company shall contribute such services and incur such costs and expenses as it shall deem necessary to determine the commercial viability of the Joint Venture’s business, which services have an agreed-upon value of $200,000. In the event the Company becomes satisfied that the business is commercially viable, the Company

shall make additional capital contributions of up to an aggregate of $750,000, in cash, to fund the operations of the Joint Venture and SenCer shall contribute to the Joint Venture a license to use SenCer’s ceramic composite technology for any and all transportation applications, all pursuant to an exclusive license agreement by and between the Joint Venture and SenCer also dated July 22, 2008. The license has an agreed-upon value of $2,000,000. If commercial viability has not been achieved by July 15, 2009 (originally January 15, 2009), the Joint Venture will be dissolved unless the Company elects to continue its existence. At present, commercial viability has been established but financing has not been secured. While financing is being obtained, SenCer and the Company have elected to proceed with the Joint Venture on a month to month basis.

The Company shall be the sole managing member of the Joint Venture, responsible for the day-to-day operations of the Joint Venture as well as certain marketing activities of the Joint Venture. SenCer shall design and develop applications and prototype products for clients of the Joint Venture. Certain major decisions, such as entering into a change of control transaction, amending the Operating Agreement, admitting new members to the Joint Venture and dissolving the Joint Venture shall require member approval.

Effective December 7, 2009, the Company terminated the Joint Venture agreement with SenCer and the Advanced Technology Group, LLC venture was disolved. The Company entered into a new joint venture agreement with SenCer on December 7, 2009. The Company shall now hold a 33.3% membership interest in the Joint Venture, GreenCell, Inc.,. SenCer shall initially hold 33.3% membership interest in the Joint Venture. The remaining 33.34% membership interest will be part of an initial public offering. The Company is in the process of determining whether consolidating the joint venture is necessary; however as of June 30, 2010 there was no activity in the Joint Venture to consolidate.

7. Acquisition Event. On February 5, 2010 the Company announced that it had signed an agreement to acquire privately held S.P.E.C., Inc. based in Birmingham, AL (SPEC) for 750,000 restricted shares of its common stock plus $2,065,000 cash. Closing of the SPEC transaction is subject to completion of due diligence and other considerations.

The transaction was scheduled to close by April 15, 2010, but did not as we were unable to secure the financing necessary to close. On or about April 15, 2010, the parties informally agreed to extend the closing dated to May 31, 2010, which period has also expired without the transaction closing as we were unable to secure the financing necessary to close. As of June 30, 2010, S.P.E.C., Inc. has not declared a default. However, it now appears unlikely that we will be able to secure a source of financing that will enable us to close the transaction. Even if we were able to secure the necessary financing, there can be no assurance that S.P.E.C., Inc. will agree to close the transaction as the parties have not executed a written extension of the closing date.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements:

Forward-looking statements in this Form 10-Q including, without limitation, statements relating to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements made in this report, other than statements of historical fact, are forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The following factors, among others, could cause actual results to differ materially from those set forth in the forward-looking statements — our ability to successfully develop, market, and sell our brands and products in a timely manner, and the outcomes of our efforts related to mergers and acquisitions. Additional factors include, but are not limited to, the size and growth of the market for our products, competition, pricing pressures, market acceptance of our products, the effect of economic conditions, the value and exploitation of our intellectual property rights, the results of financing efforts, risks in new product development, and other risks including but not limited to those identified in this report and our other periodic filings with the Securities and Exchange Commission.

Results of Operations:

As discussed in greater detail on a current report on our Form 8-K filed February 28, 2008, and our Form 10-KSB filed April, 14, 2008 we entered into a Merger Agreement on February 22, 2008 (the “Merger”), with Global Automotive Supply, Inc. (“GAS”) whereby GAS merged with and into a wholly owned subsidiary, and we subsequently merged with that subsidiary in a short-form merger transaction under Nevada law and, in connection with this short-form merger, changed our name to General Automotive Company, effective February 22, 2008. As a result of the Merger, in exchange for 100% of the outstanding capital stock of GAS, the former stockholders of GAS had the right to receive 8,149,595 shares of our common stock, which represented approximately 58.7% of our outstanding common stock at the closing of the private placement on July 30, 2008. Thus, GAS is considered the accounting acquirer in the Merger, and all references to our financial and other history in this Form 10-Q, and in particular in the Management’s Discussion and Analysis section, refer to the history of GAS unless the context specifically indicates that we are referencing a predecessor business.

