Filed pursuant to Rule 424(b)(3)
Registration Statement File No. 333-131001
PROSPECTUS SUPPLEMENT NO. 4 DATED NOVEMBER 21, 2006
TO
PROSPECTUS DATED FEBRUARY 13, 2006
GIANT MOTORSPORTS, INC.
This Prospectus Supplement supplements information contained in our Prospectus
dated February 13, 2006, as supplemented and amended, relating to the offer and
sale by the selling shareholders listed in the Prospectus of up to 26,356,000
shares of common stock and warrants to purchase up to 6,314,000 shares of common
stock of Giant Motorsports, Inc., and should be read in conjunction with our
Prospectus dated February 13, 2006, as supplemented by Supplement No. 1,
Supplement No. 2, and Supplement No. 3, each filed on November 21, 2006. We will
not receive any proceeds from the sale of the shares of common stock or the
warrants by selling shareholders.
This Prospectus Supplement includes the attached Quarterly Report on Form 10-Q
of Giant Motorsports, Inc. for the quarterly period ended September 30, 2006,
filed with the Securities and Exchange Commission on November 20, 2006.
----------
BEFORE PURCHASING ANY OF THE SECURITIES COVERED BY THE PROSPECTUS, CAREFULLY
READ AND CONSIDER THE RISK FACTORS INCLUDED IN THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 5 OF THE PROSPECTUS. YOU SHOULD BE PREPARED TO ACCEPT
ANY AND ALL OF THE RISKS ASSOCIATED WITH PURCHASING THE SECURITIES, INCLUDING A
LOSS OF ALL OF YOUR INVESTMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus Supplement is November 21, 2006
Remainder of Page Intentionally Left Blank
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2006
OR
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _______________
Commission File Number: 000-50243
GIANT MOTORSPORTS, INC.
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 33-1025552
--------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
13134 State Route 62, Salem, Ohio 44460
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(440) 332-8534
--------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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. Yes |X| No |_|
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check One) Large Accelerated Filer |_| Accelerated Filer |_|
Non-Accelerated Filer |X|
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date. As of November 17,
2006 the registrant had 11,788,246 shares of common stock, $.001 par value,
issued and outstanding.
GIANT MOTORSPORTS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
2006 (Unaudited) and December 31, 2005 (Audited) 3
Condensed Consolidated Statements of Operations for the
Nine and Three Months Ended September 30, 2006 and 2005
(Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2006 and 2005 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
Item 4. Controls and Procedures 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 1A. Risk Factors 31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
Item 3. Defaults upon Senior Securities 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 5. Other Information 31
Item 6. Exhibits 31
SIGNATURES 32
2
GIANT MOTORSPORTS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIANT MOTORSPORTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 2006 December 31, 2005
Unaudited Audited
------------------ -----------------
CURRENT ASSETS
Cash and cash equivalents $ 139,600 $ 227,301
Accounts receivable, net 4,772,968 4,850,408
Accounts receivable, affiliates -- 261,667
Accounts receivable, employees 4,378 --
Inventories 20,877,584 16,775,069
Deferred federal income taxes 7,500 --
Federal income tax receivable -- 119,500
Prepaid expenses 48,284 74,255
----------- -----------
TOTAL CURRENT ASSETS 25,850,314 22,308,200
----------- -----------
FIXED ASSETS, NET 2,055,763 1,893,967
----------- -----------
OTHER ASSETS
Intangibles, net 1,688,950 1,588,950
Deposits 41,000 41,000
----------- -----------
TOTAL OTHER ASSETS 1,729,950 1,629,950
----------- -----------
TOTAL ASSETS $29,636,027 $25,832,117
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
GIANT MOTORSPORTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 2006 December 31, 2005
Unaudited Audited
------------------ -----------------
CURRENT LIABILITIES
Current portion of long-term debt $ 702,315 $ 714,623
Notes payable, floor plans 20,838,709 17,159,719
Note payable, officer -- 193,135
Accounts payable, trade 2,454,703 2,370,369
Accrued expenses 466,214 654,417
Accrued income taxes 203,500 --
Customer deposits 102,764 87,051
------------ ------------
TOTAL CURRENT LIABILITIES 24,768,205 21,179,314
DEFERRED FEDERAL INCOME TAXES 163,800 52,100
LONG-TERM DEBT, NET 625,040 783,856
------------ ------------
TOTAL LIABILITIES 25,557,045 22,015,270
------------ ------------
COMMITMENTS - NOTE I
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, authorized 5,000,000 shares 5,000 shares
designated Series A Convertible, $1,000 stated value 2,450 and
2,870 shares issued and outstanding at
September 30, 2006 and December 31, 2005, respectively 2,450,000 2,870,000
Common stock, $.001 par value, authorized 75,000,000 shares
11,788,246 and 10,445,000 shares issued and outstanding at
September 30, 2006 and December 31, 2005, respectively 11,788 10,445
Additional paid-in capital 1,868,596 641,277
Additional paid-in capital - Options 93,426 109,442
Additional paid-in capital - Warrants 1,724,800 2,020,480
Additional paid-in capital - Beneficial conversions 1,303,400 1,526,840
Issuance cost on preferred series A shares convertible (786,762) (786,762)
Accumulated deficit (2,586,266) (2,574,875)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,078,982 3,816,847
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,636,027 $ 25,832,117
============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
GIANT MOTORSPORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine and three months ended September 30, 2006 and 2005
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES
Sales $ 79,835,854 $ 81,480,719 $ 24,080,728 $ 26,397,387
Finance, insurance and extended service revenues 2,791,031 2,304,164 786,094 852,118
------------ ------------ ------------ ------------
TOTAL REVENUES 82,626,885 83,784,883 24,866,822 27,249,505
COST OF SALES 70,362,596 73,271,992 21,149,746 23,331,187
------------ ------------ ------------ ------------
GROSS PROFIT 12,264,289 10,512,891 3,717,076 3,918,318
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling expenses 7,304,663 5,788,545 2,473,357 2,176,542
General and administrative expenses 3,397,002 2,931,266 1,029,394 1,060,287
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 10,701,665 8,719,811 3,502,751 3,236,829
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,562,624 1,793,080 214,325 681,489
------------ ------------ ------------ ------------
OTHER INCOME AND (EXPENSE)
Other income, net 33,368 99,560 12,171 65,420
Interest expense, net (935,157) (601,933) (355,465) (181,183)
------------ ------------ ------------ ------------
TOTAL OTHER INCOME AND (EXPENSES) (901,789) (502,373) (343,294) (115,763)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 660,835 1,290,707 (128,969) 565,726
PROVISION (BENEFIT) FOR INCOME TAXES 398,700 413,000 (27,100) 240,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE PREFERRED DIVIDENDS 262,135 877,707 (101,869) 325,726
PREFERRED DIVIDENDS 273,526 -- 146,804 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ (11,391) $ (413,000) $ (248,673) $ (240,000)
============ ============ ============ ============
BASIC INCOME (LOSS) PER SHARE $ (0.00) $ (0.04) $ (0.02) $ (0.02)
DILUTED INCOME (LOSS) PER SHARE $ (0.00) $ (0.02) $ (0.02) $ 0.10
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 10,965,213 10,432,839 11,492,324 10,445,000
============ ============ ============ ============
DILUTED 10,965,213 23,802,223 11,492,324 12,380,869
============ ============ ============ ============
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
GIANT MOTORSPORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2006 and 2005
2006 2005
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 262,135 $ 877,707
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 325,691 238,789
Amortization -- 97,500
Deferred federal income taxes 104,200 (39,000)
Common stock issued for services -- 11,600
(Increase) decrease in accounts receivable, net 77,440 (909,632)
(Increase) in accounts receivable, employees (4,378) (24,138)
(Increase) in inventories (4,102,515) (778,164)
Decrease in prepaid expenses 25,971 26,506
Decrease in prepaid income taxes 119,500 --
Decrease in customer deposits 15,713 8,002
Increase in accounts payable trade 84,334 546,424
Increase (decrease) in floor plan liability 3,678,990 (2,314,343)
Increase in accrued income taxes 203,500 301,000
Increase (decrease) in accrued expenses (188,203) 142,375
(Decrease) in accrued warranty -- (67,500)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 602,378 (1,882,874)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (487,487) (734,558)
(Increase) decrease in accounts receivable affiliates 261,667 (184,143)
Covenant not to compete incurred -- (130,000)
Decrease in deposits -- 19,240
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (225,820) (1,029,461)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from preferred stock issuance -- 2,563,000
Reduction in debt (271,124) (908,804)
Increase (reduction) in note payable to officer (193,135) 99,557
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (464,259) 1,753,753
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (87,701) (1,158,582)
CASH AND CASH EQUIVALENTS, beginning of Period 227,301 1,862,187
----------- -----------
CASH AND CASH EQUIVALENTS, end of Period $ 139,600 $ 703,605
=========== ===========
OTHER SUPPLEMENTARY CASH FLOW INFORMATION
Note payable to officer incurred for the acquisition of assets $ -- $ 243,572
=========== ===========
Debt incurred for acquisition of sales agreement $ 100,000 $ --
=========== ===========
Income taxes paid $ 158,550 $ 151,000
=========== ===========
Interest paid $ 579,692 $ 395,406
=========== ===========
Stock issued for outside services $ -- $ 11,600
=========== ===========
Preferred stock dividends paid in common stock $ 273,526 $ --
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
GIANT MOTORSPORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006 and 2005
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The condensed consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. The condensed consolidated financial statements and notes are
presented as permitted on Form 10-Q and do not contain information included in
the Company's annual consolidated statements and notes. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the December 31,
2005 audited financial statements and accompanying notes thereto. While
management believes the procedures followed in preparing these condensed
consolidated financial statements are reasonable, the accuracy of the amounts
are in some respects dependent upon the facts that will exist, and procedures
that will be accomplished by the Company later in the year.
