Unassociated Document
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 June 30, 2008
OR
o
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 Incorporation or
Organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
13134
State Route 62, Salem, Ohio
|
|
44460
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
(440)
439-9480
(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
o
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
definitions of "large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer
o |
Accelerated
Filer
o |
Non-Accelerated
Filer
o |
Smaller
Reporting Company
x |
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
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 August 8, 2008 the registrant
had 12,948,316 shares
of
common stock, $.001 par value, issued and outstanding.
GIANT
MOTORSPORTS, INC.
INDEX
TO
FORM 10-Q
|
|
Page
No.
|
PART
I. FINANCIAL INFORMATION
|
|
1
|
|
|
|
Item
1. Financial Statements
|
|
1
|
|
|
|
Condensed
Consolidated Balance Sheets as of June 30, 2008 (Unaudited) and December
31, 2007 (Audited)
|
|
1
|
|
|
|
Condensed
Consolidated Statements of Operations for the Six and Three Months
Ended June 30, 2008 and 2007 (Unaudited)
|
|
3
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended June
30, 2008 and 2007 (Unaudited)
|
|
4
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
|
5
|
|
|
|
Item
2. Management’s Discussion and Analysis of
Financial Conditions and Results of Operations
|
|
15
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures
about Market Risk
|
|
23
|
|
|
|
Item
4T. Controls and Procedures
|
|
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
Item
1. Legal Proceedings
|
|
|
|
|
|
Item
1A. Risk Factors
|
|
|
|
|
|
Item
2. Unregistered Sales of Equity Securities
and Use of Proceeds
|
|
|
|
|
|
Item
3. Defaults upon Senior
Securities
|
|
|
|
|
|
Item
4. Submission of Matters to a Vote of Security
Holders
|
|
|
|
|
|
Item
5. Other Information
|
|
|
|
|
|
Item
6. Exhibits
|
|
|
|
|
|
SIGNATURES
|
|
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
GIANT
MOTORSPORTS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
ASSETS
|
|
June 30, 2008
|
|
December 31, 2007
|
|
|
|
Unaudited
|
|
Audited
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
596,072
|
|
$
|
919,784
|
|
Accounts
receivable, net
|
|
|
4,678,515
|
|
|
3,421,107
|
|
Inventories
|
|
|
21,058,036
|
|
|
25,626,033
|
|
Deferred
tax assets
|
|
|
11,400
|
|
|
22,000
|
|
Prepaid
expenses
|
|
|
83,692
|
|
|
28,069
|
|
TOTAL
CURRENT ASSETS
|
|
|
26,427,715
|
|
|
30,016,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIXED
ASSETS, NET
|
|
|
1,467,307
|
|
|
1,666,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
Intangibles,
net
|
|
|
1,688,950
|
|
|
1,688,950
|
|
Deposits
|
|
|
45,600
|
|
|
45,600
|
|
TOTAL
OTHER ASSETS
|
|
|
1,734,550
|
|
|
1,734,550
|
|
TOTAL
ASSETS
|
|
$
|
29,629,572
|
|
$
|
33,418,371
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
GIANT
MOTORSPORTS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
June 30, 2008
|
|
December 31, 2007
|
|
|
|
Unaudited
|
|
Audited
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
592,549
|
|
$
|
796,510
|
|
Notes
payable, floor plans
|
|
|
19,606,231
|
|
|
24,748,401
|
|
Note
payable, officer
|
|
|
186,527
|
|
|
119,551
|
|
Accounts
payable, trade
|
|
|
1,664,139
|
|
|
1,055,932
|
|
Accrued
expenses
|
|
|
690,235
|
|
|
583,102
|
|
Accrued
tax provision
|
|
|
558,200
|
|
|
436,200
|
|
Customer
deposits
|
|
|
1,385,130
|
|
|
834,594
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
24,683,011
|
|
|
28,574,290
|
|
|
|
|
|
|
|
|
|
DEFERRED
TAX LIABILITIES
|
|
|
13,500
|
|
|
13,500
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT, NET
|
|
|
314,316
|
|
|
428,488
|
|
TOTAL
LIABILITIES
|
|
|
25,010,827
|
|
|
29,016,278
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 shares
issued
and outstanding at June 30, 2008 and December 31, 2007.