Through the Merger, we also acquired 100% interest in the two wholly-owned subsidiaries of GAS, Global Parts Direct, Inc. (“GPD”) and OE Source, LLC (“OES”). In November 2008, the Company’s board of directors agreed to sell the assets of GPD, which has been accounted for as a discontinued operation for the three months ended March 31, 2008. OES is now our sole wholly-owned subsidiary with all of our business operations conducted through this subsidiary.

Three Months Ended June 30, 2010 Compared With Three Months Ended June 30, 2009

We generated $2,798,772 in revenues from operations during the three months ended June 30, 2010, compared to $3,337,999 during the three months ended June 30, 2009. The decrease of $575,227 (17.05%) in revenues can be contributed to the reforming of one of our major providers shipping order procedures. Orders from this customer returned to historical levels in March 2010.

Our cost of goods sold during the three months ended June 30, 2010 was $2,448,729 compared to $2,952,828 for the three months ended June 30, 2009. The decrease in revenue combined with more effective product sources strategies have resulted in the total decrease in cost of goods sold of $504,099. Our aggregate decrease in gross profit was $71,127 in the three months ended June 30, 2010 as compared to the three months ended June 30, 2009. Our gross profit margin was 12.51% for the three months ended June 30, 2010 compared to 12.48% for the same period of 2009. Our more effective purchasing practices were responsible for the higher gross profit margin in the three months ended June 30, 2009. Currently, OES is continuing its program to increase the number of domestic and international sources for its products.

Our selling, general and administrative expenses were $225,650 lower for the three months ended June 30, 2010 as compared to the three months ended June 30, 2009. This decrease in expenses was due primarily to cost containment initiatives that were implemented in 2009 allowing better overall efficiency in the operations during the quarter ended June 30, 2010. Additionally there were reductions in executive costs including a decrease in marketing and consulting expense associated with stock-based agreements of approximately $214,000. There stock based compensation awards during the three months ended June 30, 2010 were minimal, $2,538, and were a result of amortized vesting of the employee options granted in December 2009.

Interest expense in the three months ended June 30, 2010 is approximately $217,953 less that the three months ended June 30, 2009. The interest expenses for the quarter ended June 30, 2009 included $260,000 of warrant expense associated with a mezzanine financing agreement executed on April 20, 2009. The aggregate decrease in interest expense for the quarter ended June 30, 2010 reflects the $150,000 payment of the $300,000 note executed on April 20, 2009.

The Company has active programs to increase revenues and reduce costs for the remainder of fiscal 2010. We intend to further increase our margins by enhancing our sourcing efforts in Asia during the remainder of 2010. Additionally public company costs continue to be monitored and where possible either eliminated to reduce these expenses.

During the three months ended June 30, 2010 we recorded a net loss of $54,808, an decrease of $363,718 compared to a loss of $418,526 for the three months ended June 30, 2009.

Six Months Ended June 30, 2010 Compared with the Six Months Ended June 30, 2009

We generated $5,329,355 in revenues during the six months ended June 30, 2010, compared to $6,456,865 during the six months ended June 30, 2009. The decrease in revenues was due primarily to strategic changes in both our customer and vendor supply chains. The gross profit margin decreased for the six months ended June 30, 2010 to 11.46% compared to 13.19% for the six months ended June 30, 2009.

Our cost of goods sold during the six months ended June 30, 2010 decreased $886,623 compared to the six months ended June 30, 2009. Our total gross profits were $240,886 higher in the six months ended June 30, 2009 as compared to the six months ended June 30, 2008. OES is continuing its program to increase the number of domestic and international sources for its products. Although the automotive aftermarkets parts industry continues to experiences some contraction, we are beginning to realize higher line item gross margins as a result of our more effective purchasing practices during the six months ended June 30, 2010.

Our selling, general and administrative expenses were $225,650 lower for the six months ended June 30, 2010 as compared to the six months ended June 30, 2009. The decrease in selling, general and administrative costs reflects reduced accounting, legal and consulting service fees for the six months ended June 30, 2010 when compared to the same period in 2009

The net operating loss for the for the six months of 2010 decreased from the same period of 2009 by $191,805 six months ended June 30, 2008. Interest expense in the six months ended June 30, 2009 includes $260,000 for the fair value of lender warrants issued in connection with the bridge loan of $300,000.

