Nevada
|
5900
|
33-1025552
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(Primary
Standard Industrial
Classification
Number)
|
(I.R.S.
Employer
Identification
No.)
|
13134
State Route 62
Salem,
Ohio 44460
(330)
332-8534
|
Gregory
A. Haehn, President and COO
13134
State Route 62
Salem,
Ohio 44460
(330)
332-8534
|
(Address,
Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
|
(Name,
Address, Including Zip Code and Telephone Number,
Including
Area Code, of Agent for
Service)
|
|
Page
|
Prospectus
Summary
|
1
|
|
|
Risk
Factors
|
6
|
|
|
A
Note About Forward-Looking Statements
|
13
|
|
|
Use
of Proceeds
|
14
|
|
|
Market
for Common Equity and Related Stockholder Matters
|
15
|
|
|
Selected
Consolidated Financial Data
|
16
|
|
|
Supplementary
Financial Information - Selected Quarterly Consolidated Financial
Data
|
17
|
|
|
Selling
Shareholders
|
18
|
|
|
Plan
of Distribution
|
24
|
|
|
Business
|
26
|
|
|
Management’s
Discussion and Analysis and Results of Operations
|
33
|
|
|
Management
|
48
|
|
|
Executive
Compensation
|
50
|
Certain
Relationships and Related Transactions
|
53
|
|
|
Security
Ownership of Certain Beneficial Owners and Management
|
54
|
|
|
Description
of Securities
|
56
|
|
|
Legal
Matters
|
63
|
Experts
|
63
|
|
|
Where
You Can Find More Information
|
63
|
|
|
Index
to Financial Statements
|
F-1
|
o |
$1,250,000
on the date of closing; and
|
o
|
1,675,000
through the issuance to King's Motorsports of a 6% $1,675,000 aggregate
principal amount note (the "King's Note").
|
Total
Number of
Common
Shares into
which
Convertible
or
Exercisable
|
Total
Number of
Shares
upon
issuance
of
Additional
Stock at
$0.375
per share
|
Total
Number of
Shares
upon
issuance
of
Additional
Stock at
$0.25
per share
|
Total
Number of
Shares
upon
issuance
of
Additional
Stock at
$0.175
per share
|
||||||||||
Series
A Shares
|
4,900,000
|
7,300,000
|
10,948,000
|
21,896,000
|
|||||||||
|
|||||||||||||
Series
A Warrants
|
6,314,000
|
8,400,000
|
12,628,000
|
25,256,000
|
|||||||||
Total
|
11,214,000
|
15,700,000
|
23,576,000
|
47,152,000
|
Three
Months Ended
March
31,
|
Year
Ended
December
31,
|
|||||||||||||||
2007
(Unaudited)
|
2006
(Unaudited)
|
2006
|
2005
|
2004
|
||||||||||||
Consolidated
Statements of Income
|
||||||||||||||||
Sales
|
$
|
20,034,116
|
$
|
17,783,777
|
$
|
97,637,103
|
$
|
103,117,471
|
$
|
77,615,237
|
||||||
Operating
Expenses
|
2,792,780
|
3,217,
110
|
13,294,060
|
11,645,911
|
7,756,715
|
|||||||||||
Net
Income (Loss) attributable to Common Stockholders
|
(566,436
|
)
|
(1,067,874
|
)
|
(454,724
|
)
|
(2,878,803
|
)
|
958,061
|
|||||||
Basic
Earnings (Loss) per share
|
(0.05
|
)
|
(0.11
|
)
|
(0.04
|
)
|
(0.28
|
)
|
0.08
|
|||||||
Diluted
Earnings (Loss) per share
|
(0.05
|
)
|
(0.11
|
)
|
(0.04
|
)
|
(0.28
|
)
|
0.09
|
|||||||
Weighted
Average Shares Outstanding
|
||||||||||||||||
-
Basic
|
11,936,889
|
10,532,973
|
11,090,020
|
10,435,904
|
10,425,000
|
|||||||||||
-
Diluted
|
11,936,889
|
10,532,973
|
11,090,020
|
10,435,904
|
12,001,503
|
As
of March 31,
|
As
of December 31,
|
||||||||||||
2007
(Unaudited)
|
2006
(Unaudited)
|
2006
|
2005
|
||||||||||
Balance
Sheet Data
|
|||||||||||||
Cash
and cash equivalents
|
$
|
817,595
|
$
|
651,137
|
$
|
156,530
|
$
|
227,301
|
|||||
Accounts
receivable, net
|
3,580,012
|
3,465,043
|
3,803,718
|
4,850,408
|
|||||||||
Accounts
receivable, affiliates
|
—
|
—
|
—
|
261,667
|
|||||||||
Inventories
|
20,656,889
|
22,982,502
|
21,267,135
|
16,775,069
|
|||||||||
Federal
income tax receivable
|
—
|
119,500
|
—
|
119,500
|
|||||||||
Deferred
tax assets
|
361,000
|
—
|
113,900
|
—
|
|||||||||
Prepaid
expenses
|
33,831
|
175,625
|
10,131
|
74,255
|
|||||||||
Fixed
Assets, net
|
1,904,693
|
2,240,395
|
2,004,274
|
1,893,967
|
|||||||||
Total
other Assets
|
1,729,950
|
1,629,950
|
1,729,950
|
1,629,950
|
|||||||||
Total
Assets
|
29,098,852
|
31,275,165
|
29,085,638
|
25,832,117
|
|||||||||
Total
Liabilities
|
25,936,936
|
28,399,470
|
25,449,989
|
22,015,270
|
|||||||||
Total
Stockholders Equity
|
3,161,916
|
2,875,695
|
3,635,649
|
3,816,847
|
|
o
|
quarterly
variations in our operating
results;
|
|
o
|
large
purchases or sales of common stock;
|
|
o
|
actual
or anticipated announcements of new products or services by us or
competitors;
|
|
o
|
acquisitions
of new dealerships;
|
|
o
|
investor
perception of our business prospects or the motorcycle/power sports
industry in general;
|
|
o
|
general
conditions in the markets in which we compete;
and
|
|
o
|
economic
and financial conditions.
|
|
|
BID
|
|
ASK
|
|
|||||||||
Quarter
Ended
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|||||
3/31/05
|
|
|
1.30
|
|
|
1.26
|
|
|
1.30
|
|
|
1.26
|
|
|
6/31/05
|
|
|
.61
|
|
|
.60
|
|
|
.61
|
|
|
.60
|
|
|
9/30/05
|
|
|
1.03
|
|
|
.95
|
|
|
1.03
|
|
|
.95
|
|
|
12/31/05
|
|
|
1.01
|
|
|
.58
|
|
|
1.06
|
|
|
.60
|
|
|
3/31/06
|
|
|
.94
|
|
|
.90
|
|
|
.75
|
|
|
.62
|
|
|
6/30/06
|
|
|
.63
|
|
|
.45
|
|
|
.62
|
|
|
.35
|
|
|
9/30/06
|
|
|
.63
|
|
|
.38
|
|
|
.60
|
|
|
.38
|
|
|
12/31/06
|
|
|
.60
|
|
|
.17
|
|
|
.60
|
|
|
.17
|
|
|
3/31/07
|
.30
|
.16
|
.35
|
1.75
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
|||||
Net
Sales (1)
|
|
$
|
38,461,692
|
|
$
|
45,217,270
|
|
$
|
77,615,237
|
|
$
|
103,117,471
|
|
$
|
97,637,103
|
|
Income
from Continuing Operations
|
|
|
1,242,854
|
|
|
852,831
|
|
|
2,168,256
|
|
|
631,526
|
|
|
1,117,702
|
|
Income
from Continuing Operations Per Share
|
|
|
0.16
|
|
|
0.11
|
|
|
0.21
|
|
|
0.06
|
|
|
0.10
|
|
Total
Assets
|
|
|
10,084,106
|
|
|
14,303,028
|
|
|
24,017,727
|
|
|
25,832,117
|
|
|
29,085,638
|
|
Long-term
Debt Obligations
|
|
|
366,044
|
|
|
547,073
|
|
|
2,636,027
|
|
|
1,498,479
|
|
|
1,513,665
|
|
Preferred
Stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,870,000
|
|
|
2,450,000
|
|
Cash
Dividends Declared per Common
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Three
Months Ended March 31,
|
|||||||
|
2007
(Unaudited)
|
2006
(Unaudited)
|
|||||
Net
Sales (1)
|
$
|
20,034,116
|
$
|
17,783,777
|
|||
Income
(Loss) from Continuing Operations
|
(315,512
|
)
|
(669,690
|
)
|
|||
Income
(Loss) from Continuing Operations Per Share
|
|||||||
Total
Assets
|
29,098,852
|
31,275,165
|
|||||
Long-term
Debt Obligations
|
1,449,949
|
730,166
|
|||||
Preferred
Stock
|
2,450,000
|
2,820,000
|
|||||
Cash
Dividends Declared per Common
|
—
|
—
|
(1)
|
Does
not include revenues from finance, insurance and extended service
contracts, which represent less than 3% of total
revenues.