|
|
|
2,450,000
|
|
|
2,450,000
|
|
Common
stock, $.001 par value, authorized 75,000,000 shares 12,948,316
and
12,452,651 shares issued and outstanding at June 30, 2008 and
December 31,
2007, respectively
|
|
|
12,949
|
|
|
12,453
|
|
Additional
paid-in capital
|
|
|
2,141,942
|
|
|
2,053,218
|
|
Additional
paid-in capital - Options
|
|
|
93,426
|
|
|
93,426
|
|
Additional
paid-in capital - Warrants
|
|
|
1,724,800
|
|
|
1,724,800
|
|
Additional
paid-in capital - Beneficial conversions
|
|
|
1,303,400
|
|
|
1,303,400
|
|
Issuance
cost on preferred series A shares convertible
|
|
|
(786,762
|
)
|
|
(786,762
|
)
|
Accumulated
deficit
|
|
|
(2,321,010
|
)
|
|
(2,448,442
|
)
|
TOTAL
STOCKHOLDERS' EQUITY
|
|
|
4,618,745
|
|
|
4,402,093
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
29,629,572
|
|
$
|
33,418,371
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
GIANT
MOTORSPORTS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE
SIX AND THREE MONTHS ENDED JUNE 30,
|
|
Six months ended
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
52,793,623
|
|
$
|
54,153,538
|
|
$
|
33,961,197
|
|
$
|
34,119,422
|
|
Finance,
insurance and extended service revenues
|
|
|
1,653,155
|
|
|
2,059,509
|
|
|
1,198,682
|
|
|
1,187,721
|
|
TOTAL
REVENUES
|
|
|
54,446,778
|
|
|
56,213,047
|
|
|
35,159,879
|
|
|
35,307,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
46,589,073
|
|
|
47,528,395
|
|
|
29,684,574
|
|
|
29,099,759
|
|
GROSS
PROFIT
|
|
|
7,857,705
|
|
|
8,684,652
|
|
|
5,475,305
|
|
|
6,207,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
4,451,997
|
|
|
4,355,448
|
|
|
2,580,654
|
|
|
2,565,277
|
|
General
and administrative expenses
|
|
|
2,558,502
|
|
|
2,217,770
|
|
|
1,480,937
|
|
|
1,215,161
|
|
|
|
|
7,010,499
|
|
|
6,573,218
|
|
|
4,061,591
|
|
|
3,780,438
|
|
INCOME
FROM OPERATIONS
|
|
|
847,206
|
|
|
2,111,434
|
|
|
1,413,714
|
|
|
2,426,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME AND (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
69,952
|
|
|
29,639
|
|
|
34,359
|
|
|
24,933
|
|
Gain
on sale of asset
|
|
|
-
|
|
|
184
|
|
|
-
|
|
|
-
|
|
Interest
expense, net
|
|
|
(547,906
|
)
|
|
(743,556
|
)
|
|
(281,040
|
)
|
|
(326,945
|
)
|
|
|
|
(477,954
|
)
|
|
(713,733
|
)
|
|
(246,681
|
)
|
|
(302,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE PROVISION FOR TAXES
|
|
|
369,252
|
|
|
1,397,701
|
|
|
1,167,033
|
|
|
2,124,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
152,600
|
|
|
483,500
|
|
|
410,600
|
|
|
737,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE PREFERRED DIVIDENDS
|
|
|
216,652
|
|
|
914,201
|
|
|
756,433
|
|
|
1,387,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED
DIVIDENDS
|
|
|
89,220
|
|
|
92,703
|
|
|
-
|
|
|
-
|
|
NET
INCOME ATTRIBUTABLE TO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
127,432
|
|
$
|
821,498
|
|
$
|
756,433
|
|
$
|
1,387,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
INCOME PER SHARE
|
|
$
|
0.01
|
|
$
|
0.07
|
|
$
|
0.06
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
INCOME PER SHARE
|
|
$
|
0.00
|
|
$
|
0.03
|
|
$
|
0.03
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
12,784,910
|
|
|
12,075,770
|
|
|
12,948,316
|
|
|
12,213,126
|
|
DILUTED
|
|
|
29,414,688
|
|
|
28,914,973
|
|
|
29,627,890
|
|
|
28,471,321
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
GIANT
MOTORSPORTS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE
SIX MONTHS ENDED JUNE 30, 2008 and 2007
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
216,652
|
|
$
|
914,201
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
216,633
|
|
|
220,890
|
|
Deferred
federal income tax credit (net)
|
|
|
10,600
|
|
|
(16,200
|
)
|
Bad
debt expense
|
|
|
57,429
|
|
|
31,834
|
|
(Gain)
on sale of asset
|
|
|
-
|
|
|
(184
|
)
|
(Increase)
in accounts receivable, net
|
|
|
(1,314,837
|
)
|
|
(827,837
|
)
|
(Increase)
in accounts receivable, employees
|
|
|
-
|
|
|
(11,277
|
)
|
Decrease
in inventories
|
|
|
4,567,997
|
|
|
162,913
|
|
(Increase)
in prepaid expenses
|
|
|
(55,623
|
)
|
|
(27,469
|
)
|
(Increase)
in deposits - inventory transit
|
|
|
-
|
|
|
(107,757
|
)
|
Increase
in customer deposits
|
|
|
550,536
|
|
|
103,841
|
|
Increase
in accounts payable trade
|
|
|
608,207
|
|
|
410,969
|
|
(Decrease)
in floor plan liability
|
|
|
(5,142,170
|
)
|
|
(662,572
|
)
|
Increase
(decrease) in accrued income taxes
|
|
|
122,000
|
|
|
499,700
|
|
Increase
in accrued expenses
|
|
|
107,133
|
|
|
220,811
|
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
|
(55,443
|
)
|
|
911,863
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Acquisition
of fixed assets
|
|
|
(17,112
|
)
|
|
(29,932
|
)
|
Proceeds
from sale of property and equipment
|
|
|
-
|
|
|
7,000
|
|
(Increase)
in deposits
|
|
|
-
|
|
|
(3,000
|
)
|
NET
CASH (USED IN) INVESTING ACTIVITIES
|
|
|
(17,112
|
)
|
|
(25,932
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
|
(318,133
|
)
|
|
(163,275
|
)
|
Proceeds
from note payable - officer
|
|
|
196,976
|
|
|
-
|
|
Payments
on note payable to officer
|
|
|
(130,000
|
)
|
|
(95,399
|
)
|
NET
CASH (USED IN) FINANCING ACTIVITIES
|
|
|
(251,157
|
)
|
|
(258,674
|
)
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(323,712
|
)
|
|
627,257
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, beginning of Period
|
|
|
919,784
|
|
|
156,530
|
|
CASH
AND CASH EQUIVALENTS, end of Period
|
|
$
|
596,072
|
|
$
|
783,787
|
|
|
|
|
|
|
|
|
|
OTHER
SUPPLEMENTARY CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
Debt
incurred for acquistion of vehicles and equipment
|
|
$
|
-
|
|
$
|
56,827
|
|
Income
taxes paid
|
|
$
|
20,000
|
|
$
|
-
|
|
Interest
paid
|
|
$
|
547,906
|
|
$
|
743,556
|
|
Preferred
stock dividends paid in common stock
|
|
$
|
89,220
|
|
$
|
92,703
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
GIANT
MOTORSPORTS, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30,
2008 and 2007
(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, 2007 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.