These condensed consolidated financial statements reflect all adjustments,
including normal recurring adjustments which, in the opinion of management, are
necessary to present fairly the consolidated operations and cash flows for the
periods presented.
Organization:
Giant Motorsports, Inc., (the Company) through its wholly-owned subsidiaries,
W.W. Cycles, Inc. doing business as Andrews Cycles and Chicago Cycles, Inc.
doing business as Chicago Cycle Center, operates two retail dealerships of
motorcycles, all terrain vehicles, scooters and personal watercraft in
northeastern Ohio and northern Illinois. On December 30, 2003, the stockholders
of W.W. Cycles, Inc. entered into a Stock Purchase and Reorganization Agreement
in which effective January 16, 2004 W.W. Cycles, Inc. was issued an aggregate of
7,850,000 restricted shares of common stock, $.001 par value, of American Busing
Corporation in exchange for all of the outstanding shares of the common stock of
the Company, resulting in W.W. Cycles, Inc. becoming a wholly-owned subsidiary
of American Busing Corporation, an inactive public company. The acquisition was
accounted for as a reverse merger whereby, for accounting purposes, W.W. Cycles,
Inc. is considered the accounting acquirer and the historical financial
statements of W.W. Cycles, Inc. became the historical financial statements of
American Busing Corporation. Effective April 5, 2004 American Busing Corporation
changed its name to Giant Motorsports, Inc. On April 30, 2004, Giant
Motorsports, Inc. acquired substantially all of the assets and certain
liabilities of Chicago Cycle Center pursuant to an Asset Purchase Agreement and
entered into a Noncompetition Agreement with one of the former owners and
entered into an Employment Agreement with the other former owner.
7
GIANT MOTORSPORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2006 and 2005
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation:
The condensed consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents:
Cash and cash equivalents include amounts held in demand deposit accounts and
overnight investment accounts. The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Contracts in Transit:
Contracts in transit represent customer finance contracts evidencing loan
agreements or lease agreements between the Company, as creditor, and the
customer, as borrower, to acquire or lease a vehicle whereby a third-party
finance source has given the Company initial, non-binding approval to assume the
Company's position as creditor. Funding and approval from the finance source is
provided upon the finance source's review of the loan or lease agreement and
related documentation executed by the customer at the dealership. These finance
contracts are typically funded within ten days of the initial approval of the
finance transaction by the third-party finance source. The finance source is not
contractually obligated to make the loan or lease to the customer until it gives
its final approval and funds the transaction. Until such final approval is
given, contracts in transit represent amounts due from the customer to the
Company. See Note B for additional information.
Allowance for Doubtful Accounts:
Accounts are written off when management determines that an account is
uncollectible. Recoveries of accounts previously written off are recorded when
received. An estimated allowance for doubtful accounts is determined to reduce
the Company's receivables to their carrying value, which approximates fair
value. The allowance is estimated based on historical collection experience,
specific review of individual customer accounts, and current economic and
business conditions. Historically, the Company has not incurred any significant
credit related losses. Management has determined that an allowance of $25,000 is
necessary at September 30, 2006.
Revenue Recognition:
Vehicle Sales:
The Company records revenue when vehicles are delivered and title has passed to
the customer, when vehicle service or repair work is performed and when parts
are delivered. Sales promotions that are offered to customers are accounted for
as a reduction to the sales price at the time of sale. Incentives, rebates and
holdbacks offered by manufacturers directly to the Company are recognized at the
time of sale if they are vehicle specific, or as earned in accordance with the
manufacturer program rules and are recorded as a reduction of cost of
merchandise sold.
8
GIANT MOTORSPORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2006 and 2005
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued):
Finance, Insurance and Extended Service Revenues:
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers and the interest rates set by
the financing institution. The Company also receives commissions from the sale
of various third party insurance products to customers and extended service
contracts. These commissions are recorded as revenue at the time the customer
enters into the contract. The Company is not the obligor under any of these
contracts. In the case of finance contracts, a customer may prepay or fail to
pay their contract, thereby terminating the contract. Customers may also
terminate extended service contracts, which are fully paid at purchase, and
become eligible for refunds of unused premiums. In these circumstances, a
portion of the commissions the Company receives may be charged back based on the
relevant terms of the contracts. The revenue the Company records relating to
commissions is net of an estimate of the ultimate amount of chargebacks the
Company will be required to pay. Such estimates of chargeback experience are
based on our historical chargeback expense arising from similar contracts. The
Company also acts as the warrantor on certain extended service contracts and
defers the revenue and recognizes it over the life of the contract on a
straight-line basis.
Fair Value of Financial Instruments:
Financial instruments consist of cash and cash equivalents, accounts receivable,
accounts payable and debt, including floor plan notes payable. The carrying
amount of all significant financial instruments approximates fair value due
either to length or maturity or variable interest rates that approximate
prevailing market rates.
Inventories:
Parts and accessories inventories are stated at the lower of cost or market
using the first-in, first-out method. Vehicle inventories are stated at the
lower of cost or market using the specific identification method.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to credit risk
consist of cash equivalents and accounts receivable.
The Company's policy is to review the amount of credit exposure to any one
financial institution and place investments with financial institutions
evaluated as being creditworthy. In the ordinary course of business, the Company
has bank deposits and overnight repurchase agreements that may exceed federally
insured limits. At September 30, 2006, the Company had $ 250,600 in excess of
the federally insured limit.
9
GIANT MOTORSPORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2006 and 2005
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk (Continued):
Concentration of credit risk, with respect to accounts receivable-customers, is
limited through the Company's credit evaluation process. The Company reviews the
credit history before extending credit. Generally, the Company does not require
collateral from its customers
Property and Equipment:
Property, equipment, and leasehold improvements are stated at cost. Maintenance
and repairs that do not add materially to the value of the asset nor appreciably
prolong its useful life are charged to expense as incurred. Gains or losses on
the disposal of property and equipment are included in the determination of
income.
Depreciation of property and equipment and amortization of leasehold
improvements are provided using the straight-line method over the following
estimated useful lives:
Fixtures, and equipment ............... 3-7 years
Vehicles .............................. 5 years
Leasehold Improvements ................ 10 years
Goodwill and Other Intangible Assets:
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 142 "Goodwill and Other Intangible Assets". This statement addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB opinion No. 17, "Intangible Assets". It addresses how
intangible assets that are acquired individually or with a group of other assets
(but not those acquired in a business combination) should be accounted for in
the financial statements upon their acquisition. This statement also addresses
how goodwill and other intangible assets should be accounted for after they have
been initially recognized in the financial statements. The Company, in its
acquisitions, recognized $1,588,950 of goodwill and $100,000 of other intangible
assets associated with a licensing sales agreement. The Company performs its
annual impairment test for goodwill at year-end.