|
Quarter
ending:
|
Total
Revenues
($)
|
Gross
Profit
($)
|
Net
Income (Loss)
($)
|
Earnings
(Loss)
per
share ($)
|
|||||||||
3/31/2005
|
20,718,007
|
1,990,216
|
(538,210
|
)
|
(0.05
|
)
|
|||||||
6/30/2005
|
22,752,262
|
2,566,253
|
1,090,191
|
0.10
|
|||||||||
9/30/2005
|
27,249,505
|
3,918,318
|
325,726
|
0.03
|
|||||||||
12/31/2005
|
34,885,293
|
3,802,650
|
(3,756,510
|
)
|
(0.28
|
)
|
|||||||
3/31/2006
|
18,389,637
|
2,547,420
|
(1,067,874
|
)
|
(0.11
|
)
|
|||||||
6/30/2006
|
39,370,426
|
5,999,793
|
1,143,956
|
0.11
|
|||||||||
9/30/2006
|
24,866,822
|
3,717,076
|
(248,673
|
)
|
(0.02
|
)
|
|||||||
12/31/2006
|
18,124,901
|
2,147,473
|
(282,133
|
)
|
(0.02
|
)
|
|||||||
3/31/2007
|
20,905,904
|
2,477,268
|
(566,436
|
)
|
(0.05
|
)
|
Selling
Shareholders
|
Shares
Beneficially
Owned
Prior to
Offering
(1)(2)
|
Number
of
Warrants
Offered
by
this
Prospectus
|
Number
of
Shares
Offered
by
this
Prospectus
(4)
|
Shares
Beneficially owned
After
the Offering (5)
|
|||||||||||||||
Number
|
Percent(3)
|
Number
|
Percent
|
||||||||||||||||
Shirley
Stone Koffman
|
598,000(6
|
)
|
4.9
|
%
|
100,000
|
400,000
|
—
|
—
|
|||||||||||
Meadowbrook
Opportunity Fund LLC
|
609,000(7
|
)
|
4.99
|
%
|
300,000
|
1,200,000(7
|
)
|
—
|
—
|
||||||||||
Vestal
Venture
Capital
|
598,000(8
|
)
|
4.9
|
%
|
1,740,000
|
6,764,300(8
|
)
|
—
|
—
|
||||||||||
Richard
Molinsky
|
173,291
|
1.4
|
%
|
100,000
|
173,291(9
|
)
|
—
|
—
|
|||||||||||
Robert
A. Melnick
|
100,000
|
*
|
100,000
|
100,000(10
|
)
|
—
|
—
|
||||||||||||
Milton
Koffman
|
598,000(11
|
)
|
4.9
|
%
|
400,000
|
1,600,000(11
|
)
|
—
|
—
|
||||||||||
Israel
Feit
|
208,600
|
1,7
|
%
|
100,000
|
392,606(12
|
)
|
—
|
—
|
|||||||||||
Edward
J. Gutman
|
207,082
|
1.7
|
%
|
200,000
|
207,082(13
|
)
|
—
|
—
|
|||||||||||
Burton
I. Koffman and Ruthanne Koffman, as joint tenants with a right of
survivorship
|
598,000(14
|
)
|
4.9
|
%
|
1,000,000
|
4,000,000(14
|
)
|
—
|
—
|
||||||||||
Durban
Investment Group, LLC
|
425,405
|
3.4
|
%
|
200,000
|
793,418(15
|
)
|
—
|
—
|
|||||||||||
Tech-Aerofoam
Products, Inc.
|
598,000(16
|
)
|
4.9
|
%
|
1,000,000
|
4,000,000(16
|
)
|
—
|
—
|
||||||||||
James
Scibelli
|
400,000
|
3.7
|
%
|
200,000
|
800,000(17
|
)
|
—
|
—
|
|||||||||||
Dov
Schwartz
|
215,994
|
1.7
|
%
|
100,000
|
400,000(18
|
)
|
—
|
—
|
|||||||||||
Albert
Nocciolino
|
431,987
|
3.4
|
%
|
200,000
|
800,000(19
|
)
|
—
|
—
|
Selling
Shareholders
|
Shares
Beneficially
Owned
Prior to
Offering
(1)(2)
|
Number
of
Warrants
Offered
by
this
Prospectus
|
Number
of
Shares
Offered
by
this
Prospectus
(4)
|
Shares
Beneficially owned
After
the Offering (5)
|
|||||||||||||||
Number
|
Percent(3)
|
Number
|
Percent
|
||||||||||||||||
HCFP/Brenner
Securities LLC
|
598,000(20
|
)
|
4.9
|
%
|
574,000
|
2,296,000(20
|
)
|
—
|
—
|
||||||||||
Thomas
A. Gallo
|
460,000
|
3.7
|
%
|
—
|
250,000(21
|
)
|
—
|
—
|
|||||||||||
John
S. Arnone
|
498,300
|
4.0
|
%
|
—
|
250,000(22
|
)
|
—
|
—
|
|||||||||||
Brendan
C. Rempel
|
470,000
|
3.7
|
%
|
—
|
250,000(23
|
)
|
—
|
—
|
|||||||||||
Moneta
Capital Advisors, Inc.
|
220,000
|
1.8
|
%
|
—
|
220,000(24
|
)
|
—
|
—
|
|||||||||||
HSK
Funding, Inc.
|
100,000
|
*
|
—
|
100,000(25
|
)
|
—
|
—
|
||||||||||||
Moira
Stodden
|
10,000
|
*
|
—
|
10,000(26
|
)
|
—
|
—
|
||||||||||||
Douglas
Gass
|
10,000
|
*
|
—
|
10,000(27
|
)
|
—
|
—
|
||||||||||||
Albert
A. Auer
|
10,000
|
*
|
—
|
10,000(28
|
)
|
—
|
—
|
(1) |
Includes
(i) all shares issued or to be issued pursuant to the conversion
of Series
A Shares, Series A Warrants and/or Other Warrants held by the Selling
Shareholders, which may be converted or exercised within 60 days
after May
18, 2007 less (ii) all shares sold by Selling Shareholders prior
to May
18, 2007.
|
(2)
|
The
actual number of shares of common stock issuable upon conversion
of the
Series A Shares, the exercise of the Series A Warrants and the exercise
of
the Other Warrants is subject to certain anti-dilution and other
adjustments.
|
(3)
|
Percentage
is based upon 12,213,126 shares of common stock outstanding on May
18,
2007, plus, with respect to that Selling Shareholder only, all shares
of
common stock that are issuable to it within 60 days after that date,
upon
conversion of its Series A Shares, exercise of its Series A Warrants
and/or exercise of its Other
Warrants.
|
(4)
|
The
Selling Shareholders are also offering hereunder such indeterminate
number
of additional shares of common stock as may be issued to them because
of
any future stock distributions, stock splits, similar capital
readjustments or other anti-dilution adjustments, relating to the
Series A
Shares, the Series A Warrants and the Other
Warrants.
|
(5)
|
Assumes
the sale of all shares of common stock and Series A Warrants that
may be
sold in the offering.
|
(6)
|
Represents
Mrs. Koffman's beneficial ownership of 4.9% of the Company's issued
and
outstanding shares of common stock. Mrs. Koffman and her husband,
Milton
Koffman, have agreed to restrict their rights to convert the Series
A
Shares and exercise Series A Warrants so that their combined beneficial
ownership of the Company's common stock is less than five percent.
Notwithstanding any restrictions on her beneficial ownership, the
number
of shares offered by Mrs. Koffman by this prospectus includes an
aggregate
of (i) 100,000 shares issuable upon the conversion of Series A Shares;
(ii) 100,000 shares issuable upon the exercise of Series A Warrants;
(iii)
15,994 shares of common stock issued as dividends on the Series A
Shares;
and (iv) 184,006 potential reserve shares.
|
(7)
|
Represents
Meadowbrook Opportunity Fund LLC's beneficial ownership of 4.99%
of the
Company's issued and outstanding shares of common stock. Meadowbrook
Opportunity Fund has agreed to restrict its right to convert the
Series A
Shares and exercise Series A Warrants so that its beneficial ownership
of
the Company's common stock is less than five percent. Notwithstanding
any
restrictions on its beneficial ownership, the number of shares offered
by
Meadowbrook Opportunity Fund by this prospectus includes an aggregate
of
(i) 300,000 shares issuable upon the conversion of Series A Shares;
(ii)
300,000 shares issuable upon the exercise of Series A Warrants; (iii)
48,001 shares of common stock issued as dividends on the Series A
Shares;
and (iv) 551,999 potential reserve shares. Michael Ragins is a managing
member of MYR Partners LLC, the manager of Meadowbrook Opportunity
Fund,
and has sole voting power with respect to the securities being offered
for
resale by Meadowbrook Opportunity Fund in this
prospectus.
|
(8)
|
Represents
Vestal Venture Capital's beneficial ownership of 4.9% of the Company's
issued and outstanding shares of common stock. Vestal Venture Capital
has
agreed to restrict its right to convert the Series A Shares and exercise
Series A Warrants so that its beneficial ownership of the Company's
common
stock is less than five percent. Notwithstanding any restrictions
on its
beneficial ownership, the number of shares offered by Vestal Venture
Capital by this prospectus includes an aggregate of (i) 1,300,000
shares
issuable upon the conversion of Series A Shares; (ii) 1,740,000 shares
issuable upon the exercise of Series A Warrants; (iii) 244,300 shares
of
common stock issued upon conversion of Series A Shares; (iv) 240,535
shares of common stock issued as dividends on Series A Shares; and
(iii)
3,239,465 potential reserve shares. Allan R. Lyons is the sole owner
and
managing member of 21st Century Strategic Investment Planning, LC,
the
general partner of Vestal Venture Capital, and has sole voting power
with
respect to the securities offered for resale by Vestal Venture Capital
in
this prospectus.
|
(9)
|
Represents
an aggregate of (i) 73,291 shares of common stock issued upon the
conversion of Series A Shares and (ii) 100,000 shares issuable upon
the
exercise of Series A Warrants.
|
(10)
|
Represents
100,000 shares issuable upon the exercise of Series A
Warrants.
|
(11)
|
Represents
Mr. Koffman's beneficial ownership of 4.9% of the Company's issued
and
outstanding shares of Common Stock. Mr. Koffman and his wife, Shirley
Stone Koffman, have agreed to restrict their rights to convert the
Series
A Shares and exercise Series A Warrants so that their combined beneficial
ownership of the Company's Common Stock is less than five percent.
Notwithstanding any restrictions on his beneficial ownership, the
number
of shares offered by Mr. Koffman by this prospectus includes (i)
400,000
shares issuable upon the conversion of Series A Shares; (ii) 400,000
shares issuable upon the exercise of Series A Warrants; (iii) 63,994
shares of common stock issued as dividends on Series A Shares; and
(iv)
800,000 potential reserve shares.
|
(12)
|
Represents
an aggregate of (i) 100,000 shares issuable upon the conversion of
Series
A Shares; (ii) 100,000 shares issuable upon the exercise of Series
A
Warrants; (iii) 8,600 shares issued as dividends on the Series A
Shares;
and (iv) 184,006 potential reserve
shares.
|
(13)
|
Represents
an aggregate of (i) 7,082 shares issued upon the conversion of Series
A
Shares; and (ii) 200,000 shares issuable upon the exercise of Series
A
Warrants.
|
(14)
|
Represents
Mr. Koffman's beneficial ownership of 4.9% of the Company's issued
and
outstanding shares of common stock. Mr. Koffman and Tech-Aerofoam
Products, Inc., a corporation with which he is affiliated, have agreed
to
restrict their rights to convert the Series A Shares and exercise
Series A
Warrants so that their combined beneficial ownership of the Company's
common stock is less than five percent. Notwithstanding any restrictions
on his beneficial ownership, the number of shares offered by Mr.
and Mrs.