GIANT
MOTORSPORTS, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE
30,
2008 and 2007
(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
sufficient at June 30, 2008.
GIANT
MOTORSPORTS, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE
30,
2008 and 2007
(UNAUDITED)
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
GIANT
MOTORSPORTS, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE
30,
2008 and 2007
(UNAUDITED)
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
The Company had $797,098 and $821,722 in excess of the federally insured
limit
at June 30, 2008 and December 31, 2007, respectively.
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
|
|
|
39
|
|
|
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
GIANT
MOTORSPORTS, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE
30,
2008 and 2007
(UNAUDITED)
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill
and Other Intangible Assets (Continued):
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
|
|
Income
Taxes:
Income
taxes are calculated using the liability method specified by Statement of
Financial Accounting Standards No. 109, “Accounting for Income
Taxes.”
At
June
30, 2008, 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 $1,033,348
and $768,664 for the six months ended June 30, 2008 and 2007,
respectively.
Earnings
Per Share of Common Stock:
Historical
net income 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.
GIANT
MOTORSPORTS, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE
30,
2008 and 2007
(UNAUDITED)
NOTE
A -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings
Per Share of Common Stock (Continued):
The
following is a reconciliation of the computation for basic and diluted
EPS:
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Net
income attributed to common shares
|
|
$
|
127,432
|
|
$
|
821,498
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding (Basic)
|
|
|
12,784,910
|
|
|
12,075,770
|
|
|
|
|
|
|
|
|
|
Weighted-average
common stock equivalents:
|
|
|
|
|
|
|
|
Warrants
|
|
|
16,629,778
|
|
|
16,839,203
|
|
Options
|
|
|
-
|
|
|
-
|
|
Weighted-average
common shares outstanding
|
|
|
29,414,688
|
|
|
28,914,973
|
|
The
Company uses the intrinsic value method to account for warrants granted to
executive officers, directors, key employees and advisors for the purchase
of
common stock. No compensation expense is recognized on the grant date, since
at
that date, the warrant price equals or is higher than the market price of
the
underlying common stock. The Company discloses the pro forma effect of
accounting for stock warrants under the fair value method. The Company uses
the
fair value method to account for warrants granted to advisors for the purchase
of common stock. There were 16,679,574 common stock equivalents available
at
June 30, 2008 and 2007.
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,
manufacturers, employees, and finance companies for contracts in transit
and is
net of an allowance for doubtful accounts of $25,000 at June 30, 2008.
GIANT
MOTORSPORTS, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE
30,
2008 and 2007
(UNAUDITED)
NOTE
C -
INVENTORIES
Inventories
consisted of vehicles and parts and accessories.
NOTE
D -
FIXED ASSETS
Fixed
assets consisted of the following:
|
|
June 30,
|
|
|
|
2008
|
|
|
|
|
|
Fixtures
and equipment
|
|
$
|
2,149,616
|
|
Vehicles
|
|
|
422,917
|
|
Leasehold
improvements
|
|
|
617,065
|
|
|
|
|
3,189,598
|
|
Less
accumulated depreciation
|
|
|
1,722,291
|
|
NET
FIXED ASSETS
|
|
$
|
1,467,307
|
|
Depreciation
expense charged to operations amounted to $216,633 and $220,890 for the six
months ended June 30, 2008 and 2007, respectively.
NOTE
E -
NOTES PAYABLE - FLOOR PLANS
The
Company has various floor plan financing agreements aggregating $19,606,231
at
June 30, 2008. 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 5.0% to 18.0% at June 30, 2008). 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 $542,002 at June 30, 2008. This
amount matures at various times ranging from 2009 to 2011, bearing interest
at
various rates ranging from 5% to 10% per year. The notes are collateralized
by
substantially all of the Company’s assets.
GIANT
MOTORSPORTS, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE
30,
2008 and 2007
(UNAUDITED)
NOTE
F -
LONG-TERM DEBT (CONTINUED)
The
Company has a $250,000 revolving line of credit with a bank with an outstanding
balance of $249,863 at June 30, 2008. The revolving line of credit has no
stipulated repayment terms. This loan bears interest at prime plus one percent
(6.00% at June 30, 2008) and is collateralized by substantially all of the
Company’s assets.
The
Company has two notes with HSK Funding each for $250,000. Each note bears
interest at 15.5%. The notes are due in full on August 31, 2008. The total
outstanding balance on these notes in the aggregate was $115,000 at June
30,
2008.
NOTE
G -
NOTES PAYABLE- OFFICERS
Notes
payable to officers consisted of two promissory notes at June 30, 2008 and
one
promissory note at December 31, 2007, bearing interest at 6% per year. The
loans
are payable on demand, and as such, have been classified as current liabilities.
Interest charged to operations amounted to $6,976 and $9,041 for the six
months
ended June 30, 2008 and 2007, respectively. The aggregate balance of the
two
officer loans outstanding at June 30, 2008 was $186,527 and the balance of
the
one officer loan outstanding at December 31, 2007 was $119,551.