Liquidity and Capital Resources

As of June 30, 2010, we had current assets in the amount of $2,535,473, consisting primarily of, accounts receivable, and inventory. On the same date, we had current liabilities of $3,853,932, consisting mostly of accounts payable and a line of credit. Thus, as of June 30, 2010, we had a working capital deficit of $1,195,647 as compared to a working capital deficit of $936,402 at December 31, 2009. This increase in our working capital deficit during the three months ended June 30, 2010 is directly related to the decrease in revenue during the period.

Our ongoing operations consumed more cash than they generated in 2009. As of December 31, 2009, we expect that the cash flows derived from our existing ongoing operations together with our cash resources available under the OES Line of credit are unlikely to be sufficient to meet our needs for the next twelve months. In order to bridge these short term cash needs, since approximately October 2009, we have been raising additional working capital by selling short term promissory notes in private transactions. As of December 31, 2009, we had borrowed $100,000 through these efforts and as of June 30, 2010, we had raised a total of $545,000. The notes are generally due within 24 months of initial issuance and bear interest at a rate of 12%. Our ability to repay these notes, as well as to continue to obtain the cash necessary to meet our ongoing operational needs over the next twelve months, is dependent upon our ability to either raise additional capital through the sales of debt or equity or upon an improvement in cash flows from our ongoing operations. There can be no assurance that we will be able to raise the capital necessary to meet these commitments on favorable terms or at all, nor can there be any assurance that we will be successful in improving our existing operations such that they will generate sufficient cash flows for meet our liquidity needs over the next twelve months. If we are unable to do so our business and operations will be adversely affected.

Our ability to satisfy our liquidity needs over the longer term is contingent upon a combination of improved revenues/gross profit from our existing operations and any additional operations we are able to obtain from acquisitions or joint-venture transaction. Our management is actively seeking to acquire additional, complementary businesses or joint venture opportunities that will enhance the value of the Company as wells as improve our cash flows. Our Management has invested time evaluating several proposals for possible acquisition or joint-venture, however, majority of these opportunities were not pursued and none have closed during the period ended June 30, 2010. There can be no assurance that we will be able to identify and acquire complementary businesses or enter into joint ventures on favorable terms or at all, nor can there be any assurance that we will be successful in improving our existing operations such that they will generate sufficient cash flows for meet our long term liquidity needs. If we are unable to do so our business and operations will be adversely affected.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our allowance for accounts receivable and stock-based compensation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates given a change in conditions or assumptions that have been consistently applied.

The Company’s significant accounting policies are described in note 1 of our financial statements herein and Note 1 of our Form 10-K for the year ended December 31, 2009. The methodology for its estimates and assumptions are as follows:

Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46r,” (SFAS 167 and ASC 810-10). SFAS 167 (ASC 810-10) amends FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities-an interpretation of ARB No. 51,” (FIN 46r) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 (ASC 810-10) became effective for the Company on January 1, 2010. Management is currently evaluating the potential impact of SFAS 167 (ASC 810-10) on the financial statements.

Off Balance Sheet Arrangements

As June 30, 2010, there were no off balance sheet arrangements.

ITEM 4T. CONTROLS AND PROCEDURES

Management’s Report On Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2010, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 30, 2009 in reporting on a timely basis information required to be disclosed by us in the reports we file or submit under the Exchange Act because of material weaknesses relating to internal controls as described in Item 9A (T) of the Company’s Form 10-K for the year ended December 31, 2009.

During the fiscal quarter ended June 30, 2010, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management has concluded that the material weaknesses in internal control as described in Item 9A(T) of the Company’s Form 10-K for the year ended December 31, 2009, have not been fully remediated. We are committed to finalizing our remediation action plan and implementing the necessary enhancements to our policies and procedures to fully remediate the material weaknesses discussed above.

ITEM 6. Exhibits


Exhibit Number		Description of Exhibit

31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there under duly authorized.


GENERAL AUTOMOTIVE COMPANY

By:		/s/ Dan Valladao
		Dan Valladao
		Chief Executive Officer
		August 16, 2010

By:		/s/ Shawn Powell Joseph
		Shawn Powell Joseph
		Chief Financial Officer
		August 16, 2010

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

GENERAL AUTOMOTIVE CO 10-Q