Koffman by this prospectus includes an aggregate of (i) 1,000,000
shares
issuable upon conversion of Series A Shares; (ii) 1,000,000 shares
issuable upon the exercise of Series A Warrants; (iii) 159,994 shares
of
common stock issued as dividends on the Series Shares and (iii) 1,840,006
potential reserve shares. Mr. Koffman is also deemed to be the beneficial
owner of 100,000 shares issuable upon the exercise of Other Warrants
by
HSK Funding, Inc., which may be exercised until January 2010 at an
exercise price of $1.00 per share.
|
(15)
|
Represents
an aggregate of (i) 200,000 shares issuable upon the conversion of
Series
A Shares; (ii) 200,000 shares issuable upon the exercise of Series
A
Warrants; (iii) 25,405 shares of common stock issued as dividends
on the
Series A Shares; and (iv) 368,013 potential reserve shares. J. Leon
Ellman, Neil Ellman, Lance Ellman and Kevin Sirop, are each managers
of
JLE Investment Managers, LLC, the manager of Durban Investment Group,
LLC,
and each has sole voting power over the securities being offered
for
resale by Durban Investment Group in this
prospectus.
|
(16)
|
Represents
Tech-Aerofoam Products' beneficial ownership of 4.9% of the Company's
issued and outstanding shares of common stock. Tech-Aerofoam Products
and
Burton Koffman, who is an affiliate of Tech-Aerofoam Products, have
agreed
to restrict their rights to convert Series A Shares and exercise
Series A
Warrants so that their combined beneficial ownership of the Company's
common stock is less than five percent. Notwithstanding any restrictions
on its beneficial ownership, the number of shares offered by Tech-Aerofoam
Products by this prospectus includes an aggregate of (i) 1,000,000
shares
issuable upon conversion of Series A Shares; (ii) 1,000,000 shares
issuable upon the exercise of Series A Warrants; (iii) 159,994 shares
of
common stock issued as dividends on the Series A Shares; and (iv)
1,840,006 potential reserve shares. Burton I. Koffman, President,
David L.
Koffman, Vice President, and Jeffrey Koffman, Vice President, each
has
sole voting power over the securities being offered for resale by
Tech
Aerofoam Products in this
prospectus.
|
(17)
|
Represents
an aggregate of (i) 100,000 shares issuable upon the conversion of
Series
A Shares; (ii) 100,000 shares issuable upon the exercise of Series
A
Warrants; (iii) 100,000 shares issuable upon the conversion of Series
A
Shares under Mr. Scibelli's IRA; (iv) 100,000 shares issuable upon
the
exercise of Series A Warrants under Mr. Scibelli's IRA; (v) 15,994
shares
of common stock issued as dividends on the Series A Shares initially
held
by Mr. Scibelli; (vi) 15,994 shares of common stock issued as dividends
on
the Series A Shares initially held by Mr. Scibelli’s IRA; and 368,012
potential reserve shares. Mr. Scibelli was a registered representative
with RG Securities, LLC, a registered broker-dealer. Additionally,
Mr.
Scibelli has represented to us that he purchased his Series A Shares
and
Series A Warrants as an investment for his own account without a
view to
resell. Mr. Scibelli has further represented that he does not have
any
agreements or understandings, directly or indirectly, with any person
to
distribute the securities purchased by him. Mr. Scibelli died subsequent
to the initial offer and sale of his securities under this prospectus.
As
a result, the securities offered hereby may be held by (i) the Estate
of
James Scibelli, Carol Scibelli as Executrix; (ii) Carol Scibelli
IRA;
(iii) Carol Scibelli; or (iv) such other person entitled to receive
such
securities by testamentary
distribution.
|
(18)
|
Represents
an aggregate of (i) 100,000 shares issuable upon the conversion of
Series
A Shares; (ii) 100,000 shares issuable upon the exercise of Series
A
Warrants; (iii) 15,994 shares of common stock issued as dividends
on the
Series A Shares and (iii) 184,006 potential reserve
shares.
|
(19)
|
Represents
an aggregate of (i) 200,000 shares issuable upon the conversion of
Series
A Shares; (ii) 200,000 shares issuable upon the exercise of Series
A
Warrants; (iii) 31,987 shares of common stock issued as dividends
on the
Series A Shares and (iii) 368,013 potential reserve
shares.
|
(20)
|
Represents
HCFP/Brenner Securities' beneficial ownership of 4.9% of the Company's
issued and outstanding shares of common stock. HCFP/Brenner Securities
has
agreed to restrict its right to convert the Series A Shares and exercise
Series A Warrants so that its beneficial ownership of the Company's
common
stock is less than five percent. Notwithstanding any restrictions
on its
beneficial ownership, the number of shares offered by HCFP/Brenner
Securities by this prospectus includes an aggregate of (i) (1) 574,000
shares issuable upon the conversion of Series A Shares and (2) 574,000
shares issuable upon the exercise of Series A Warrants, all of which
are
issuable pursuant to the placement agent's purchase option; and (ii)
1,148,000 potential reserve shares. Steven D. Shaffer, a member of
HCFP/Brenner Securities' Board, has sole voting power with respect
to the
securities offered for resale by HCFP/Brenner Securities in this
prospectus. HCFP/Brenner Securities, the placement agent for the
September
2005 Private Placement, is a registered
broker-dealer.
|
(21)
|
Represents
beneficial ownership of (i) 250,000 shares issuable upon the exercise
of
Other Warrants which may be exercised until January 2010 at an exercise
price of $1.00 per share; and (ii) 100,000 shares of common stock
owned by
Mr. Gallo directly or by his children. Additionally, Mr. Gallo is
a
principal of Moneta Capital Advisors, Inc. ("Moneta") and may therefore
be
deemed to have beneficial ownership of the 220,000 shares underlying
Other
Warrants, held by Moneta, although Mr. Gallo disclaims beneficial
ownership of 110,000 of such
shares.
|
(22)
|
Represents
beneficial ownership of (i) 250,000 shares issuable upon the exercise
of
Other Warrants which may be exercised until January 2010 at an exercise
price of $1.00 per share and (ii) 248,300 shares of common stock
owned by
Mr. Arnone directly or by his
children.
|
(23)
|
Represents
beneficial ownership of (i) 250,000 shares issuable upon the exercise
of
Other Warrants which may be exercised until January 2010 at an exercise
price of $1.00 per share and (ii) 110,000 shares of common stock
owned by
Mr. Rempel. Additionally, Mr. Rempel is a principal of Moneta and
may
therefore be deemed to have beneficial ownership of the 220,000 shares
underlying Other Warrants held by Moneta, although Mr. Rempel disclaims
beneficial ownership of 110,000 of such
shares.
|
(24)
|
Represents
(i) 120,000 shares issuable upon the exercise of Other Warrants which
may
be exercised until January 2010 at an exercise price of $1.00 per
share
and (ii)100,000 shares issuable upon the exercise of Other Warrants
which
may be exercised until April 2009 at an exercise price of $2.25 per
share.
Thomas A. Gallo and Brenda C. Rempel are the officers, directors
and
shareholders of Moneta Capital Advisors, Inc. and have shared voting
power
with respect to the securities of Moneta Capital Advisors being offered
for resale in this prospectus.
|
(25)
|
Represents
100,000 shares issuable upon the exercise of Other Warrants which
may be
exercised until January 2010 at an exercise price of $1.00 per share.
Burton I. Koffman, David L. Koffman and Jeffrey Koffman are the officers
of HSK Funding, and each has sole voting power over the securities
being
offered for resale by HSK Funding in this
prospectus.
|
(26)
|
Represents
10,000 shares issuable upon the exercise of Other Warrants which
may be
exercised until January 2010 at an exercise price of $1.00 per
share.
|
(27)
|
Represents
10,000 shares issuable upon the exercise of Other Warrants which
may be
exercised until January 2010 at an exercise price of $1.00 per
share.
|
(28)
|
Represents
10,000 shares issuable upon the exercise of Other Warrants which
may be
exercised until January 2010 at an exercise price of $1.00 per
share.
|
o |
ordinary
brokerage transactions and transactions in which a broker/dealer
solicits
purchasers;
|
o
|
block
trades in which a broker/dealer will attempt to sell the shares and/or
Series A Warrants as agent but may position and resell a portion
of the
block as principal to facilitate the
transaction;
|
o |
purchases
by a broker/dealer as principal and resale by the broker/dealer for
its
account;
|
o |
an
exchange distribution in accordance with the rules of any applicable
exchange;
|
o |
privately
negotiated transactions;
|
o |
settlement
of short sales;
|
o |
broker/dealers
may agree with the Selling Shareholders to sell a specified number
of such
shares of common stock and/or Series A Warrants at a stipulated
price per
share or per warrant, as applicable;
|
o |
a
combination of any such methods of sale;
and
|
o |
any
other method permitted pursuant to applicable
law.
|
o
|
$1,250,000
on the date of closing; and
|
o
|
$1,675,000
through the issuance to Kings Motorsports of a 6% $1,675,000
aggregate
principal
amount note (the "King's Note").
|
o
|
American
Honda Motor Company, Inc.
|
o
|
Yamaha
Motor Corporation
|
o
|
American
Suzuki Motor Corporation
|
o
|
Kawasaki
Motors Corp. U.S.A., Inc.
|
o
|
Ducati
North America
|
o
|
Polaris
Industries, Inc.
|
o
|
accounting;
|
o
|
finance;
|
o
|
insurance;
|
o
|
employee
benefits;
|
o
|
strategic
planning;
|
o
|
marketing;
|
o
|
purchasing;
and
|
o
|
Management
information systems (MIS).
|
|
o
|
Super
Store Concept.