NOTE
H -
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. 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
Company also leases office space at the Chicago location under a ten-year
agreement with a ten-year renewal option. The payments on the lease commenced
in
August 2005 at a monthly amount of $15,295 through May 2007, then increasing
to
$15,754 per month from June 2007 through May 2008, $16,226 per month from
June
2008 through May 2009 and then increasing 3% annually for the remaining term
of
the lease.
GIANT
MOTORSPORTS, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE
30,
2008 and 2007
(UNAUDITED)
NOTE
H -
LEASES (CONTINUED)
The
following is a five-year summary of future minimum lease payments under
operating leases that have initial or remaining noncancellable terms in excess
of one year as of June 30, 2008:
Year Ending
|
|
Amount
|
|
|
|
|
|
2009
|
|
$
|
1,044,120
|
|
2010
|
|
|
1,066,803
|
|
2011
|
|
|
1,090,167
|
|
2012
|
|
|
1,114,229
|
|
2013
|
|
|
1,139,018
|
|
|
|
$
|
5,454,337
|
|
The
Company also leased two (2) residential locations in Chicago under a
month-to-month agreement. The amount charged to rent amounted to $27,600
and
$15,900 for the six months ended June 30, 2008 and 2007, respectively.
NOTE
I -
INCOME TAXES
Income
taxes (credit) consisted of the following:
|
|
June 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Current
|
|
$
|
(258,000
|
)
|
$
|
492,750
|
|
Deferred
|
|
|
0
|
|
|
38,250
|
|
|
|
$
|
(258,000
|
)
|
$
|
531,000
|
|
Income
taxes paid amounted to $20,000 and $-0- for the six months ended June 30,
2008
and 2007, respectively.
Deferred
tax assets (liabilities) consisted of the following:
|
|
June 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
Deferred
tax assets - current and long term:
|
|
|
|
|
|
|
|
Allowance
for doubtful account and net operating loss carryforward
|
|
$
|
280,000
|
|
$
|
22,000
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities - long term
|
|
|
(13,500
|
)
|
|
(38,250
|
)
|
TOTALS
|
|
$
|
(266,500
|
)
|
$
|
(16,250
|
)
|
GIANT
MOTORSPORTS, INC.
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE
30,
2008 and 2007
(UNAUDITED)
NOTE
J -
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 $144,000 for
the
six months ended June 30, 2008 and 2007.
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. 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 did not 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.
The
Company issued 495,665 and 421,379 shares of its common stock as a dividend
to
all Series A Preferred shareholders for the six-month period ending June
30,
2008 and 2007, respectively, in accordance with the placement offering
provisions.
NOTE
L -
COMMON STOCK
The
Company has 75,000,000 shares of $.001 par common stock authorized, with
12,948,316 and 12,452,651 issued and outstanding at June 30, 2008 and December
31, 2007, respectively.
The
Company issued 495,665 and 421,379 shares of common stock for the six-month
period ending June 30, 2008 and 2007, respectively, to holders of our Preferred
Series A, in accordance with the placement offering provisions, as described
above on NOTE K.
Item
2. Management's Discussion and Analysis of Financial Conditions and Results
of
Operations
The
following discussion of our results of operations and financial condition should
be read together with the consolidated financial statements and the notes to
those statements included elsewhere in this quarterly report. This discussion
may contain forward-looking statements that involve risks and uncertainties.
Our
actual results could differ materially from the results anticipated in any
forward-looking statements as a result of a variety of factors.
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.
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,
Kawasaki, and Polaris. Our superstores operate under the names “Andrews Cycles”
and “Chicago Cycles.” Andrews Cycles is located in Salem, Ohio, has
approximately 50 employees and operates from an approximately 75,000 square
foot
facility. Chicago Cycles is located in the Chicago metropolitan area, has
approximately 95 employees and operates from an approximately 95,000 square
foot
facility in Skokie, Illinois, pursuant to a ten-year lease we entered into
in
October 2004.
Overview
of Economic Trends.
Effects
of Changes in Interest Rates
After
a
two-year period of measured increases in the federal discount rate, beginning
in
the third quarter of 2006 and continuing through the first quarter of 2008,
the
Federal Reserve reduced the primary discount rate to 2.00% on April 30, 2008
and
has not changed the rate since that date. Since many of our customers depend
on
bank financing to purchase our motorcycles and other power sports equipment,
changes in interest rates normally have a direct effect on our sales. Our
revenue from sales of power sports products during the first half of 2008 was
approximately 3% less than for the same period in 2007. During the first half
of
2008, $15.1 million of the approximately $52.3 million of our power sports
sales
(28.8%) were financed. We have experienced significant tightening of credit
standards and reduction in the availability of credit for prospective purchasers
of our products from various lenders. We believe that the foregoing has had
a
material negative effect on customers seeking financing for the purchase of
motorcycles and other motorsports products and as a direct result a reduction
on
our sales revenues. We believe that higher credit standards and reduced
availability of credit will continue to negatively effect our business
throughout the remainder of 2008. In the event that the Federal Reserve becomes
more concerned about inflation in the next six to twelve months, this could
result in a change in policy and a decision to commence measured increases
in
the federal discount rate next year. The uncertainties created in the consumer
financing market as a result of corresponding additional increases in interest
rates, could reasonably be expected to have a negative impact on the sale of
motorcycles, due to the increased financing costs to our customers.