Gross Carrying
Amount
--------------
Goodwill $1,588,950
Licensing Agreement 100,000
----------
TOTAL $1,688,950
==========
10
GIANT MOTORSPORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2006 and 2005
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes:
Income taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
At September 30, 2006, income taxes are provided for amounts currently due and
deferred amounts arising from temporary differences between income for financial
reporting and income tax purposes.
Advertising Costs:
Advertising costs are expensed when incurred. Charges to operations amounted to
$1,880,892 and $1,653,923 for the nine months ended September 30, 2006 and 2005,
respectively.
Earnings (Loss) Per Share of Common Stock:
Historical net income (loss) per share is computed using the weighted average
number of shares of common shares outstanding. Diluted earnings per share (EPS)
include additional dilution from common stock equivalents, such as stock
issuable pursuant to the exercise of stock options and warrants. Common stock
equivalents are not included in the computation of diluted earnings per share
when the Company reports a loss because to do so would be anti-dilutive for the
periods presented.
The following is a reconciliation of the computation for basic and diluted EPS:
Nine Months Ended
September 30, September 30,
2006 2005
------------- -------------
Net income (loss) attributed to common shares $ (11,391) $ 877,707
============ ============
Weighted-average common shares outstanding (Basic) 10,965,213 10,432,839
Weighted-average common stock equivalents:
Warrants -0- 13,369,384
------------ ------------
Weighted-average common shares outstanding (Diluted) 10,965,213 23,802,223
============ ============
There are 11,214,000 and 23,802,223 common stock equivalents available at
September 30, 2006 and 2005, respectively.
11
GIANT MOTORSPORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2006 and 2005
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain 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.
NOTE B - ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of receivables due from customers and dealers,
manufactures, employees, and finance companies for contracts in transit and is
net of an allowance for doubtful accounts of $25,000 at September 30, 2006.
NOTE C - INVENTORIES
Inventories consisted of vehicles and parts and accessories.
NOTE D - FIXED ASSETS
Fixed assets consisted of the following:
September 30,
2006
-------------
Fixtures and equipment $2,151,547
Vehicles 410,200
Leasehold improvements 572,776
----------
3,134,523
Less accumulated depreciation 1,078,760
----------
NET FIXED ASSETS $2,055,763
==========
Depreciation expense charged to operations amounted to $325,691 and $238,789 for
the nine months ended September 30, 2006 and 2005, respectively.
12
GIANT MOTORSPORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2006 and 2005
(UNAUDITED)
NOTE E - NOTES PAYABLE - FLOOR PLANS
The Company has various floor plan financing agreements aggregating $20,878,709
at September 30, 2006. Interest is payable monthly and fluctuates with prime and
varies based on the type of unit financed and the length of time the unit
remains on the floor plan (ranging from 4.8% to 16.5% at September 30, 2006).
Principle payments are due upon the sale of the specific unit financed. The
floor plans are collateralized by substantially all corporate assets.
NOTE F - LONG-TERM DEBT
Long-term debt consisted of various notes aggregating $877,492 at September 30,
2006. This amount matures at various times ranging from 2006 to 2009, bearing
interest at various rates ranging from 5% to 8% per year. The notes are
collateralized by substantially all of the Company's assets.
The Company has a $250,000 revolving line of credit with a bank with an
outstanding balance of $249,863 at September 30, 2006. The revolving line of
credit has no stipulated repayment terms. This loan bears interest at prime plus
one percent (9.25% at September 30, 2006) and is collateralized by substantially
all of the Company's assets.
The Company has a $250,000 note payable with HSK Funding with an outstanding
balance of $200,000 at September 30, 2006. The note is due in full on November
20, 2006. The note bears interest at 15%.
NOTE G - LEASES
The Company leases its Illinois subsidiary retail facility under a ten-year
agreement with a ten-year renewal option. The agreement was signed and executed
in April, 2005, and payments on the lease commenced in August 2005 at a monthly
rent of $33,333 through May 2006 then increased to $40,000 per month from June
2006 through May 2007, $45,000 per month from June 2007 through May 2008,
$46,667 from June 2008 through May 2009 and then increasing 3% annually for the
remaining term of the lease. The Company is also liable for a proportionate
share of expenses and taxes over a specified amount. The Company was granted a
four (4) month rent holiday for the months of April though July 2005. Rent
expense has been calculated using the straight-line basis over the lease term of
ten (10) years to reflect the inclusion of the rent-free period.
The following is a five year summary of future minimum lease payments under
operating leases that have initial or remaining non cancellable terms in excess
of one year as of September 30, 2006:
Year Ending Amount
----------- ----------
2007 $ 728,000
2008 774,668
2009 793,604
2010 810,572
2011 828,048
----------
$3,934,892
==========
The Company also leased residential locations in Chicago under a month-to-month
agreement. The amount charged to rent amounted to $19,725 and $9,000 for the
nine months ended September 30, 2006 and 2005, respectively. The amounts paid
for 2006 were attributed to three (3) locations, while the amounts for 2005 were
attributed to two (2) locations.
13
GIANT MOTORSPORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2006 and 2005
(UNAUDITED)
NOTE H - INCOME TAXES
Income taxes consisted of the following:
2006 2005
--------- ---------
Federal:
Current $ 258,500 $ 411,000
Deferred 104,200 (31,500)
--------- ---------
362,700 379,500
--------- ---------
State:
Current 36,000 41,000
Deferred -- (7,500)
--------- ---------
36,000 33,500
--------- ---------
$ 398,700 $ 413,000
========= =========
Income taxes paid amounted to $158,550 for the nine months ended September 30,
2006.
Deferred tax assets (liabilities) consisted of the following:
September December
2006 2005
--------- ---------
Deferred tax liabilities - long-term:
Depreciation $(163,800) $ (52,100)
Deferred tax assets - current and long-term:
Allowance for doubtful accounts 7,500 -0-
Goodwill and depreciation -0- -0-
--------- ---------
TOTAL $(156,300) $ (52,100)
========= =========
NOTE I - RELATED PARTY TRANSACTIONS
The Company leases its Ohio subsidiary retail facility from a shareholder, who
has personally guaranteed the debt on the building, under a five-year agreement
with two five-year renewal terms. Charges to operations amounted to $171,000 for
each of the nine months ended September 30, 2006 and 2005, respectively.
NOTE J - COMMON STOCK
The Company has 75,000,000 shares of $.001 par common stock authorized, with
11,788,246 issued and outstanding at September 30, 2006.
14
GIANT MOTORSPORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2006 and 2005
(UNAUDITED)
NOTE K - PREFERRED STOCK
The Company has 5,000,000 shares of preferred stock authorized, with a par value
of $.001 per share. Included in these 5,000,000 shares are 5,000 authorized
shares of Series A Convertible Preferred stock, of which 2,450 shares are issued
and outstanding at September 30, 2006. On September 16, 2005, the Company issued
2,870 shares of Series A Convertible Preferred stock with a stated value of
$1,000 per share to accredited investors in a private placement offering. Each
share of Series A Convertible Preferred Stock is convertible into 2,000 shares
of the Company's common stock. However, the Company was not able to have its
Registration Statement declared effective by the original due date and
subsequently, each holder of the preferred shares were able to convert their
shares at less than the agreed upon factor. This "triggering event" provided a
discount on the conversion, and additional shares were provided to those
shareholders who did not consent, and subsequently, converted their preferred
Series A shares.
The Company also issued in the private placement (i) warrants allowing the
investors to purchase up to 5,740,000 shares of the Company's common stock, and
(ii) an option allowing the placement agent to purchase 287 shares of Series A
Convertible Preferred Stock, and warrants to purchase up to 574,000 shares of
common stock.