The "Super Store" has proven to be an effective strategy in the successful
consolidation
of many other retail industries. Super Stores are the choice of consumers
nationwide. These
large stores represent and imply the widest offerings, the lowest
prices,
and, we believe, will
contribute to the development of a more mainstream motorsports
marketplace.
|
|
o
|
Sales
and Service Effectiveness.
Consumers have become more sophisticated in evaluating and purchasing
products, as a result of the wide-spread availability of the internet
and
greater access to
information, and, as a result, require a more comprehensive offering,
as
well as intelligent and
informative presentations. Our superstore selling space provides
a larger
display of products, with
a greater choice of brands and styles. We believe that a greater
choice of
products, under one
roof, will lead to a more satisfying shopping experience for customers
and, in turn, increased product
sales.
|
|
o
|
Competitive
Workforce Development.
A
significant portion of the compensation we pay to our sales
staff is commission based. We believe that commission-based compensation
provides incentive for our salespersons to expend their greatest
efforts
to sell our products and services. Since their compensation is directly
related to sales, our ability to hire successful salespersons is
conditioned upon their belief that our dealerships will generate
significant traffic and provide the inventory levels necessary to
maximize
sales opportunities. Our goal to build a “market leader” presence, proper
inventory levels and an overall aggressive yet tactful approach,
we
believe, will attract the successful salespersons we need to sell
our
products and services.
|
|
o
|
Inventory
Utilization.
We believe that by housing our inventory in one large central facility,
and distributing products from that facility to each of our dealerships,
on an as-needed basis, we will be able to deliver products to our
customers faster than other dealerships which are required to wait,
for
delivery of out-of-stock products.
|
|
o
|
Marketing
Efficiencies.
With a regional presence, and the use of single creative themes,
tested
for effectiveness, we believe that we will be able to take advantage
of
semi-national and possibly national marketing opportunities which
typically offer reduced advertising rates based on the utilization
of
economies of scale. We also plan to maximize our use of cooperative
advertising.
|
|
o
|
E-Commerce
and Mail Order Opportunities. We intend to develop e-commerce and
mail order strategies for the sale of parts and accessories that
will
expand our customer base outside of our dealership territories. We
believe
that the expansion of our business, over the internet and through
mail
order business, will assist us in the development of a national presence
and create customer interest to visit one of our “Super Stores,” although
no assurance can be given that it will have such effect. We believe
that
increased efforts on internet and mail-order sales, will increase
revenues
and also create additional opportunities for strategic business
relationships with dealerships outside of the territories where our
dealerships are located, although no assurance can be
given.
|
|
2006
|
2005
|
Increase
(Decrease)
|
%
Change
|
|||||||||
Total
Revenues
|
$
|
100,751,786
|
$
|
105,605,067
|
($4,853,281
|
)
|
(4.6
|
%)
|
|||||
Cost
of Sales
|
$
|
86,340,024
|
$
|
93,327,630
|
($6,987,606
|
)
|
(7.5
|
%)
|
|||||
Operating
Expenses
|
$
|
13,294,060
|
$
|
11,645,911
|
$
|
1,648,149
|
14.2
|
%
|
|||||
Income
from Operations
|
$
|
1,117,702
|
$
|
631,526
|
$
|
486,176
|
77.0
|
%
|
|||||
Other
Income and (Expenses)
|
$
|
(1,371,000
|
)
|
$
|
(679,229
|
)
|
$
|
691,771
|
(101.8
|
%)
|
|||
Income
(Loss) before Provision (Benefit) for Income Taxes
|
$
|
(253,298
|
)
|
$
|
(47,703
|
)
|
$
|
205,595
|
(430.9
|
%)
|
|||
Net
Income (Loss) before Preferred Dividends
|
$
|
(181,198
|
)
|
$
|
(8,803
|
)
|
$
|
172,395
|
(1,958.4
|
%)
|
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.
|
|
2005
|
2004
|
Increase
(Decrease)
|
%
Change
|
|||||||||
Total
Revenues
|
$
|
105,605,067
|
$
|
79,950,855
|
$
|
25,654,212
|
32
|
%
|
|||||
Cost
of Sales
|
$
|
93,327,630
|
$
|
70,025,884
|
$
|
23,301,746
|
33
|
%
|
|||||
Operating
Expenses
|
$
|
11,645,911
|
$
|
7,756,715
|
$
|
3,889,196
|
50
|
%
|
|||||
Income
from Operations
|
$
|
631,526
|
$
|
2,168,256
|
$
|
(1,536,730
|
)
|
(71
|
%)
|
||||
Other
Income and (Expenses)
|
$
|
(679,229
|
)
|
$
|
(587,995
|
)
|
$
|
(91,234
|
)
|
(15.5
|
%)
|
||
Income
(Loss) before Provision (Benefit) for Income Taxes
|
$
|
(47,703
|
)
|
$
|
1,580,261
|
$
|
(1,627,964
|
)
|
(103
|
%)
|
|||
Net
Income (Loss) before Preferred Dividends
|
$
|
(8,803
|
)
|
$
|
958,061
|
$
|
(966,864
|
)
|
(101
|
%)
|
|
March
31,
2007
|
March
31,
2006
|
Increase
(Decrease)
|
%
Change
|
|||||||||
Total
Revenues
|
$
|
20,905,904
|
$
|
18,389,637
|
$
|
2,516,267
|
13.7
|
%
|
|||||
Cost
of Sales
|
$
|
18,428,636
|
$
|
15,842,217
|
$
|
2,586,419
|
16.3
|
%
|
|||||
Operating
Expenses
|
$
|
2,792,780
|
)
|
$
|
3,217,110
|
$
|
(424,330
|
13.2
|
%
|
||||
Income
(Loss) from Operations
|
$
|
(315,512
|
)
|
$
|
(669,690
|
)
|
$
|
(354,178
|
)
|
52.9
|
%
|
||
Other
Income and (Expenses)
|
$
|
(411,721
|
)
|
$
|
(271,462
|
)
|
$
|
140,259
|
51.7
|
%
|
|||
Income
(Loss) before Provision (Benefit) for Income Taxes
|
$
|
(727,233
|
)
|
$
|
(941,152
|
)
|
$
|
(213,919
|
)
|
22.7
|
%
|
||
Net
Income (Loss) before Preferred Dividends
|
$
|
(473,733
|
)
|
$
|
(941,152
|
)
|
$
|
(467,419
|
)
|
49.7
|
%
|
Contractual
Obligations
|
Payments
Due By Period
|
|||||||||||||||
|
Total
|
Less
than 1
year
|
1-3
years
|
3-5
Years
|
More
than 5
Years
|
|||||||||||
Long-Term
Debt Obligations
|
$
|
1,449,949
|
$
|
1,449,949
|
—
|
—
|
—
|
|||||||||
Capital
(Finance) Lease Obligations
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Operating
Lease Obligations
|
$
|
11,838,764
|
$
|
1,028,209
|
$
|
3,222,505
|
$
|
3,390,174
|
$
|
4,197,876
|
||||||
Purchase
Obligations
|
As
Needed
|
|
|
|
|
|||||||||||
Other
Long-Term Liabilities Reflected on the Company's Balance Sheet under
the
GAAP of the Primary Financial Statements
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Total
|
$
|
13,288,713
|
$
|
2,478,158
|
$
|
3,222,505
|
$
|
3,390,174
|
$
|
4,197,876
|
AGE
|
POSITIONS
HELD AND TENURE
|
|||
Russell
A. Haehn
|
|
59
|
|
Chairman,
Chief Executive Officer and Director since January 2004
|
Gregory
A. Haehn
|
|
60
|
|
President,
Chief Operating Officer and Director since January
2004
|
Name
and Positions
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Option
Awards
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||
Russell
A. Haehn,
|
2004
|
$
|
94,500(1
|
)
|
-0-
|
$
|
390,849
|
$
|
137,000(2
|
)
|
$
|
622,349
|
|||||||
Chairman
and
|
2005
|
$
|
91,000
|
-0-
|
-0-
|
274,935(2
|
)
|
$
|
365,395
|
||||||||||
Chief
Executive Officer
|
2006
|
$
|
101,500
|
-0-
|
-0-
|
175,335(2
|
)
|
$
|
276,835
|
||||||||||
|
|||||||||||||||||||
Gregory
A. Haehn,
|
2004(3
|
)
|
$
|
26,000
|
-0-
|
$
|
195,425
|
$
|
12,000(4
|
)
|
$
|
233,425
|
|||||||
President
and
|
2005
|
$
|
70,700
|
-0-
|
-0-
|
$
|
49,000(4
|
)
|
$
|
119,700
|
|||||||||
Chief
Operating Officer
|
2006
|
$
|
71,600
|
-0-
|
-0-
|
$
|
34,430(4
|
)
|
$
|
106,030
|
(1) |
Russell
Haehn was employed by W.W. Cycles, the wholly-owned subsidiary of
the
Company that was acquired in January 2004. Compensation paid to him
from
January 1, 2004 through January 14, 2004, reflect amounts paid by
W.W.
Cycles to him.
|
(2) |
Other
compensation payable to Russell Haehn includes amounts payable to
Mr.
Haehn directly from manufacturers of certain of the products we sell,
as
an incentive to sell these products. The total amounts paid to Mr.