Effects
of U.S. Credit Markets
During
2007, the U.S. credit markets had dealt with the effects of numerous defaults
by
homeowners on “sub-prime” mortgage loans. By December 2007 these defaults had
also begun to increase with respect to mortgages considered to be of less credit
risk than “sub-prime” mortgages. Mortgage default rates have continued to
increase through the first half of 2008 and are expected to increase throughout
the remainder of the year. These defaults have not only had a materially adverse
impact on the spending power of the borrowers of such defaulted mortgage loans,
but have also reduced the value of investment portfolios containing securities
affected by such mortgages. Furthermore, the mortgage defaults have lead to
a
credit crunch throughout the entire lending industry, significantly reducing
purchasers’ discretionary spending power. Since motorcycle purchases, in the
U.S. and, to a greater extent, purchases of ATV's, are normally purchases for
entertainment and sport, and not necessarily for transportation, any significant
reduction in discretionary spending power could have an adverse effect on sales
of our motorcycles and other power sports products.
Effects
of Increasing Fuel Costs
Fuel
prices rose significantly during the first half of 2008, reaching an all-time
high in July 2008, and then fell slightly at the beginning of August 2008.
Increases in the price of gasoline to over $4.00 per gallon appears to have
reduced the demand for oil in the second quarter of 2008, and we believe that
it
is reasonable to assume that if fuel prices remain near this level or resume
increasing, there will continue to be a lessening of demand for oil throughout
the remainder of 2008 and into 2009. We further believe that high fuel costs
could 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. While this may have a positive effect on our
sales, the effect of fuel prices is not enough to counter the overall economic
factors that have resulted in a reduction in motorcycle sales throughout the
industry.
Reduction
by Manufacturers in Exports of Motorcycles to U.S. Dealers
As
reported in an article in the August 11, 2008 issue of Power Sports magazine,
new motorcycle exports into the United States from metric manufacturers declined
in June 2008, a trend that has continued throughout the first half of 2008.
Additionally, U.S. exports from members of the Japanese Automobiles
Manufacturers Association in June 2008 were down nearly 25% from June 2007.
Further, during the first six months of 2008, exports by Honda, Yamaha, Suzuki
and Kawasaki to the United States have declined 30% compared to the first six
months of 2007. We believe that Japanese manufacturers have significantly
reduced production of motorcycles for export to the United States in order
to
avoid larger inventory levels at the end of the selling seasons. This should
result in less product being available for the remainder of 2008, which these
manufactures hope will reduce the steep discounts and substantial rebates
normally required to move excess inventory at the end of the model year. With
less product available, we may be able to charge more for per motorcycle
resulting in an increase in our profit margin, provided that there are a
sufficient number of customers willing to pay higher prices for these
motorcycles.
Overall
Impact on our Future Earnings
Notwithstanding
our downturn in sales during the first half of 2008 as compared to the first
half of 2007, we intend to continue to evaluate and analyze our business
decisions through effective inventory engagement, as described in greater detail
under the heading Inventory Management, included elsewhere in this MD&A.
Assuming that gas prices remain at their current level or continue their recent
increases, 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, as described in the preceding paragraphs, changes in interest
rates and the health of the U.S. economy, particularly the availability of
credit and the discretionary spending power of potential customers, all will
have an impact on our future earnings. Furthermore, 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"). 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, and was payable in full on May
31,
2007, bearing interest at prime plus one percent (6% as of June 30, 2008).
This
loan was renewed on October 25, 2007 under the same terms and conditions with
a
maturity date of August 31, 2010. 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 June 30, 2008, the outstanding
amount of this term loan, including accrued interest thereon, was
$503,520.
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 (the “Bridge Lender”), 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 Bridge 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 Bridge Lender. As partial consideration for the
Bridge Loan, we issued to the Bridge 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 Bridge 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 Bridge 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 Bridge Lender $2,500 in
consideration for the extension. In September 2005, the Bridge Lender assigned
its rights to $50,000 of the $250,000 principal amount then outstanding to
an
affiliate of the Bridge Lender, who in turn converted it into Series A Shares
and Series A Warrants 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 to repay the remaining outstanding principal amount of the
Bridge Loan and all accrued and unpaid interest thereon.
On
December 20, 2005, the Bridge Lender 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 Bridge 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 2006 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 Bridge
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. Payment of the 2005 Bridge Note was further extended to June 15,
2007
in consideration for our payment of $2,250 to the Bridge Lender for both this
extension and the extension for repayment of the 2006 Bridge Note discussed
below. The outstanding indebtedness under the 2005 Bridge Note was restructured
on December 1, 2007 as provided below.
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. The balance as of June 30, 2008 is $165,064.
On
December 4, 2006, the Bridge Lender provided us with an additional bridge loan
in the principal amount of $250,000 (the “2006 Bridge Loan”). In connection with
the 2006 Bridge Loan we issued to the Bridge Lender a $250,000 principal amount
promissory note providing for interest at the rate of fifteen and one-half
percent (15.5%) per annum (the "2006 Bridge Note"). Interest on the 2006 Bridge
Note is payable monthly, and all outstanding principal and accrued but unpaid
interest was due and payable on March 4, 2007. Payment of the 2006 Bridge Note
was extended to June 15, 2007 in consideration for our payment of $2,250 to
the
Bridge Lender for both this extension and the extension for repayment of the
2005 Bridge Note discussed above. The outstanding indebtedness under the 2006
Bridge Note was restructured on December 1, 2007 as provided below.
In
consideration of a 1% fee on the principal sum due under the 2005 Bridge Note
and the 2006 Bridge Note, on December 1, 2007, we executed a new promissory
note
in the principal amount of $320,000 (the “2007 Bridge Note”), which reflected
the aggregate outstanding principal balance of $70,000 under the 2005 Bridge
Note and $250,000 under the 2006 Bridge Note and cancelled the 2005 Bridge
Note
and the 2006 Bridge Note. The 2007 Bridge Note bears interest at a rate of
15.5%
per annum with a maturity date of August 31, 2008. The principal balance
remaining at June 30, 2008 is $115,000.