During the nine months ended September 30, 2006, four (4) separate Series A
Preferred shareholders exercised a total of 420 shares of the conversion feature
of the stock, and subject to the provisions of the conversion, received 935,000
shares of common stock during the nine months ended September 30, 2006.
The Company issued 408,246 shares of its common stock as a dividend to all
Series A Preferred shareholders, in accordance with the placement offering
provisions.
NOTE L - ACQUISITION OF KINGS MOTORSPORTS, INC.
On April 30, 2004, pursuant to an Asset Purchase Agreement (the "Asset
Agreement"), dated April 30, 2004 by and among the Company, King's Motorsports,
Inc., d/b/a Chicago Cycle ("Chicago Cycle"), Jason Haubner and Jerry Fokas, the
two (2) shareholders of Chicago Cycle, the Company acquired (the "Acquisition"),
substantially all of the assets of Chicago Cycle (the "Chicago Assets"). This
acquisition was sought primarily to provide the Company with a larger market
share in the industry. All the operations of the acquired entity were included
in the Company's income statement from the date of acquisition (April 30, 2004)
through December 31, 2004. Through the acquisition, goodwill in the amount of
$1,588,950 was recognized, and is being amortized over 15 years for tax
purposes. In consideration for the Chicago Assets and pursuant to the Asset
Agreement, the Company (i) assumed certain specified liabilities of Chicago
Cycle, and (ii) agreed to pay to Chicago Cycle $2,925,000, as follows:
15
GIANT MOTORSPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2006 and 2005
(UNAUDITED)
NOTE L - ACQUISITION OF KINGS MOTORSPORTS, INC. (CONTINUED)
(a) $1,250,000 at the closing of the Acquisition (the "Initial Payment"), and
(b) $1,675,000 through the issuance to Chicago Cycle of a 6%, $1,625,000
aggregate principal amount promissory note (the "Note"). The principal
amount of the Note matures as follows:
(i) $500,000 on July 29, 2004
(ii) $250,000 on October 29, 2004, and
(iii) the remaining $925,000, plus accrued but unpaid interest on April
30, 2005.
The Note was secured by a second lien on the Chicago Assets pursuant to a
Commercial Security Agreement dated as of April 30, 2004, by and among the
Company and Chicago Cycle, and guaranteed pursuant to a Guaranty dated April 30,
2004 by and among Chicago Cycle, the Company, Russell Haehn and Gregory Haehn,
the current executive officers and controlling shareholders of the Company (each
an "Executive", and, collectively, the "Executives"). The final payment on this
loan was made during the 4th quarter of 2005.
To fund the $1,250,000 Initial Payment, the Company pursuant to a Term Note
dated March 12, 2004, by and among the Company and The Fifth Third Bancorp Bank
(the "Bank") borrowed $1,250,000 (the "Initial Loan") from the Bank. The Initial
Loan, which matured on May 31, 2004, was refinanced with the Bank through a term
loan, which matures on May 31, 2010 (the "Term Loan"), which bears interest at
the rate of prime plus one percent (1%) per annum. The Company's payment
obligations under the Term Loan are guaranteed by the Executives pursuant to a
Secured Continuing Unlimited dated as of March 12, 2004 by each Executive and
the Bank. The Loan is also secured pursuant to a Security Agreement dated March
12, 2004 by and between the Bank and the Company, by a first priority lien on
all the assets of the Company (including, but not limited to, the Chicago
Assets).
In connection with the Acquisition and pursuant to the Asset Purchase Agreement,
the Company entered into a Non-Competition Agreement ("Non-Competition
Agreement"), dated April 30, 2004 with Mr. Haubner (effective January 1, 2005),
pursuant to which Mr. Haubner agreed to limit his business activities to those
not competing with Chicago Cycle until December 31, 2005. In consideration for
the Non-Competition Agreement, the Company agreed to pay Mr. Haubner a monthly
fee of $20,833. Effective June 15, 2005, Mr. Haubner violated the Agreement. The
Company has negotiated a total amount to be assigned to the Non-Competition
Agreement of $130,000, which was paid in full in 2005.
NOTE M - SUBSEQUENT EVENT
Russell Haehn, an officer, advanced the Company funds in the amount of $350,000
in October 2006, and subsequently negotiated a Promissory Note for said funds.
The terms of the Promissory Note state that Mr. Haehn cannot demand payment
until October 27, 2007. The note carries an interest rate of six percent (6%),
and has been classified as payable on demand.
16
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Special Note of Caution Regarding Forward-Looking Statements
Certain statements in this report, including statements in the following
discussion, may constitute forward-looking statements made pursuant to the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995. The
Company would like to caution readers regarding certain forward-looking
statements in this document and in all of its communications to shareholders and
others, press releases, securities filings, and all other communications.
Statements that are based on management's projections, estimates and assumptions
are forward-looking statements. The words "believe," "expect," "anticipate,"
"intend," "will," and similar expressions generally identify forward-looking
statements. While the Company believes in the veracity of all statements made
herein, forward-looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by the Company, are
inherently subject to significant business, economic and competitive
uncertainties and contingencies and known and unknown risks. Many of the
uncertainties and contingencies can affect events and the Company's actual
results and could cause its actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company.
General
Our goal is to become one of the largest dealers of power sports vehicles in the
United States through acquisitions and internal growth.
The motorsports industry is highly fragmented with an estimated 4,000 retail
stores throughout the United States. We are attempting to capitalize upon the
consolidation opportunities available and increase our revenues and income by
acquiring additional dealers and improving our performance and profitability.
17
We plan to maximize the operating and financial performance of our dealerships
by achieving certain efficiencies that will enhance internal growth and
profitability. By consolidating our corporate and administrative functions, we
believe we can reduce overall expenses, simplify dealership management and
create economies of scale.
We will specifically target dealers in markets with strong buyer demographics
that, due to under-management or under-capitalization, are unable to realize
their market share potential and can benefit substantially from our systems and
operating strategy.
Together with our two wholly-owned subsidiaries, we own and operate two retail
power sports superstores. Our core brands include Suzuki, Yamaha, Honda, Ducati
and Kawasaki. Our superstores operate under the names "Andrews Cycles" and
"Chicago Cycles." Andrews Cycles is located in Salem, Ohio, has approximately 51
employees and operates from an approximately 75,000 square foot facility.
Chicago Cycles is located in the Chicago metropolitan area, has approximately 81
employees and operates from an approximately 95,000 square foot facility in
Skokie, Illinois.
Overview of Economic Trends.
Effects of Increasing Interest Rates
Although the Federal Reserve, during the quarterly period ended September 30,
2006, temporarily paused its policy of raising the discount rate, we believe
that increases in consumer loan interest rates, during the two year period
immediately preceding this pause, has had a material adverse effect on the sales
of our power sports products, and more specifically the sales of new vehicles.
Our revenues from sales of power sports products during the three-month period
ended September 30, 2006 were approximately 8.7% less than for the same period
in 2005. Additionally, during our third quarter of 2006, $8.1 million of the
approximately $24.1 million of our power sports sales (38.3%) were financed. In
the event that the Federal Reserve resumes its policy of measured increases in
the discount rate, the uncertainties created in the consumer financing market as
a result of corresponding additional increases in interest rates, can reasonably
be expected to have a continuing negative impact on the sale of new motorcycles
in the next 12 to 24 months due to the increased costs to our customers.
During the early period of these measured increases in consumer interest rates,
we believe that we experienced greater consumer interest in lower-priced used
motorcycles, as a result of the increased costs of financing. This was also
attributable to the addition of Chicago Cycles to our business in April 2004.
Additionally, we commenced the sale of used motorcycles sales at our Andrew
Cycles dealership in the second half of 2005, but have not yet achieved the
level of sales penetration in used motorcycles at Andrews Cycles that we had
forecasted. As consumer interest rates continued to climb throughout 2005 and in
the first six months of 2006, it appears that these even higher rates began to
negatively affect the sales of lower-priced used motorcycles. During the
nine-month period ended September 30, 2006 approximately $4.3 million of our
approximately $79.8 million (5.38%) in revenues from the sales of power sports
equipment were generated from sales of used motorcycles compared to
approximately $4.8 million of our approximately $81.5 million in revenues (5.9%)
from such sales during the same period in 2005. As a result of the current pause
in the Federal Reserve's increase in the discount rate, and the possibility that
the discount rate may remain at its current level, or even be reduced,
throughout the remainder of 2006 and the beginning of 2007, we believe that the
sales of lower-priced used motorcycles will pick up sooner than new motorcycles.