Haehn
during the years set forth in the above table were $125,000 in 2004,
$262,935 in 2005 and $163,335 in 2006. Mr. Haehn also received an
automobile allowance of $12,000 per year in each of those
years.
|
(3) |
Gregory
Haehn became an employee of the Company in January
2004.
|
(4) |
Other
compensation payable to Gregory Haehn reflects an automobile allowance
of
$12,000 in each of 2004, 2005 and 2006 and an aggregate of $37,000
paid to
Mr. Haehn in 2005 and $22,430 in 2006 directly from manufacturers
of
certain of the products we sell, as an incentive to sell these
products.
|
|
Option
Awards
|
|
|||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
Option
Exercise
Price
|
Option
Expiration
Date
|
|||||||||
|
|
|
|
|
|||||||||
Russell
A. Haehn
|
1,000,000
|
—
|
$
|
1.25
|
8/16/2009
|
||||||||
|
|||||||||||||
Gregory
A. Haehn
|
500,000
|
—
|
$
|
1.25
|
8/16/2009
|
Name
|
Number
of
Shares
Owned Beneficially (1)
|
Approximate
Percent
of
Class
Owned
(1)(2)(3)
|
|||||
Russell
A. Haehn (4)(6)
|
5,785,000
|
43.8
|
%
|
||||
Gregory
A. Haehn (5)(6)
|
2,995,000
|
23.6
|
%
|
||||
|
|||||||
All
Executive Officers and Directors, as a Group (two persons)
|
8,780,000
|
64.0
|
%
|
(1)
|
Beneficial
ownership information is based on information provided to the Company.
Except as indicated, and subject to community property laws when
applicable, the persons named in the table above have sole voting
and
investment power with respect to all shares of common stock shown
as
beneficially owned by them. Except as otherwise indicated, the address
of
such persons is the Company's offices at 13134 State Route 62, Salem,
Ohio
44460.
|
(2)
|
The
percentages shown are calculated based upon 12,213,126 shares of
common
stock outstanding on May 30, 2007. The numbers and percentages shown
include the shares of common stock actually owned as of May 30, 2007
and
the shares of common stock that the person or group had the right
to
acquire within 60 days of May 30, 2007. In calculating the percentage
of
ownership, all shares of common stock that the identified person
or group
had the right to acquire within 60 days of May 30, 2007 upon the
exercise
of options and warrants are deemed to be outstanding for the purpose
of
computing the percentage of the shares of common stock owned by such
person or group, but are not deemed to be outstanding for the purpose
of
computing the percentage of the shares of common stock owned by any
other
person.
|
(3)
|
Notwithstanding
each person or group's beneficial ownership of the Company's common
stock,
since the Series A Shares are entitled to vote together with the
common
stock on all matters submitted to shareholders for their approval,
each
person's or group's percentage voting interest (assuming exercise
of all
options) is: Russell A. Haehn - 31.9%; Gregory A. Haehn - 17.0%;
and all
executive officers and directors as a group -
47.2%.
|
(4)
|
Includes
a five-year non-qualified stock option, granted to Mr. Russell Haehn
on
August 16, 2004, to purchase up to 1,000,000 shares of common stock
at an
exercise price of $1.25 per share.
|
(5)
|
Includes
a five-year non-qualified stock option, granted to Mr. Gregory Haehn
on
August 16, 2004, to purchase up to 500,000 shares of common stock
at an
exercise price of $1.25 per share.
|
(6)
|
Russell
Haehn and Gregory Haehn are
brothers.
|
Audited
Consolidated Financial Statements:
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
F-3
|
Consolidated
Statements of Income (Loss) for the years ended December 31, 2006,
2005 and 2004
|
F-5
|
Consolidated
Statements of Stockholders' Equity for the years ended December 31,
2006, 2005 and 2004
|
F-6
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006,
2005 and 2004
|
F-7
|
Notes
to Consolidated Financial Statements
|
F-9
|
Unaudited
Condensed Consolidated Financial Statements:
|
|
|
|
Condensed
Consolidated Balance Sheet as of March 31, 2007 (Unaudited) and
December 31, 2006 (Audited)
|
F-29
|
Condensed
Consolidated Statements of Income for the Three
Months ended March 31, 2007 (Unaudited) and 2006
(Unaudited)
|
F-31
|
Condensed
Consolidated Statements of Cash Flows for the Three Months ended
March
31, 2007 (Unaudited) and 2006 (Unaudited)
|
F-32
|
Notes
to Condensed Consolidated Unaudited Financial Statements
|
F-33
|
GIANT
MOTORSPORTS, INC.
|
|||||||
CONSOLIDATED
BALANCE SHEETS
|
|||||||
DECEMBER
31,
|
|||||||
2006
|
2005
|
||||||
ASSETS
|
|||||||
CURRENT
ASSETS
|
|||||||
Cash
and cash equivalents
|
$
|
156,530
|
$
|
227,301
|
|||
Accounts
receivable, net
|
3,803,718
|
4,850,408
|
|||||
Accounts
receivable, affiliates
|
-
|
261,667
|
|||||
Inventories
|
21,267,135
|
16,775,069
|
|||||
Federal
income tax receivable
|
-
|
119,500
|
|||||
Deferred
tax assets
|
113,900
|
-
|
|||||
Prepaid
expenses
|
10,131
|
74,255
|
|||||
TOTAL
CURRENT ASSETS
|
25,351,414
|
22,308,200
|
|||||
PROPERTY
AND EQUIPMENT, NET
|
2,004,274
|
1,893,967
|
|||||
OTHER
ASSETS
|
|||||||
Goodwill
|
1,688,950
|
1,588,950
|
|||||
Deposits
|
41,000
|
41,000
|
|||||
TOTAL
OTHER ASSETS
|
1,729,950
|
1,629,950
|
|||||
$
|
29,085,638
|
$
|
25,832,117
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
|||||
GIANT
MOTORSPORTS, INC.
|
|||||||
CONSOLIDATED
BALANCE SHEETS (CONTINUED)
|
|||||||
DECEMBER
31,
|
|||||||
2006
|
2005
|
||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
CURRENT
LIABILITIES
|
|||||||
Current
portion of long-term debt
|
1,513,665
|
714,623
|
|||||
Notes
payable, floor plans
|
20,885,887
|
17,159,719
|
|||||
Note
payable, officer
|
352,500
|
193,135
|
|||||
Accounts
payable, trade
|
1,987,152
|
2,370,369
|
|||||
Accrued
expenses
|
493,939
|
654,417
|
|||||
Customer
deposits
|
196,246
|
87,051
|
|||||
TOTAL
CURRENT LIABILITIES
|
25,429,389
|
21,179,314
|
|||||
DEFERRED
TAX LIABILITIES
|
20,600
|
52,100
|
|||||
LONG-TERM
DEBT, Net of current portion
|
-
|
783,856
|
|||||
TOTAL
LIABILITIES
|
25,449,989
|
22,015,270
|
|||||
COMMITMENTS
|
|||||||
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
|
|||||||
December
31, 2006 and 2005, respectively
|
2,450,000
|
2,870,000
|
|||||
Common
stock, $.001 par value, authorized 75,000,000 shares
|
|||||||
11,791,747
and 10,445,000 shares issued and outstanding
|
|||||||
at
December 31, 2006 and 2005, respectively
|
11,792
|
10,445
|
|||||
Additional
paid-in capital
|
1,868,592
|
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 convertible
|
(786,762
|
)
|
(786,762
|
)
|
|||
Retained
deficit
|
(3,029,599
|
)
|
(2,574,875
|
)
|
|||
TOTAL
STOCKHOLDERS' EQUITY
|
3,635,649
|
3,816,847
|
|||||
$
|
29,085,638
|
$
|
25,832,117
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
|||||
GIANT
MOTORSPORTS, INC.
|
||||||||||
CONSOLIDATED
STATEMENTS OF INCOME (LOSS)
|
||||||||||
FOR
THE YEARS ENDED DECEMBER 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
REVENUES
|
||||||||||
Sales
|
$
|
97,637,103
|
$
|
103,117,471
|
$
|
77,615,237
|
||||
Finance,
insurance and extended service revenues
|
3,114,683
|
2,487,596
|
2,335,618
|
|||||||
TOTAL
REVENUES
|
100,751,786
|
105,605,067
|
79,950,855
|
|||||||
COST
OF SALES
|
86,340,024
|
93,327,630
|
70,025,884
|
|||||||
GROSS
PROFIT
|
14,411,762
|
12,277,437
|
9,924,971
|
|||||||
OPERATING
EXPENSES
|
||||||||||
Selling
expenses
|
8,313,676
|
7,359,362
|
5,003,299
|
|||||||
General
and administrative expenses
|
4,980,384
|
4,286,549
|
2,753,416
|
|||||||
13,294,060
|
11,645,911
|
7,756,715
|
||||||||
INCOME
FROM OPERATIONS
|
1,117,702
|
631,526
|
2,168,256
|
|||||||
OTHER
INCOME AND (EXPENSE)
|
||||||||||
Other
income, net
|
20,883
|
100,714
|
38,592
|
|||||||
Interest
expense, net
|
(1,413,383
|
)
|
(779,943
|
)
|
(626,587
|
)
|
||||
Gain
on sale of assets
|
21,500
|
-
|
-
|
|||||||
(1,371,000
|
)
|
(679,229
|
)
|
(587,995
|
)
|
|||||
INCOME
(LOSS) BEFORE PROVISION
|
||||||||||
(BENEFIT)
FOR TAXES
|
(253,298
|
)
|
(47,703
|
)
|
1,580,261
|
|||||
PROVISION
(BENEFIT) FOR INCOME TAXES
|
(72,100
|
)
|
(38,900
|
)
|
622,200
|
|||||
NET
INCOME (LOSS) BEFORE PREFERRED DIVIDENDS
|
(181,198
|
)
|
(8,803
|
)
|
958,061
|
|||||
PREFERRED
DIVIDENDS
|
(273,526
|
)
|
(2,870,000
|
)
|
-
|
|||||
NET
INCOME (LOSS) ATTRIBUTABLE TO
|
||||||||||
COMMON
STOCKHOLDERS
|
$
|
(454,724
|
)
|
$
|
(2,878,803
|
)
|
$
|
958,061
|
||
BASIC
EARNINGS (LOSS) PER SHARE
|
$
|
(0.04
|
)
|
$
|
(0.28
|
)
|
$
|
0.09
|
||
DILUTED
EARNINGS (LOSS) PER SHARE
|
$
|
(0.04
|
)
|
$
|
(0.28
|
)
|
$
|
0.08
|
||
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
||||||||||
BASIC
|
11,090,020
|
10,435,904
|
10,425,000
|
|||||||
DILUTED
|
11,090,020
|
10,435,904
|
12,001,503
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
||||||||
GIANT
MOTORSPORTS, INC.