On
February 26, 2008, Gregory Haehn, the Company’s President and Chief Operating
Officer, provided a working capital loan to the Company in the amount of
$100,000. This loan is evidenced by a promissory note (the “Note”) in the
principal amount of $100,000 payable on demand. 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. The
balance as of June 30, 2008 is $21,464.
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 (6% as of June 30, 2008), and has no stipulated repayment terms. As
of
June 30, 2008, the 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 of 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
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. As of June 30, 2008, 420 Series A Shares
were converted into 938,500 shares of our common stock. Additionally, during
2007 and through June 30, 2008, we issued an aggregate of 1,564,816 shares
of
common stock to the holders of our Series A Shares, in lieu of cash
dividends.
Anticipated
Funding of Operations.
The
amount required to fund the growth of 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
Although
we experienced a slight decrease in sales during the first half of 2008 as
compared to the same period in 2007, and a reduction in cash flow from
operations, our business remained profitable during the first six months of
2008. In an attempt to increase our cash flow from operations during the second
half of 2008, we intend to significantly reduce our inventory and our operating
expenses. Prior to this year, we increased our cash flow from operations for
an
18 month period through a consistent plan of reducing operating costs and
increasing profit margins on our sales. We intend to continue this policy
throughout the remainder of 2008 and we remain optimistic that we can reach
profitability levels similar to 2007, although no assurances can be made that
we
will attain such profitability levels or be profitable at all. We believe that
by keeping our operating costs at the reduced levels we achieved in 2007, and
continuing to increase our profit margins, we will continue to generate
sufficient cash flow from operations to fund our business for at least the
next
twelve months. To the extent that we experience a significantly weaker sales
climate during the remainder of 2008, our ability to continue to generate such
cash flow could be impaired, notwithstanding our reduced operating costs and
increased profit margins.
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 June 30,
2008.
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 2007 and
through the first half of 2008 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 inventory
of 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
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.
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 June 30, 2008 Compared With Three Months Ended June 30,
2007.
|
|
June
30,
2008
|
|
June
30,
2007
|
|
Increase
(Decrease)
|
|
%
Change
|
Total
Revenues
|
|
$
|
35,159,897
|
|
$
|
35,307,143
|
|
$
|
(147,264
|
)
|
|
(0.42
|
)%
|
Cost
of Sales
|
|
$
|
29,684,574
|
|
$
|
29,099,759
|
|
$
|
584,815
|
|
|
1.99
|
%
|
Operating
Expenses
|
|
$
|
4,061,591
|
|
$
|
3,780,438
|
|
$
|
281,153
|
|
|
7.44
|
%
|
Income
from Operations
|
|
$
|
1,413,714
|
|
$
|
2,426,946
|
|
$
|
(1,013,232
|
)
|
|
(41.75
|
)%
|
Other
Income and (Expense)
|
|
$
|
(246,681
|
)
|
$
|
(302,012
|
)
|
$
|
(55,331
|
)
|
|
(18.32
|
)%
|
Income
before Provision for Income
Taxes
|
|
$
|
1,167,033
|
|
$
|
2,124,934
|
|
$
|
(957,901
|
)
|
|
(45.08
|
)%
|
Net
Income before Preferred Dividends
|
|
$
|
756,433
|
|
$
|
1,387,934
|
|
$
|
(631,501
|
)
|
|
(45.45
|
)%
|
Total
Revenues:
Total
revenues for the three months ended June 30, 2008 were $35,159,897 representing
a decrease of $147,264 (0.42%) from the $35,307,143 reported for the three
months ended June 30, 2007. This reduction in revenues between the two periods
is primarily attributable to the weak overall economic environment and the
increased difficulty for consumers to obtain loans to finance the purchase
of
our products, all of which caused a reduction in our motorcycle sales, as well
as sales throughout the industry.
Cost
of
Sales:
Cost
of
sales for the three months ended June 30, 2008 was $29,684,574, which was
$584,815 (1.99%) more than cost of sales of $29,099,759 for the same period
in
2007.
This
increase in cost of sales was primarily attributable to increased freight and
storage costs between the two comparable periods.
Operating
Expenses:
Operating
expenses for the three months ended June 30, 2008 were $4,061,591, an increase
of $281,153 (7.44%) from $3,780,438 for the same period in 2007.
The
aggregate increase in such costs was primarily attributable to an increase
in
advertising expenses of approximately $228,000 and an increase in payments
to
certain independent contractors of $73,433 between the applicable periods.
Such
increases were offset, in part, by minor reductions in other operating expenses
between the two comparable periods.
Income
from Operations:
We
had
income from operations before other income (expense) for the three months ended
June 30, 2008 of $1,413,714, as compared to income from operations of $2,426,946
for the same period in 2007, which reflects a decrease in income of $1,013,232
(41.75%). This decrease in income from operations was primarily the result
of a
decline in profit margins on the sale of our products to approximately 15.5%
for
the three months ended June 30, 2008 from 17.6% for the three months ended
June
30, 2007. This reduction in profit margins was primarily attributable to our
inability to sell motorcycles at a higher price per unit in the second quarter
of 2008 compared to the second quarter of 2007, and the increased difficulty
consumers faced in obtaining financing in the second quarter of 2008 to pay
such
higher prices. Additionally, because of excess inventory, we found it necessary
to sell more products to our wholesale customers at no or little markup.
Furthermore this reduction in income was also attributable to the $281,153
increase in operating expenses discussed above.