Therefore, we will continue to pursue the goal of increasing used motorcycle
sales throughout the remainder of 2006 and beyond, at both of our locations.
Although there can be no assurance, we believe that our greater focus on sales
of lower-priced used motorcycles, which generally provide larger sales margins,
will help make up for any reduction in sales of new motorcycles.
18
Effects of Significant Changes in Fuel Costs
During the third quarter of 2006, we experienced a decrease in sales of
motorcycles and scooters compared to the same period in 2005. We believe this
decrease resulted, in part, due to a significant reduction in gasoline prices in
the latter part of the third quarter. Lower gas prices may have resulted in less
incentive for prospective customers to purchase motorcycles or scooters to
reduce fuel costs. Notwithstanding this recent reversal in the movement of
gasoline prices, we believe that it is reasonable to assume that prices will
resume their upward trend during the next six to twelve months, which will
likely result in many consumers considering the use of motorcycles and scooters
as alternative forms of transportation to automobiles, since motorcycles and
scooters provide significantly better gas mileage than automobiles resulting in
substantially lower fuel costs. Any such increase in the purchase of motorcycles
and scooters could have a positive impact on our sales for the next 12 to 24
months.
Reduction in Units by Manufacturers
We believe that certain manufacturers of the motorcycles we sell have recently
begun to reduce the number of units they manufacture, normally with respect to
some higher-end models, in order to increase the price per unit. Because of our
position in the market, we believe that we are generally able to receive a
larger allocation of these models than many other dealers. Since this pricing
normally results in greater sales margins, reduced unit sales and higher pricing
by manufacturers, in the future, could result in a material increase in our
revenues and profits, provided that there are a sufficient number of customers
willing to pay higher prices for these more limited produced models.
Overall impact on our Future Earnings
Notwithstanding our downturn in sales during the third quarter of 2006, we
intend to continue to evaluate and analyze our business decisions through
effective inventory management, as described in greater detail under the heading
Inventory Management, included elsewhere in this MD&A. Assuming that gas prices
resume the types of increases experienced during the 18 months prior to the
third quarter of 2006, we foresee promising opportunities to increase our sales
of motorcycles and scooters as consumers again face substantial increases in gas
prices and give greater consideration to the purchase of motorcycles and
scooters which provide significantly greater gas mileage than automobiles.
Additionally, while our current business has been affected by the Federal
Reserve's increase in interest rates, which directly increases the cost of
financing purchases of our motorcycles and other power sports products, the
current pause in its policy of measured increases to the discount rate, along
with the possibility of measured reductions in 2007, could have a positive
financial affect on our business. On the other hand, in the event that the
Federal Reserve chooses to resume its increase in the discount rate, this would,
in all likelihood, continue to negatively impact sales of motorcycles and other
power sports equipment. Additionally, in the event that we are able to
successfully integrate additional dealerships and/or new brands into our
existing business, we believe that this could result in greater sales margins
and an even greater increase in earnings. These greater sales margins would be
created by the consolidation of expenses through the implementation of our
superstore business plan, resulting in greater earnings per unit sold. While it
is management's intent to pursue the goals described herein, we cannot assure
you that these goals will be achieved at any level.
Loan Transactions
On April 30, 2004, we paid $1,675,000 of the purchase price for Chicago Cycles
by issuing to Kings Motorsports a 6% $1,675,000 aggregate principal amount note
(the "Note"), which Note initially provided for payment as follows:
19
o $500,000 on July 29, 2004;
o $250,000 on October 27, 2004; and
o the remaining $925,000, plus accrued but unpaid interest on April
30, 2005.
We repaid all outstanding principal and interest on the Note, remaining due and
payable, on October 13, 2005.
To fund the amount payable at closing for Chicago Cycles, we borrowed $1,250,000
from The Fifth Third Bancorp Bank (the "Bank"), pursuant to a term loan. This
loan, which initially matured on May 31, 2004, was refinanced with the Bank
through a term loan amortized over a 72 month period, but is payable in full on
May 31, 2007, bearing interest at prime plus one percent (9.25% at September 30,
2006.) Our payment obligations under this term loan also are personally
guaranteed by Russell Haehn and Gregory Haehn. This loan is also secured by a
first priority lien on all of our assets (including, without limitation, the
Chicago Cycles assets). As of September 30, 2006, the outstanding amount of this
term loan, including accrued interest thereon, was $833,360.
On April 20, 2004, pursuant to a $500,000 aggregate principal amount promissory
note bearing interest at the rate of fourteen (14%) percent per annum (the
"Bridge Note"), we received, from a third party, an aggregate principal amount
bridge loan (the "Bridge Loan"). All outstanding principal on the Bridge Note
was due on October 15, 2004. To secure the repayment of principal and interest
on the Bridge Note, each of Russell Haehn and Gregory Haehn (i) pledged to the
lender 150,000 shares (300,000 shares in the aggregate) of common stock owned by
each of them and (ii) guaranteed all of our payment obligations to the lender.
As partial consideration for the Bridge Loan, we issued to the lender a
five-year warrant to purchase 100,000 shares of common stock, at an exercise
price of $2.25 per share. We also granted the lender certain piggyback
registration rights with respect to the shares of common stock underlying the
warrant. We used the $500,000 Bridge Loan proceeds for working and operating
capital. On October 15, 2004, we repaid $250,000 of the principal amount
outstanding under the Bridge Loan. Pursuant to a letter agreement entered into
with the lender on October 6, 2004, payment of the remaining $250,000 of
principal and all accrued interest thereon was extended until January 15, 2005.
We paid the lender $2,500 in consideration for the extension. In September 2005,
the lender assigned its rights to $50,000 of the $250,000 principal amount the
outstanding to an affiliate of the lender, who in turn converted it into Series
A Shares and Series A Warrant in our September 2005 Private Placement. On
September 20, 2005, we used net proceeds from our September 2005 Private
Placement, in the amount of $203,383.26 to repay the remaining outstanding
principal amount of the Bridge Loan and all accrued and unpaid interest thereon.
On December 20, 2005, the third party that provided us with the Bridge Loan
provided us with a new bridge loan in the principal amount of $250,000 (the
"2005 Bridge Loan"). In connection with the 2005 Bridge Loan we issued to the
lender a $250,000 principal amount promissory note providing for interest at the
rate of fifteen percent (15%) per annum (the "2005 Bridge Note"). Interest on
the 2005 Bridge Note is payable monthly, and all outstanding principal and
accrued but unpaid interest was due and payable on March 20, 2006. In March we
repaid $25,000 of the outstanding principal amount and at March 31, 2006, the
outstanding principal amount was $225,000. We obtained a ninety (90) day
extension for the payment of the remaining $225,000. In consideration for this
extension we paid the lender $2,500. On June 29, 2006 we repaid an additional
$25,000 of the outstanding principal amount and at September 20, 2006, the
outstanding principal amount was $200,000. On September 20, 2006, we obtained
another sixty (60) day extension for the payment of the remaining $200,000 due
on November 20, 2006. We did not pay any additional consideration to the third
party for such extension. We are currently negotiating an additional six (6)
month extension for the repayment of this outstanding principal amount. We have
continued to make all interest payments on the 2005 Bridge Loan, when due and
payable, and intend to make such interest payments on a timely basis during any
further extension thereof.
20
We also have obtained a revolving line of credit with the Bank, in the maximum
amount of $250,000. This line of credit bears interest at the rate of prime plus
one percent (9.25% at September 30, 2006) and has no stipulated repayment terms.
At September 30, 2006, the aggregate amount of principal and interest
outstanding on this credit line was $249,863. This line of credit is secured by
a lien on substantially all of our assets.