|
||||||||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
|
||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-in |
Paid-in
Capital -
|
Paid-in
Capital -
|
Paid-in
Capital - Beneficial
|
Issuance
Costs Preferred
|
Retained
Earnings
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Options
|
Warrants
|
Conversion
|
Series
A
|
(Deficit)
|
Total
|
||||||||||||||||||||||||
Balance,
December 31, 2003,
|
-
|
-
|
7,850,000
|
7,850
|
37,150
|
-
|
-
|
-
|
-
|
986,209
|
1,031,209
|
|||||||||||||||||||||||
Effects
of reverse merger
|
-
|
-
|
2,575,000
|
2,575
|
(2,575
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||
Reallocation
of S-Corporation earnings
|
-
|
-
|
-
|
-
|
986,209
|
-
|
-
|
-
|
-
|
(986,209
|
)
|
-
|
||||||||||||||||||||||
Retirment
of loan
|
-
|
-
|
-
|
-
|
(21,250
|
)
|
-
|
-
|
-
|
-
|
-
|
(21,250
|
)
|
|||||||||||||||||||||
Stock
warrants issued as compensation
|
-
|
-
|
-
|
-
|
15,000
|
-
|
-
|
-
|
-
|
-
|
15,000
|
|||||||||||||||||||||||
Distributions
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(654,133
|
)
|
(654,133
|
)
|
|||||||||||||||||||||
Net
income for the year
ended
December 31, 2004
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
958,061
|
958,061
|
|||||||||||||||||||||||
Balance,
December 31, 2004
|
-
|
-
|
10,425,000
|
10,425
|
1,014,534
|
-
|
-
|
-
|
-
|
303,928
|
1,328,887
|
|||||||||||||||||||||||
Issuance
of common stock
for
services
|
-
|
-
|
20,000
|
20
|
11,580
|
-
|
-
|
-
|
-
|
-
|
11,600
|
|||||||||||||||||||||||
Issuance
of preferred stock
|
2,870
|
2,870,000
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,870,000
|
|||||||||||||||||||||||
Allocation
of equity
proceeds
|
-
|
-
|
-
|
-
|
(384,837
|
)
|
109,442
|
2,020,480
|
1,526,840
|
(786,762
|
)
|
(2,870,000
|
)
|
(384,837
|
)
|
|||||||||||||||||||
Net
loss for the year ended
December
31, 2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(8,803
|
)
|
(8,803
|
)
|
|||||||||||||||||||||
Balance,
December 31, 2005
|
2,870
|
2,870,000
|
10,445,000
|
10,445
|
641,277
|
109,442
|
2,020,480
|
1,526,840
|
(786,762
|
)
|
(2,574,875
|
)
|
3,816,847
|
|||||||||||||||||||||
Conversion
of Series A
preferred
stock
|
(420
|
)
|
(420,000
|
)
|
938,500
|
939
|
954,197
|
(16,016
|
)
|
(295,680
|
)
|
(223,440
|
)
|
-
|
-
|
-
|
||||||||||||||||||
Common
shares dividends
issued
|
-
|
-
|
408,247
|
408
|
273,118
|
-
|
-
|
-
|
-
|
(273,526
|
)
|
-
|
||||||||||||||||||||||
Net
loss for the year ended
December
31, 2006
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(181,198
|
)
|
(181,198
|
)
|
|||||||||||||||||||||
Balance,
December 31, 2006
|
2,450
|
$
|
2,450,000
|
11,791,747
|
$
|
11,792
|
$
|
1,868,592
|
$
|
93,426
|
$
|
1,724,800
|
$
|
1,303,400
|
$
|
(786,762
|
)
|
$
|
(3,029,599
|
)
|
$
|
3,635,649
|
The
accompanying notes are an integral part of these consolidated
financial
statements
|
|||||||||||||||||||||||
GIANT
MOTORSPORTS, INC.
|
||||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||
FOR
THE YEARS ENDED DECEMBER 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||
Net
income (loss)
|
$
|
(181,198
|
)
|
$
|
(8,803
|
)
|
$
|
958,061
|
||
Adjustments
to reconcile net income (loss) to net cash
|
||||||||||
provided
by (used in) operating activities:
|
||||||||||
Depreciation
|
432,558
|
335,581
|
165,043
|
|||||||
Amortization
|
-
|
130,000
|
-
|
|||||||
Provision
for doubtful accounts
|
48,977
|
-
|
-
|
|||||||
Deferred
federal income taxes (credit)
|
(145,400
|
)
|
23,200
|
28,900
|
||||||
(Gain)
on sale of property and equipment
|
(21,500
|
)
|
-
|
-
|
||||||
Issuance
of common stock for services
|
-
|
11,600
|
-
|
|||||||
(Increase)
in accounts receivable, net
|
992,938
|
(2,385,039
|
)
|
(1,180,263
|
)
|
|||||
(Increase)
in accounts receivable, employees
|
4,775
|
-
|
-
|
|||||||
(Increase)
in inventories
|
(4,492,066
|
)
|
(236,982
|
)
|
(5,552,007
|
)
|
||||
(Increase)
in income taxes receivable
|
119,500
|
(119,500
|
)
|
-
|
||||||
(Increase)
decrease in prepaid expenses
|
64,124
|
(12,380
|
)
|
(53,875
|
)
|
|||||
Decrease
in deposits
|
-
|
26,240
|
-
|
|||||||
Increase
(decrease) in customer deposits
|
109,195
|
(257,089
|
)
|
128,508
|
||||||
Increase
(decrease) in floor plan liability
|
3,726,168
|
(597,927
|
)
|
6,213,046
|
||||||
Increase
(decrease) in deferred service contract revenue
|
-
|
(90,000
|
)
|
10,000
|
||||||
Increase
(decrease) in accounts payable trade
|
(383,217
|
)
|
1,112,323
|
551,944
|
||||||
Increase
in accrued expenses
|
(160,478
|
)
|
88,866
|
387,169
|
||||||
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
114,376
|
(1,979,910
|
)
|
1,656,526
|
||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||
Purchase
of property and equipment
|
(542,865
|
)
|
(1,123,881
|
)
|
(741,519
|
)
|
||||
Proceeds
from sale of property and equipment
|
21,500
|
-
|
-
|
|||||||
Decrease
(increase) in accounts receivable affiliates
|
261,667
|
(195,844
|
)
|
249,520
|
||||||
(Increase)
decrease in notes receivable from officers
|
-
|
-
|
425,376
|
|||||||
(Increase)
in deposits
|
-
|
-
|
(51,240
|
)
|
||||||
Covenant
not to compete incurred
|
-
|
(130,000
|
)
|
-
|
||||||
NET
CASH (USED IN) INVESTING ACTIVITIES
|
(259,698
|
)
|
(1,449,725
|
)
|
(117,863
|
)
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||
Short-term
borrowings on note
|
200,000
|
-
|
750,000
|
|||||||
Long-term
borrowings on note
|
-
|
-
|
1,250,000
|
|||||||
Payments
on short-term debt
|
-
|
(925,137
|
)
|
(1,450,000
|
)
|
|||||
Payments
on long-term debt
|
(284,814
|
)
|
(212,411
|
)
|
(154,010
|
)
|
||||
Proceeds
from officer loan
|
159,365
|
447,164
|
-
|
|||||||
Proceeds
from stock issuance - net
|
-
|
2,485,133
|
-
|
|||||||
Issuance
of 1,000,000 stock warrants
|
-
|
-
|
15,000
|
|||||||
Repurchase
of 8,000,000 shares of common stock
|
-
|
-
|
(21,250
|
)
|
||||||
Distributions
|
-
|
-
|
(654,133
|
)
|
||||||
NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
74,551
|
1,794,749
|
(264,393
|
)
|
||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(70,771
|
)
|
(1,634,886
|
)
|
1,274,270
|
|||||
CASH
AND CASH EQUIVALENTS, Beginning of Year
|
227,301
|
1,862,187
|
587,917
|
|||||||
CASH
AND CASH EQUIVALENTS, End of Year
|
$
|
156,530
|
$
|
227,301
|
$
|
1,862,187
|
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
|||||||
|
GIANT
MOTORSPORTS, INC.
|
||||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOW
|
||||||||||
FOR
THE YEARS ENDED DECEMBER 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
OTHER
SUPPLEMENTARY CASH FLOW INFORMATION
|
||||||||||
Accretion
of preferred stock discount
|
$
|
-
|
$
|
2,870,000
|
$
|
-
|
||||
Debt
incurred for acquisition of sales agreement
|
$
|
100,000
|
$
|
-
|
$
|
-
|
||||
Stock
issued for outside services
|
$
|
-
|
$
|
11,600
|
$
|
-
|
||||
Short-term
borrowings incurred for the acquisition of assets
|
$
|
-
|
$
|
-
|
$
|
1,675,000
|
||||
Note
payable to officer incurred for the acquisition of assets
|
$
|
-
|
$
|
243,572
|
$
|
-
|
||||
Interest
paid
|
$
|
1,445,662
|
$
|
762,736
|
$
|
642,859
|
||||
Income
taxes paid
|
$
|
-
|
$
|
151,000
|
$
|
200,000
|
||||
Preferred
stock dividends paid in common stock
|
$
|
273,526
|
$
|
-
|
$
|
-
|
|
|||||||
The
accompanying notes are an integral part of these consolidated
financial
statements.
|
|||||||
|
Fixtures,
and equipment
|
3-7
years
|
Vehicles
|
5
years
|
Leasehold
Improvements
|
15-39
years
|
2006
|
2005
|
||||||
Goodwill
|
$
|
1,588,950
|
$
|
1,588,950
|
|||
Licensing
Agreement
|
100,000
|
-0-
|
|||||
TOTAL
|
$
|
1,688,950
|
$
|
1,588,950
|
Years
Ended December
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Net
income (loss) attributed to common shares
|
$
|
(454,724
|
)
|
$
|
(2,878,803
|
)
|
$
|
958,061
|
||
Weighted-average
common shares outstanding (Basic)
|
11,090,020
|
10,435,904
|
10,425,000
|
|||||||
Weighted-average
common stock equivalents:
|
||||||||||
Warrants
|
0
|
0
|
1,010,929
|
|||||||
Options
|
0
|
0
|
565,574
|
|||||||
Weighted-average
common shares
|
||||||||||
outstanding
(diluted)
|
11,090,020
|
10,435,904
|
12,001,503
|
2006
|
2005
|
2004
|
||||||||
Net
income (loss);
|
||||||||||
As
reported
|
$
|
(181,198
|
)
|
$
|
(8,803
|
)
|
$
|
958,061
|
||
Deduct:
Total stock-based employee
|
||||||||||
Compensation
determined under fair
|
||||||||||
Value
based method for all awards,
|
||||||||||
Net
of related tax effects.