Other
Income and (Expense):
Other
expenses for the three months ended June 30, 2008 decreased $55,331 (18.32%)
to
$246,681 from $302,012 for the same period in 2007. This decrease in other
expenses was primarily attributable to a reduction in interest expense of
approximately $45,905, as a result of the decrease in the interest rate
applicable to our outstanding indebtedness and floor plan financing for the
three months ended June 30, 2008 as compared to the same period in
2007.
Income
before Provision for Income Taxes:
We
had
income before provision for taxes, for the three months ended June 30, 2008
of
$1,167,033 as compared with income before provision for taxes of $2,124,934
for
the same period in 2007, which represents a decrease of $957,901
(45.08%).
This
decrease was primarily attributable to the reduction in revenues, increase
in
cost of sales and increase in operating expenses, which was offset, in part,
by
the reduction in interest expense, all as described above.
Income
before Preferred Dividends:
We
had
income before preferred dividends of $756,433 for the three months ended June
30, 2008, as compared to net income before preferred dividends of $1,387,934
for
the same period in 2007. This reflects a decrease in income before preferred
dividends of $631,501 (45.45%) between these comparable periods.
This
decrease in net income before preferred dividends is attributable to the same
factors described with respect to income before provision for taxes above,
but
was offset by the provision of $326,400 less for income taxes for the three
months ended June 30, 2008 compared to the same period in 2007, as a result
of
lower income during the second quarter of 2008 compared with the second quarter
of 2007.
Six
Months Ended June 30, 2008 Compared With Six Months Ended June 30,
2007.
|
|
June
30,
2008
|
|
June
30,
2007
|
|
Increase
(Decrease)
|
|
%
Change
|
Total
Revenues
|
|
$
|
54,446,778
|
|
$
|
56,213,047
|
|
$
|
(1,766,269
|
)
|
|
(3.14
|
)%
|
Cost
of Sales
|
|
$
|
46,589,073
|
|
$
|
47,528,395
|
|
$
|
(939,322
|
)
|
|
(1.98
|
)%
|
Operating
Expenses
|
|
$
|
7,010,499
|
|
$
|
6,573,218
|
|
$
|
437,281
|
|
|
6.65
|
%
|
Income
from Operations
|
|
$
|
847,206
|
|
$
|
2,111,434
|
|
$
|
(1,264,228
|
)
|
|
(59.86
|
)%
|
Other
Income and (Expense)
|
|
$
|
(477,954
|
)
|
$
|
(713,733
|
)
|
$
|
(235,779
|
)
|
|
(33.03
|
)%
|
Income
before Provision for Income
Taxes
|
|
$
|
369,252
|
|
$
|
1,397,701
|
|
$
|
(1,028,449
|
)
|
|
(73.58
|
)%
|
Net
Income before Preferred Dividends
|
|
$
|
216,652
|
|
$
|
914,201
|
|
$
|
(697,549
|
)
|
|
(76.30
|
)%
|
Total
Revenues:
Total
revenues for the six months ended June 30, 2008 were $54,446,778 representing
a
decrease of $1,766,269 (3.14%) from the $56,213,047 reported for the six months
ended June 30, 2007. This
reduction in revenues between the two periods is primarily attributable to
the
weak overall economic environment and the increased difficulty for consumers
to
obtain loans to finance the purchase of our products, all of which caused a
reduction in our motorcycle sales, as well as sales throughout the industry.
Cost
of
Sales:
Cost
of
sales for the six months ended June 30, 2008 was $46,589,073, which was $939,322
(1.98%) less than cost of sales of $47,528,395 for the same period in 2007.
This
decrease in cost of sales was primarily attributable to a corresponding decrease
in sales during the first six months of 2008 compared with the same period
in
2007, which was partially offset by increases in freight and storage charges
during the second quarter of 2008.
Operating
Expenses:
Operating
expenses for the six months ended June 30, 2008 were $7,010,499, an increase
of
$437,281 (6.65%) from $6,573,218 for the same period in 2007.
The
aggregate increase in such costs was primarily attributable to an increase
in
advertising costs of approximately $264,000, an approximate $144,000 increase
in
outside services expense and an approximate increase of $82,000 in professional
fees for the six months ended June 30, 2008 as compared to the same period
ended
June 30, 2007.
Income
from Operations:
We
had
income from operations before other income (expense) for the six months ended
June 30, 2008 of $847,206, as compared to income from operations of $2,111,434
for the same period in 2007, which reflects a decrease in income of $1,264,228
(59.86%). This
decrease in income from operations was primarily the result of a decline in
profit margins on the sale of our products to approximately 14.4% for the six
months ended June 30, 2008 from 15.4% for the six months ended June 30, 2007.
This reduction in profit margins was primarily attributable to our inability
to
sell motorcycles at a higher price per unit in the first half of 2008
compared to the first half of 2007, and the increased difficulty consumers
faced
in obtaining financing in the first half of 2008 to pay such higher prices.
Additionally, because of excess inventory, we found it necessary to sell more
products to our wholesale customers at no or little markup. Furthermore this
reduction in income was also attributable to the $437,281 increase in operating
expenses discussed above.
Other
Income and (Expense):
Other
expenses for the six months ended June 30, 2008 decreased $235,779 (33.03%)
to
$477,954 from $713,733 for the same period in 2007. This decrease in other
expenses was primarily attributable to a reduction in interest expense of
approximately $(235,650), as a result of the decrease in the interest rate
applicable to our outstanding indebtedness and floor plan financing for the
six
months ended June 30, 2008 as compared to the same period in 2007.