Financing Activities
In September 2005, the Company sold to accredited investors, in a private
placement offering (the "September 2005 Private Placement"), 2,870 Series A
Shares and warrants to purchase up to of 5,740,000 shares common stock (the
"Series A Warrants"), resulting in the receipt by the Company of $2,870,000 of
gross proceeds including the repayment of $50,000 of indebtedness outstanding
under the Bridge Loan from HSK Funding, Inc., by the conversion of that amount
into Series A Shares and Series A Warrants. These securities are convertible
into the shares of common stock. After deduction of all offering expenses for
the September 2005 Private Placement, including the placement agent's
commissions and nonaccountable expense allowance, the Company received net
proceeds of $2,485,163. The Company used these net proceeds for debt repayment,
legal fees, and general working capital purposes. At September 30, 2006, 420
Series A Shares had been converted into 935,000 shares of our common stock.
Anticipated Funding of Operations
The amount required to fund the growth our ongoing operations, as well as the
means by which we obtain this funding, will be wholly dependent on the magnitude
and timeframes we set for any growth in our business. Based on our current
expected growth in the next 12 to 24 months, we expect to fund our ongoing
operations as follows:
Cash Flow from Operations
Notwithstanding the decline in sales, during the third quarter of 2006, as
compared to the same period in 2005, our goal continues to be to significantly
increase our cash flow from operations by growing sales within our current
business structure and through the acquisition of other power sports dealers.
Based on our current business plan, and assuming that we can resume sales growth
consistent with increases achieved prior to the third quarter of 2006, we
believe that we will begin to generate sufficient cash flow from operations to
fund the growth of our business during the third quarter of 2007. To the extent
that the weaker sales climate we experienced during the third quarter continues
for a sustained period our ability to generate such cash flow could be delayed
or may not occur at all. Additionally, to the extent that the growth of our
business involves the acquisition of other dealers, our ability to do so will
depend on the availability of the types of financing discussed below.
Bank Financing
We currently have a revolving credit line with Fifth Third Bancorp in a total
available amount of $250,000 of which $249,863 was funded at September 30, 2006.
Equity Financing
Although it is not our intention to raise additional funds through the sale of
our equity securities to directly fund our working capital needs, to the extent
that sales of our power sports products continue at the levels experienced in
the three (3) month period ended September 30, 2006 and/or the growth of our
business involves either the acquisition of other power sports dealers or the
acquisition of significant assets out of the ordinary course of our business,
such as acquiring a new brand of motorcycles, we will most likely be required to
raise additional funds through the sale of common stock or preferred stock to
fund our business or consummate any of these acquisitions. It could be difficult
for us to raise funds in amounts and on terms sufficient to fund any of these
proposed acquisitions.
21
Funding of Future Acquisitions
Given our experience in financing the purchase of the Chicago Cycles assets, we
believe that the terms of future acquisitions, to the extent that they involve
significant amounts of debt financing, will require substantially longer periods
of time for repayment, which we anticipate to be at least 48 months, in order
for these acquisitions to be financially viable for us. We intend to give
careful consideration to these terms when deciding whether to acquire debt
financing in connection with future acquisitions.
Results of Operations
Three Months Ended September 30, 2006 Compared With Three Months Ended September
30, 2005.
September September
30, 2006 30, 2005
(Three (Three Increase
Months) Months) (Decrease) % Change
---------- ---------- ---------- --------
TOTAL REVENUES 24,866,822 27,249,505 (2,382,683) -8.7%
COST OF SALES 21,149,746 23,331,187 (2,181,441) -9.3%
OPERATING EXPENSES 3,502,751 3,236,829 265,922 8.2%
INCOME FROM OPERATIONS 214,325 681,489 (467,164) -68.6%
INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR
INCOME TAXES (128,969) 565,726 (694,695) -122.8%
NET INCOME (LOSS) BEFORE
PREFERRED DIVIDENDS (101,869) 325,726 (427,595) -131.3%
22
Total Revenues:
Revenues for the three months ended September 30, 2006 were $24,866,822
representing a decrease of $2,382,683 (-8.7%) from the $27,249,505 reported for
the three months ended September 30, 2005. This decrease in revenues was, we
believe, primarily attributable to a substantial reduction in the purchase of
motorcycles experienced by most dealers. Sales at our Chicago facilities were
most affected, representing substantially all of our decrease in revenues
between the applicable periods. While it is difficult to determine, with
certainty, the reasons for the significant decrease in the sales of motorcycles
and other power sports vehicles during the third quarter of 2006, we believe
that the following events have contributed to weaker sales:
o Continuing increases in consumer interest rates for the eighteen (18)
month period through June 2006 has made financing the purchase of
motorcycles more expensive and appears to have priced the purchase of a
motorcycle out of the price range of many potential customers;
o Also as a result of the increase in consumer interest rates, manufacturer
financing incentives, which provide purchasers with below market interest
rates at the beginning of the loan term and higher interest rates in later
years, were not nearly as successful in generating sales as such
incentives have been in prior periods;
o Gas prices, which had substantially increased during the twelve (12)
months prior to the third quarter of 2006, decreased considerably during
such quarter, possibly also reducing the incentive for prospective
customers to purchase motorcycles and scooters, which provide better gas
mileage and therefore lower fuel costs; and
o Manufacturers, particularly with respect to all terrain vehicles ("ATVs"),
did not introduce distinctively new models of their products for the 2006
model year, which appears to have resulted in less consumer interest and,
as a result, significantly weaker sales.
Cost of Sales:
Cost of sales for the three months ended September 30, 2006 was $21,149,746 a
decrease of $2,181,441 (-9.3%) from $23,331,187 for the three months ended
September 30, 2005. This decrease in cost of sales was primarily attributable to
a corresponding decrease in sales during the third quarter of 2006 compared with
the same period in 2005, as discussed in greater detail above.
Operating Expenses:
Operating expenses for the three month period ended September 30, 2006 were
$3,502,751, reflecting an increase of $265,922 (8.2%) from operating expenses of
$3,236,829 for the same period ended September 30, 2005. The aggregate increase
in such costs were principally related to (i) an approximate increase of
$438,151 in salaries and other compensation payable to employees, as well as
payroll taxes and (ii) an approximate increase of $60,500 in rent, during the
three months ended September 30, 2006 compared to the same period in 2005. This
increase was partially offset by a decrease in advertising and marketing
expenses in the third quarter of 2006 compared to the same period in 2005 of
approximately $305,300.
Income from Operations:
Income from operations decreased from $681,489 for the three months ended
September 30, 2005 to $214,325 for the three months ended September 30, 2006,
representing a decrease of $467,164 (-68.6%). This decrease in income from
operations was a direct result of the 8.7% decline in revenues, as discussed
above, along with the 8.2% increase in operating expenses, also as discussed
above.
23
Income (Loss) before Provision (Benefit) for Taxes:
We had a loss before provision for taxes, for the three months ended September
30, 2006 of $128,969 as compared with income before provision for taxes of
$565,726 for the same period in 2005, which represents a reduction of 122.8%.
This reduction in income before provision for taxes is similarly attributable to
the 8.7% decline in revenues and the 8.2% increase in operating expenses between
the applicable periods discussed above. Additionally, this reduction was also
the result of a substantial increase in net interest expense to $355,465 in the
three month period ended September 30, 2006 from $115,763 in the same period in
2005, an increase of 207%. Such increase in net interest expense was primarily
attributable to (i) the additional interest payable on financed inventory which
we were unable to sell due to the weak sales environment during the third
quarter of 2006 and (ii) an increase in the interest rate payable on our
inventory financing from 7.75% at September 30, 2005 to 9.25% at September 30,
2006.
Net Income (Loss) before Preferred Dividends:
We had a net loss before preferred dividends of $101,869 for the three months
ended September 30, 2006, as compared to net income of $325,726 for the same
period in 2005, which represents a reduction of 131.3%. There was a tax benefit
for the three month period ended September 30, 2006 of $27,100 as compared to
taxes of $240,000 for the same period in 2005. The reduction in net income
before preferred dividends was a result of all of the factors discussed above.