|
-0-
|
-0-
|
586,274
|
|||||||
Net
income, pro forma
|
$
|
(181,198
|
)
|
$
|
(8,803
|
)
|
$
|
371,787
|
||
Net
income (loss) per share:
|
||||||||||
As
reported:
|
||||||||||
Basic
|
$
|
(0.04
|
)
|
$
|
(0.28
|
)
|
$
|
0.09
|
||
Diluted
|
$
|
(0.04
|
)
|
$
|
(0.28
|
)
|
$
|
0.08
|
||
Pro
forma:
|
||||||||||
Basic
|
$
|
(0.04
|
)
|
$
|
(0.28
|
)
|
$
|
0.06
|
||
Diluted
|
$
|
(0.04
|
)
|
$
|
(0.28
|
)
|
$
|
0.03
|
|
2006
|
2005
|
2004
|
|||||||
Dividend
yield
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
||||
Expected
volatility
|
107.38
|
107.38
|
19.27
|
|||||||
Risk-free
interest rate
|
4.50
|
%
|
4.50
|
%
|
4.50
|
%
|
||||
Expected
life in years
|
1
- 5
|
1
- 5
|
1
- 5
|
2006
|
2005
|
||||||
A/R-Customers
and dealers
|
$
|
2,129,416
|
$
|
2,770,165
|
|||
A/R-Manufacturers
|
805,279
|
1,317,542
|
|||||
A/R-Employees
|
4,649
|
9,424
|
|||||
Contracts
in transit
|
889,374
|
778,277
|
|||||
|
3,828,718
|
4,875,408
|
|||||
Allowance
for doubtful accounts
|
25,000
|
25,000
|
|||||
|
$
|
3,803,718
|
$
|
4,850,408
|
2006
|
2005
|
||||||
Parts
and accessories
|
$
|
1,974,482
|
$
|
1,958,330
|
|||
Vehicles
|
19,292,653
|
14,816,739
|
|||||
TOTALS
|
$
|
21,267,135
|
$
|
16,775,069
|
2006
|
2005
|
||||||
Fixtures
and equipment
|
$
|
2,151,547
|
$
|
2,016,383
|
|||
Vehicles
|
429,195
|
366,326
|
|||||
Leasehold
improvements
|
572,776
|
264,328
|
|||||
3,153,518
|
2,647,037
|
||||||
Less
accumulated depreciation
|
(1,149,244
|
)
|
(753,070
|
)
|
|||
NET
PROPERTY AND EQUIPMENT
|
$
|
2,004,274
|
$
|
1,893,967
|
2006
|
2005
|
||||||
Kawasaki
Motors Finance Company floor plan
|
|||||||
agreement
provides for borrowings up to
|
|||||||
$2,300,000.
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 8.25% to
|
|||||||
12.75%
at December 31, 2006 and 2005, respectively).
|
|||||||
Principal
payments are due upon the sale of the
|
|||||||
specific
units financed.
|
$
|
2,187,507
|
$
|
1,750,508
|
|||
GE
Commercial Distribution Finance floor plan agreement
|
|||||||
for
Yamaha units provides for borrowings up to
|
|||||||
$3,000,000.
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 6% to 11.25% at December 31, 2006 and
|
|||||||
2005,
respectively). Principal payments are due upon
|
|||||||
the
sale of the specific units financed.
|
2,715,618
|
1,929,919
|
|||||
GE
Commercial Distribution finance floor plan agreement
|
|||||||
for
Suzuki units provides for borrowings up to $100,000.
|
|||||||
The
manufacturer, at its discretion, may increase the
|
|||||||
borrowings.
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 9.25% at December 31, 2006 and
|
|||||||
2005,
respectively). Principal payments are due upon
|
|||||||
the
sale of the specific units financed.
|
4,719,465
|
5,032,413
|
|||||
Polaris
Acceptance floor plan agreement provides for
|
|||||||
borrowings
up to $450,000. The manufacturer, at its
|
|||||||
discretion,
may increase the borrowings. The agreement
|
|||||||
is
collateralized by specific units financed (rate ranging from
|
|||||||
12%
to 17.25% at December 31, 2006 and 2005,
|
|||||||
respectively).
Principal payments are due at the
|
|||||||
of
date of sale or one year after financing.
|
289,338
|
433,248
|
Fifth
Third Bank floor plan agreement provides for
|
|||||||
borrowings
up to $2,500,000. Interest is payable
|
|||||||
monthly
and fluctuates with prime (8.53% and 7.4%
|
|||||||
at
December 31, 2006 and 2005, respectively) and
|
|||||||
varies
based on the type of unit financed and the length
|
|||||||
of
time the unit remains on the floor plan. Principal
|
|||||||
payments
are due upon the sale of the specific units
|
|||||||
financed.
|
2,041,303
|
1,897,923
|
|||||
American
Honda Finance floor plan agreement
|
|||||||
provides
for borrowings up to $2,000,000.
|
|||||||
The
manufacturer, at its discretion, may increase the
|
|||||||
borrowings.
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. Principal payments are
|
|||||||
due
upon the sale of the specific units financed.
|
1,232,277
|
477,472
|
|||||
GE
Commercial Distribution Finance floor plan agreement
|
|||||||
for
Ducati units provides for borrowings up to $450,000.
|
|||||||
Interest
is payable monthly and fluctuates with prime
|
|||||||
(ranging
from 4.8% to 12.25% at December 31, 2006 and
|
|||||||
2005,
respectively) and varies based on the type of unit
|
|||||||
financed
and the length of time the unit remains on the
|
|||||||
floor
plan. Principal payments are due upon the sale
|
|||||||
of
the specific units financed.
|
356,021
|
282,920
|
|||||
|
|||||||
GE
Commercial Distribution Finance floor plan agreement
|
|||||||
for
Yamaha units provides for borrowings up to $1,900,000.
|
|||||||
Interest
is payable monthly and fluctuates with prime
|
|||||||
(ranging
from 6% to 11.25% at December 31, 2006 and
|
|||||||
2005,
respectively) and varies based on the type of unit
|
|||||||
financed
and the length of time the unit remains on the
|
|||||||
floor
plan. Principal payments due upon the sale of the
|
|||||||
specific
units financed.
|
1,824,710
|
1,814,701
|
|||||
GE
Commercial Distribution Finance floor plan agreement
|
|||||||
for
Suzuki units provides for borrowings up to $100,000.
|
|||||||
The
manufacturer, at its discretion, may increase the
|
|||||||
borrowings.
Interest is payable monthly and fluctuates
|
|||||||
with
prime (ranging from 3.6% to 9.25% at December 31,
|
|||||||
2006
and 2005, respectively) and varies based on the type
|
|||||||
of
unit financed and the length of time the unit remains
|
|||||||
on
the floor plan. Principal payments are due upon the
|
|||||||
sale
of the specific units financed.
|
3,400,375
|
2,310,607
|
|||||
Fifth
Third Bank floor plan agreement provides for
|
|||||||
borrowing
up to $2,500,000. Interest is payable
|
|||||||
monthly
and fluctuates with prime (8.53% at December
|
|||||||
31,
2006 and 7.4% at December 31, 2005) and varies
|
|||||||
based
on the type of unit financed and the length of
|
|||||||
time
the unit remains on the floor plan. Principal
|
|||||||
payments
are due upon the sale of the specific units
|
|||||||
units
financed.
|
728,883
|
1,230,008
|
|||||
Kawasaki
Motors Finance Company floor plan agreement
|
|||||||
provides
for borrowings up to $1,500,000. Interest is
|
|||||||
payable
monthly and fluctuates with prime (18% at
|
|||||||
December
31, 2006) and varies based on the type
|
|||||||
of
unit financed and the length of time the unit remains
|
|||||||
on
the floor plan. Principal payments are due upon the
|
|||||||
sale
of the specific units financed.
|
1,358,910
|
-0-
|
|||||
GE
Commercial Distribution Finance floor plan agreement
|
|||||||
for
CPI units provides for borrowings up to $150,000.
|
|||||||
Interest
is payable monthly and fluctuates with prime
|
|||||||
(10.25%
at December 31, 2006 ) and varies based on the
|
|||||||
type
of unit financed and the length of time the unit remains
|
|||||||
on
the floor plan. Principal payments are due upon the
|
|||||||
sale
of the specific units financed.
|
31,480
|
-0-
|
|||||
TOTALS
|
$
|
20,885,887
|
$
|
17,159,719
|
|||
2006
|
|
2005
|
|||||
A
$250,000 note payable with HSK Funding bearing
|
|||||||
interest
at 15% at December 31, 2006.
|
$
|
250,000
|
$
|
-0-
|
|||
A
$200,000 note payable with HSK Funding bearing
|
|||||||
interest
at 15.5% at December 31, 2006.
|
200,000
|
-0-
|
|||||
A
$250,000 note payable with HSK Funding bearing
|
|||||||
interest
at 15% at December 31, 2005.
|
-0-
|
250,000
|
|||||
A
$250,000 revolving line of credit at a bank bearing
|
|||||||
interest
at a variable rate of prime plus one percent (9.25%
|
|||||||
and
8% at December 31, 2006 and 2005, respectively).
|
|||||||
The
loan is collateralized by substantially all the
|
|||||||
Company’s
assets and the building owned personally
|
|||||||
by
an officer.
|
249,863
|
249,863
|
|||||
Note
payable to bank bearing interest at 6.25%
|
|||||||
payable
in monthly installments of $17,360, through
|
|||||||
August
2007, at which point there is a balloon
|
|||||||
payment.