Income
before Provision for Taxes:
We
had
income before provision for taxes, for the six months ended June 30, 2008 of
$369,252 as compared with income before provision for taxes of $1,397,701 for
the same period in 2007, which represents a decrease of $1,028,449
(73.8%).
This
decrease was primarily attributable to the reduction in revenues and increase
in
operating expenses, which was offset, in part, by the reduction in cost of
sales
and interest expense, all as described above.
Income
before Preferred Dividends:
We
had
income before preferred dividends of $216,652 for the six months ended June
30,
2008, as compared to net income before preferred dividends of $914,201 for
the
same period in 2007. This reflects a decrease in income before preferred
dividends of $697,549 (76.30%) between these comparable periods. This decrease
in net income before preferred dividends during the six months ended June 30,
2008 as compared to the same period in 2008 is attributable to the same factors
described with respect to income before provision for taxes above, but was
offset by the provision of $330,900 less for income taxes for the six months
ended June 30, 2008 compared to the same period in 2007, as a result of lower
income during the first half of 2008 compared with the first half of
2007.
Liquidity
and Capital Resources.
Our
primary source of liquidity has been cash generated by operations and borrowings
under various credit facilities. As of June 30, 2008, we had $596,072 in cash
and cash equivalents, compared to $919,784 as of December 31, 2007.
Until required for operations, our policy is to invest excess cash in bank
deposits and money market funds. Net working capital as of June 30, 2008 was
$1,744,704, compared to $1,442,703 as of December 31, 2007.
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
manufacturers' 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. 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 distribution rights for brands.
As of June
30, 2008, we had outstanding indebtedness payable within 12 months in an
aggregate amount of approximately $24,683,011 million. Of this amount,
approximately $20,198,780 million is payable to financial institutions in
repayment of loans and other credit facilities provided to us and approximately
$4,484,231 million relates to outstanding trade payables. In the event that
we
are unable to repay all or any portion of these outstanding amounts from cash
from operations, we would be required to (i) seek one or more extensions for
the
payment of such amounts, (ii) refinance such debt to the extent available,
(iii)
raise additional equity capital or (iv) consummate any combination of the
foregoing transactions.
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 2008 models before the 2009 models are released,
it
could be very difficult for us to sell our remaining inventory of 2008 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.
Management
believes from information obtained within the industry that several motorcycle
manufacturers have reduced the number of motorcycles they export to U.S.
dealers for the model year 2008. This has resulted in fewer units
allocated to most dealerships. However, we believe that because of the number
of
units sold from our dealerships in 2007 and because allocation of units by
dealerships is based upon the number of units a dealership sold during the
prior
year, we will not be adversely affected by the reduced production in 2008.
With
respect to carryover models, while we attempt to limit carryover to 10% of
total
sales, we are able to benefit from cash incentives provided by manufacturers
for
most carryover products. These cash incentives minimize our need to reduce
prices for carryover 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
publicized offers of large cash rebates generate consumer interest resulting
in
greater showroom traffic.
Seasonality.
Our
two
main products - motorcycles and ATV's 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 ATV's 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 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 as of 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 the Notes to the Consolidated Financial
Statements, contained elsewhere in this Prospectus.
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.
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/or 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.
Revenue
Recognition: 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 charge backs 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
had no
off-balance sheet arrangements as of June 30, 2008.
Not
Applicable.
Item
4T. Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
In
accordance with the rules required by the SEC for information required to be
disclosed, in this quarterly report, the Company’s management evaluated, with
the participation of the Company’s President and Chief Executive Officer, the
effectiveness and the operation of the Company’s disclosure controls and
procedures. Based upon their evaluation of these disclosure controls and
procedures, the President and Chief Executive Officer have concluded that the
Company’s disclosure controls and procedures were effective for accumulating
recording, processing, summarizing and communicating, to the Company’s
management, to ensure timely decisions regarding disclosure information needed
within the time periods specified in the SEC rules and forms.
Controls
and Procedures over Financial Reporting
The
Company’s management is responsible for establishing adequate internal control
over financial reporting. Internal control over financial reporting is a process
to provide reasonable assurances regarding the reliability of our financial
reporting for external purposes. Internal control over financial reporting
includes maintaining records that in reasonable detail accurately and fairly
reflect our transactions; providing reasonable assurance that transactions
are
recorded as necessary for the preparation of our financial statements; providing
reasonable assurances that receipts and expenditures of Company assets are
made
with management authorization; and providing reasonable assurances that
unauthorized acquisition use or disposition of Company assets that could have
a
material effect on our financial statements would be prevented or detected
on a
timely basis.
Under
the
supervision of management, including the two executive officers, an evaluation
was conducted to measure the effectiveness of the Company’s internal control
over financial reporting. This evaluation was based on the criteria established
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The evaluation was conducted to assess the effectiveness of the Company’s
internal control as it related to the financial reporting as of June 30, 2008.
Management believes that the Company’s internal control over financial reporting
was effective as of June 30, 2008.
PART
II
Item
1. Legal
Proceedings
Item
1A. Risk
Factors
Not
Applicable.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
Item
3. Defaults
upon Senior Securities
Item
4. Submission
of Matters to a Vote of Security Holders
Item
5. Other
Information
None.
Item
6. Exhibits
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)).
|
|
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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)).
|
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.
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|
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GIANT
MOTORSPORTS, INC.
|
|
|
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Date: August
14, 2008 |
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: August
14, 2008 |
By: |
/s/ Gregory
A. Haehn |
|
Name:
Gregory A. Haehn
Title:
President, Chief Operating Officer,
Treasurer
and a Director
(Principal
Financial and Accounting Officer)
|