Nine Months Ended September 30, 2006 Compared With Nine Months Ended September
30, 2005
September September
30, 2006 30, 2005 Increase
(Nine Months) (Nine Months) (Decrease) % Change
------------- ------------- ---------- --------
TOTAL REVENUES 82,626,885 83,784,883 (1,157,998) -1.4%
COST OF SALES 70,362,596 73,271,992 (2,909,396) -4.0%
OPERATING EXPENSES 10,701,665 8,719,811 1,981,854 22.7%
INCOME FROM OPERATIONS 1,562,624 1,793,080 (230,456) -12.9%
INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR
INCOME TAXES 660,835 1,290,707 (629,872) -48.8%
NET INCOME (LOSS) BEFORE
PREFERRED DIVIDENDS 262,135 877,707 (615,572) -70.1%
24
Total Revenues:
Revenues for the nine months ended September 30, 2006 were $82,626,885
representing a decrease of $1,157,998 (-1.4%) from the $83,784,883 reported for
the nine months ended September 30, 2005. In addition to the weaker sales in the
third quarter, which is discussed above, revenues from sales, during the first
quarter of 2006 were also down 11.2% compared to the first quarter of 2005,
despite an increase in revenues from retail sales of our products, during the
first quarter of 2006, as compared to the same period in 2005. Such decrease was
primarily attributable to a significant reduction in revenues from wholesale
sales of our products to other dealers and distributors, in the first three
months of 2006. Reducing wholesale sales was part of our plan to stabilize our
inventory for the purpose of increasing our profit margins for the remainder of
2006. During the second quarter of 2006, revenues increased by 9.9% compared to
the same period in 2005. This increase almost completely offset decreases during
the first and third quarters.
Cost of Sales:
Cost of sales for the nine months ended September 30, 2006 decreased by
$2,909,396 (-4.0%) to $70,362,596 during the nine months ended September 30,
2006, as compared to $73,271,992 for the same period in 2005. As discussed
above, the reduction in the cost of sales for the three months ended September
30, 2006 reflects the decrease in sales during that period compared to the third
quarter of 2005. We experienced a greater reduction in cost of sales on a
percentage basis (-15.4%) during the first quarter of 2006 compared to the same
period, similarly due to the decrease in sales between those two periods. These
reductions were substantially offset by an increase in cost of sales of 6.9% in
the second quarter of 2006 compared to the same period in 2005. Such increase
similarly corresponded with the increase in sales between those applicable
periods.
Operating Expenses:
Operating expenses for the nine months ended September 30, 2006 were
$10,701,665, an increase of $1,981,854 (22.7%) over $8,719,811 for the same
period in 2005. The aggregate increase in such costs was principally related to
(i) an approximate increase of $1,019,076 in salaries and other compensation
payable to employees; (ii) an approximate increase of $226,969 in advertising
and marketing expenses; (iii) an approximate increase of $149,695 in rent; (iv)
an approximate $105,549 increase in insurance; and (v) an approximate increase
of $93,021 in utilities during the nine months ended September 30, 2006 compared
to the same period in 2005.
Income from Operations:
Income from operations decreased from $1,793,080 for the nine months ended
September 30, 2005 to $1,562,624 for the nine months ended September 30, 2006,
representing a decrease of $230,456 (-12.9%). This decrease in income from
operations was primarily attributable to the 22.7% increase in operating
expenses, as discussed above.
Income (Loss) before Provision (Benefit) for Taxes:
We had income before provision for taxes for the nine months ended September 30,
2006 of $660,835, as compared with income before provision for taxes of
$1,290,707 for the same period in 2005, which represents a reduction of 48.8%.
This reduction in income before provision for taxes is primarily attributable to
the 22.7% increase in operating expenses between the applicable periods
discussed above. Additionally, this reduction was also the result of a
substantial increase in net interest expense to $935,157 in the three month
period ended September 30, 2006 from $601,933 in the same period in 2005, an
increase of 55.4%. Such increase in net interest expense was primarily
attributable to (i) the additional interest payable on financed inventory which
we were unable to sell due to the weak sales environment during the third
quarter of 2006 and (ii) an increase in the interest rate payable on our
inventory financing from 7.75% at September 30, 2005 to 9.25% at September 30,
2006.
25
Net Income (Loss) before Preferred Dividends:
We had net income before preferred dividends of $262,135 for the nine months
ended September 30, 2006, as compared to net income of $877,707 for the same
period in 2005, which represents a reduction of 70.1%. Taxes for the nine month
period ended September 30, 2006 were $398,700 as compared to $413,000 for the
same period in 2005. Although net income was approximately 70% less between
these periods, provision for taxes was only slightly less in the three months
ended September 30, 2006 compared with the same period in 2005, since the
Company was able to apply net operating losses from prior years during 2005,
which were no longer available in 2006. The reduction in net income before
preferred dividends was a result of all of the factors described above,
including the proportionately higher tax rate paid by the Company for the nine
months ended September 30, 2006.
Liquidity and Capital Resources
Our primary source of liquidity has been cash generated by operations and
borrowings under various credit facilities. At September 30, 2006, we had
$139,600 in cash and cash equivalents, compared to $227,301 at December 31,
2005. Until required for operations, our policy is to invest excess cash in bank
deposits and money market funds. Net working capital at September 30, 2006 was
$1,082,109 compared to $1,128,886 at December 31, 2005.
The Company receives floor plan financing from six different motorcycle
manufacturers for whom the Company sells the manufacturers' products. The
Company uses such floor plan financing to assist it in financing and carrying
the Company's inventory necessary to achieve the Company's sales goals. Such
manufacturer's collateral includes all unit inventory plus a general lien on all
assets of Andrews Cycles and Chicago Cycles.
The Company has acquired the loans described under the heading Loan Transactions
above. As a result of the September 2005 Private Placement, the Company also
raised additional cash from financing activities of approximately $2,485,000 for
use in connection with its operations. As a result of weaker sales during the
third quarter of 2006, the Company may be required to obtain additional debt
financing to support its operations until cash flow resumes more traditional
levels, which the Company anticipates occurring on or around the beginning of
the second quarter of 2007. Additionally, in the future the Company may attempt
to raise additional financing through the sale of its debt and/or equity
securities for expansion of its business including acquisitions of other dealers
and brands.
Inventory Management
We believe that successful inventory management is the most important factor in
determining our profitability. In the power sports business, and particularly as
it relates to the sale of motorcycles, there is normally a limited timeframe for
the sale of current year models. For example, if we are unable to sell a
significant portion of our 2006 models before the 2007 models are released, it
could be very difficult for us to sell our remaining inventory of 2006 models.
Therefore, our goal is to limit sales of carryover products (i.e. products that
remain in inventory after the release of new models) to no more than 10% of our
total sales each year. This is accomplished by making all of our purchasing
decisions based on sales information for the prior year and then utilizing
aggressive sales and marketing techniques during the early part of a model year
in order to assure the timely sale of our products.
26
Additionally, by limiting our carryover to 10% of total sales, we also are able
to benefit from cash incentives provided by manufacturers with respect to most
of these products. These cash incentives minimize our need to reduce prices for
these models, as our customers are provided with cash reimbursement directly
from the manufacturers. Similarly, we are able to use the cash incentives
provided on our carryover products to promote new models, as the incentives
generate greater showroom traffic.
Seasonality.
Our two main products - motorcycles and all terrain vehicles ("ATVs") are
subject to seasonality. Traditionally, the motorcycle season begins in late
February or early March and runs until September. In September/October, the sale
of ATVs increases while motorcycle sales decrease.
Impact of Inflation.
General inflation in the economy has driven the operating expenses of many
businesses higher, and, accordingly we have experienced increased salaries and
higher prices for supplies, goods and services. We continuously seek methods of
reducing costs and streamlining operations while maximizing efficiency through
improved internal operating procedures and controls. While we are subject to
inflation as described above, our management believes that inflation currently
does not have a material effect on our operating results, but there can be no
assurance that this will continue to be so in the future.
Critical Accounting Policy and Estimates.
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations section discusses our condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America, as promulgated by the PCAOB. The
preparation of these condensed consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period. On an
on-going basis, management evaluates its estimates and judgments, including
those related to revenue recognition, fixed assets, inventory, accounts
receivable, accrued expenses, financing operations, and contingencies and
litigation. Management bases its estimates and judgments on historical
experience and on various other factors that are believed reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. Set forth below are the policies that we have
identified as critical to our business operations and the understanding of our
results of operations or that involve significant estimates. For detailed
discussion of other significant accounting policies see Note A, Summary of
Significant Accounting Policies, of Notes to Condensed Consolidated Financial
Statements, contained elsewhere in this report.
Intangibles and Long-lived Assets - Goodwill is tested for impairment on an
annual basis, or more frequently if events or circumstances indicate that
impairment may have occurred. The Company is subject to financial statement risk
to the extent that intangible assets become impaired due to decreases in the
fair market value of the related underlying business.
We estimate the depreciable lives of our property and equipment, including any
leasehold improvements, and review them on an on-going basis. The Company
believes that the long-lived assets are appropriately valued. However, the
assumptions and estimates used may change, and the Company may be required to
record impairment to reduce the carrying value of these assets.
27
Revenue Recognition:
Vehicle Sales - The Company records revenue when vehicles are delivered and
title has passed to the customer, when vehicle service or repair work is
performed and when parts are delivered. Sales promotions that are offered to
customers are accounted for as a reduction to the sales price at the time of
sale. Incentives, rebates and holdbacks offered by manufacturers directly to the
Company are recognized at the time of sale if they are vehicle specific, or as
earned in accordance with the manufacturer program rules and are recorded as a
reduction of cost of merchandise sold.
Finance, Insurance and Extended Service Revenues - The Company arranges
financing for customers through various financial institutions and receives a
commission from the lender equal to the difference between the interest rates
charged to customers and the interest rates set by the financing institution.
The Company also receives commissions from the sale of various third party
insurance products to customers and extended service contracts. These
commissions are recorded as revenue at the time the customer enters into the
contract. The Company is not the obligor under any of these contracts. In the
case of finance contracts, a customer may prepay or fail to pay their contract,
thereby terminating the contract. Customers may also terminate extended service
contracts, which are fully paid at purchase, and become eligible for refunds of
unused premiums. In these circumstances, a portion of the commissions the
Company receives may be charged back based on the relevant terms of the
contracts. The revenue the Company records relating to commissions is net of an
estimate of the ultimate amount of chargebacks the Company will be required to
pay. Such estimates of chargeback experience are based on our historical
chargeback expense arising from similar contracts. The Company also acts as the
warrantor on certain extended service contracts and defers the revenue and
recognizes it over the life of the contract on a straight-line basis.
Off-Balance Sheet Arrangements.
We have no off-balance sheet arrangements.
Contractual Obligations
We have entered into various contractual obligations, which may be summarized as
follows:
-------------------------------------------------------------------------------------------------------------------------
Payments due by period
-----------------------------------------------------------------------
Contractual Obligations Less than 1 More than 5
Total year 1-3 years 3-5 years years
-------------------------------------------------------------------------------------------------------------------------
Long-Term Debt Obligations $1,327,355 $ 702,315 $ 625,040 -- --
-------------------------------------------------------------------------------------------------------------------------
Capital (Finance) Lease Obligations $5,111,008 $ 500,000 $1,694,845 $1,854,609 $1,061,554
-------------------------------------------------------------------------------------------------------------------------
Operating Lease Obligations -- -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
Purchase Obligations As Needed
-------------------------------------------------------------------------------------------------------------------------
Other Long-Term Liabilities Reflected on the
Company's Balance Sheet under the GAAP of the -- -- -- -- --
primary financial statements
-------------------------------------------------------------------------------------------------------------------------
Total $6,438,363 $1,202,315 $2,319,885 $1,854,609 $1,061,554
-------------------------------------------------------------------------------------------------------------------------
28
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company is exposed to market risk in the ordinary course of its business.
These risks are primarily related to changes in short-term interest rates. The
potential impact of the Company's exposure to these risks is presented below:
Interest Rates
Floor Plan Financing:
We purchase new and used vehicle inventory by utilizing floor plan financing
provided by lending institutions, as well as manufacturers of certain of the
products we sell, including Kawasaki Motor Finance Company and America Honda
Finance. We had outstanding indebtedness under floor plan notes of $20,878,709
and $17,159,719, at September 30, 2006 and December 31, 2005, respectively.
Interest rates in connection with our floor plan financing generally fluctuate
based on the prime rate, the type of product being financed and the length of
time that such product remains on the floor plan. During the first nine months
of 2006, interest rates on our floor plan financing have ranged from a low of
4.8% to a high of 16.5%. Since we are dependent to a significant extent on our
ability to finance the purchase of inventory, increases in the prime rate of
interest could have a significant negative impact on our income from operations,
as a result of the greater interest we will be required to pay with respect to
our floor plan financing. When new model inventory is initially purchased
usually there is a period of time when zero interest is paid or accrued.
However, interest costs on new inventory will begin to accrue in a subsequent
period. Continued increases would, in all likelihood, result in a reduction in
our income from operations in 2006 and thereafter. Although we cannot determine
the precise impact of rate increases, we believe that we would begin to
experience a material negative impact on our financial condition if the prime
rate were to increase to 10% from its current rate of 8.25%.
Line of Credit:
We also have an existing revolving credit line with Fifth Third Bancorp, the
interest rate of which also fluctuates with the prime rate, at prime plus one
percent. Since the aggregate outstanding indebtedness of this line of credit was
$249,863 and $249,863 at September 30, 2006 and December 31, 2005, respectively,
we do not believe that fluctuations in the prime rate under our credit line will
have more than a slight negative impact on our income from operations.
Hedging Activities
We normally invest any available cash in short-term investments and do not
currently have any investment strategies to hedge against increases in interest
rates. Additionally, although we do not currently intend to commence any such
hedging investments in the future, in the event that we determine that there is
a substantial risk that increases in interest rates would have a material
negative impact on our business, we may consider such hedging strategies at that
time.
Foreign Exchange Rates
We are not currently, and have not in the past, been subject to fluctuations in
exchange rates of foreign currencies against the U.S. Dollar, since virtually
all of the vehicles, accessories and parts that we purchase in connection with
our business are purchased from the U.S. subsidiaries of Japanese manufacturers
in U.S. Dollars. Additionally, all of our product sales are made in the United
States in U.S. Dollars. In the event that our business model changes in the
future, and we either purchase products in foreign currencies such as Japanese
Yen, or sell products outside of the United States, for which we accept payment
in foreign currencies, we could become subject to exchange rate fluctuations at
that time.
29
Item 4. Controls and Procedures
Our management evaluated, with the participation of our principal executive
officer and principal financial officer, the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report
(September 30, 2006). Based on this evaluation, our principal executive officer
and our principal financial officer have concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were
effective. Disclosure controls and procedures mean our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in our reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in our reports that we file or submit
under the Securities Exchange Act of 1934 is accumulated and communicated to our
management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting that
occurred during the quarter ended September 30, 2006 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
30
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
The most significant risk factors applicable to the Company are described in
Part I, Item 1A (Risk Factors) of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2005 (our "2005 Form 10-K"). There have been
no material changes to the risk factors previously disclosed in our 2005 Form
10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On October 27, 2006, Russell Haehn, the Company's Chairman and Chief Executive
Officer provided a working capital loan to the Company in the amount of
$350,000. This loan is evidenced by a promissory note (the "Note") in the
principal amount of $350,000 payable on demand any time after October 26, 2007.
The Note bears interest at a rate of 6% per annum, and the outstanding principal
amount and all accrued interest are payable upon demand or sooner if prepaid by
the Company.
Item 6. Exhibits
10.2 Promissory Note issued to Russell A. Haehn, dated as of October 27,
2006, in the principal amount of $350,000.
31.1 Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).
31.2 Certification of the Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).
32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Rule 13a-14(b)).
32.2 Certification of the Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Rule 13a-14(b)).
31
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, thereunto duly authorized.
GIANT MOTORSPORTS, INC.
Date: November 17, 2006 By: /s/ Russell A. Haehn
----------------------------------------
Name: Russell A. Haehn
Title: Chairman of the Board of Directors,
Chief Executive Officer and Secretary
(Principal Executive Officer)
Date: November 17, 2006 By: /s/ Gregory A. Haehn
----------------------------------------
Name: Gregory A. Haehn
Title: President, Chief Operating Officer,
Treasurer and a Director
(Principal Financial and Accounting
Officer)
32