The note is collateralized by substantially
|
|||||||
all
Company’s assets, and shareholder guarantees.
|
781,280
|
989,600
|
|||||
Note
payable to bank bearing interest at 8.6%,
|
|||||||
payable
in monthly installments of $537, through
|
|||||||
May
2007, collateralized by vehicle.
|
2,522
|
9,016
|
|||||
Note
payable to Champion Cycle for the purchase
|
|||||||
of
their Kawasaki license bearing interest at 5%,
|
|||||||
payable
in monthly installments of $10,000
|
|||||||
plus
interest through June 2007.
|
30,000
|
-0- | |||||
|
1,513,665
|
1,498,479
|
|||||
Less
current maturities
|
1,513,665
|
714,623
|
|||||
TOTALS
|
$
|
-0-
|
$
|
783,856
|
Income
taxes (credit) consisted of the following:
|
2006
|
2005
|
2004
|
|||||||
Current
|
$
|
(92,700
|
)
|
$
|
(119,500
|
)
|
$
|
593,300
|
||
Deferred
|
20,600
|
80,600
|
28,900
|
|||||||
TOTALS
|
$
|
(72,100
|
)
|
$
|
(38,900
|
)
|
$
|
622,200
|
||
Deferred
tax assets (liabilities) consisted of the following:
|
||||||||||
2006
|
|
|
2005
|
|
|
2004
|
||||
Deferred
tax assets - current and long-term:
|
||||||||||
Allowance
for doubtful accounts and net
|
||||||||||
operating
loss carryforward
|
$
|
113,900
|
$
|
0
|
$
|
8,500
|
||||
Deferred
tax liabilities - long-term:
|
||||||||||
Depreciation
|
(20,600
|
)
|
(52,100
|
)
|
(37,400
|
)
|
||||
TOTALS
|
$
|
93,300
|
$
|
(52,100
|
)
|
$
|
(28,900
|
)
|
2006
|
2005
|
||||||
Noninterest
bearing advances to Marck’s Real
|
|||||||
Estate,
LLC., a limited liability company
|
|||||||
affiliated
through common ownership,
|
|||||||
interest
to be repaid within one year.
|
$
|
-0-
|
$
|
261,667
|
|||
TOTALS
|
$
|
-0-
|
$
|
261,667
|
YEAR
ENDING
|
AMOUNT
|
|||
2007
|
$
|
1,004,291
|
||
2008
|
1,036,549
|
|||
2009
|
1,059,641
|
|||
2010
|
1,082,790
|
|||
2011
|
1,106,631
|
|||
|
$
|
5,289,902
|
(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 balance was repaid in 2005)
|
GIANT
MOTORSPORTS, INC.
|
|||||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|||||
ASSETS
|
March
31, 2007
|
December
31, 2006
|
||||||
Unaudited
|
Audited
|
||||||
CURRENT
ASSETS
|
|||||||
Cash
and cash equivalents
|
$
|
817,595
|
$
|
156,530
|
|||
Accounts
receivable, net
|
3,580,012
|
3,803,718
|
|||||
Accounts
receivable, employees
|
14,882
|
-
|
|||||
Inventories
|
20,656,889
|
21,267,135
|
|||||
Deferred
tax assets
|
361,000
|
113,900
|
|||||
Prepaid
expenses
|
33,831
|
10,131
|
|||||
TOTAL
CURRENT ASSETS
|
25,464,209
|
25,351,414
|
|||||
FIXED
ASSETS, NET
|
1,904,693
|
2,004,274
|
|||||
OTHER
ASSETS
|
|||||||
Intangibles,
net
|
1,688,950
|
1,688,950
|
|||||
Deposits
|
41,000
|
41,000
|
|||||
TOTAL
OTHER ASSETS
|
1,729,950
|
1,729,950
|
|||||
TOTAL
ASSETS
|
$
|
29,098,852
|
$
|
29,085,638
|
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
|
|||||
March
31, 2007
|
December
31, 2006
|
||||||
Unaudited
|
Audited
|
||||||
CURRENT
LIABILITIES
|
|||||||
Current
portion of long-term debt
|
$
|
1,449,949
|
$
|
1,513,665
|
|||
Notes
payable, floor plans
|
19,845,378
|
20,885,887
|
|||||
Note
payable, officer
|
270,223
|
352,500
|
|||||
Accounts
payable, trade
|
3,114,164
|
1,987,152
|
|||||
Accrued
expenses
|
627,285
|
493,939
|
|||||
Customer
deposits
|
615,737
|
196,246
|
|||||
TOTAL
CURRENT LIABILITIES
|
25,922,736
|
25,429,389
|
|||||
DEFERRED
TAX LIABILITIES
|
14,200
|
20,600
|
|||||
TOTAL
LIABILITIES
|
25,936,936
|
25,449,989
|
|||||
COMMITMENTS
|
|||||||
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 2,450 shares issued and outstanding at
|
|||||||
March
31, 2007 and December 31, 2006, respectively
|
2,450,000
|
2,450,000
|
|||||
Common
stock, $.001 par value, authorized 75,000,000 shares
|
|||||||
12,213,126
and 11,791,747 shares issued and outstanding at
|
|||||||
March
31, 2007 and December 31, 2006, respectively
|
12,213
|
11,792
|
|||||
Additional
paid-in capital
|
1,960,874
|
1,868,592
|
|||||
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
|
(3,596,035
|
)
|
(3,029,599
|
)
|
|||
TOTAL
STOCKHOLDERS' EQUITY
|
3,161,916
|
3,635,649
|
|||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
29,098,852
|
$
|
29,085,638
|
|||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
|
GIANT
MOTORSPORTS, INC.
|
|||||||
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
|||||||
For
the three months ended March 31,
|
2007
|
2006
|
||||||
(Unaudited)
|
(Unaudited)
|
||||||
REVENUES
|
|||||||
Sales
|
$
|
20,034,116
|
$
|
17,783,777
|
|||
Finance,
insurance and extended service revenues
|
871,788
|
605,860
|
|||||
TOTAL
REVENUES
|
20,905,904
|
18,389,637
|
|||||
COST
OF SALES
|
18,428,636
|
15,842,217
|
|||||
GROSS
PROFIT
|
2,477,268
|
2,547,420
|
|||||
OPERATING
EXPENSES
|
|||||||
Selling
expenses
|
1,790,171
|
2,045,931
|
|||||
General
and administrative expenses
|
1,002,609
|
1,171,179
|
|||||
2,792,780
|
3,217,110
|
||||||
LOSS
FROM OPERATIONS
|
(315,512
|
)
|
(669,690
|
)
|
|||
OTHER
INCOME AND (EXPENSE)
|
|||||||
Other
income, net
|
4,706
|
4,096
|
|||||
Gain
on sale of asset
|
184
|
-
|
|||||
Interest
expense, net
|
(416,611
|
)
|
(275,558
|
)
|
|||
(411,721
|
)
|
(271,462
|
)
|
||||
LOSS
BEFORE PROVISION (BENEFIT) FOR TAXES
|
(727,233
|
)
|
(941,152
|
)
|
|||
PROVISION
(BENEFIT) FOR INCOME TAXES
|
(253,500
|
)
|
-
|
||||
LOSS
BEFORE PREFERRED DIVIDENDS
|
(473,733
|
)
|
(941,152
|
)
|
|||
PREFERRED
DIVIDENDS
|
92,703
|
126,722
|
|||||
NET
LOSS ATTRIBUTABLE TO
|
|||||||
COMMON
SHAREHOLDERS
|
$
|
(566,436
|
)
|
$
|
(1,067,874
|
)
|
|
BASIC
LOSS PER SHARE
|
$
|
(0.05
|
)
|
$
|
(0.11
|
)
|
|
DILUTED
LOSS PER SHARE
|
$
|
(0.05
|
)
|
$
|
(0.11
|
)
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
|||||||
BASIC
|
11,936,889
|
10,532,973
|
|||||
DILUTED
|
11,936,889
|
10,532,973
|
|||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
|
GIANT
MOTORSPORTS, INC.
|
|||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|||||
For
the three months ended March 31, 2007 and
2006
|
2007
|
2006
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
Net
loss
|
$
|
(473,733
|
)
|
$
|
(941,152
|
)
|
|
Adjustments
to reconcile net loss to net cash
|
|||||||
provided
by operating activities:
|
|||||||
Depreciation
|
109,487
|
108,506
|
|||||
Deferred
federal income tax credit (net)
|
(253,500
|
)
|
-
|
||||
Provision
for doubtful accounts
|
21,831
|
-
|
|||||
(Gain)
on sale of asset
|
(184
|
)
|
-
|
||||
Decrease
in accounts receivable, net
|
201,875
|
1,385,365
|
|||||
(Increase)
in accounts receivable, employees
|
(14,882
|
)
|
(11,013
|
)
|
|||
(Increase)
decrease in inventories
|
610,246
|
(6,207,433
|
)
|
||||
(Increase)
in prepaid expenses
|
(23,700
|
)
|
(101,370
|
)
|
|||
Increase
in customer deposits
|
419,491
|
633,375
|
|||||
Increase
in accounts payable trade
|
1,127,012
|
612,355
|
|||||
Increase
(decrease) in floor plan liability
|
(1,040,509
|
)
|
5,294,542
|
||||
Increase
in accrued expenses
|
133,346
|
38,108
|
|||||
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
816,780
|
811,283
|
|||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||
Purchase
of fixed assets
|
(16,722
|
)
|
(454,934
|
)
|
|||
Proceeds
from sale of property and equipment
|
7,000
|
-
|
|||||
Decrease
in accounts receivable affiliates
|
-
|
261,667
|
|||||
NET
CASH (USED IN) INVESTING ACTIVITIES
|
(9,722
|
)
|
(193,267
|
)
|
|||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||
Payments
on long-term debt
|
(63,716
|
)
|
(78,690
|
)
|
|||
Payments
on note payable to officer
|
(82,277
|
)
|
(115,490
|
)
|
|||
NET
CASH (USED IN) FINANCING ACTIVITIES
|
(145,993
|
)
|
(194,180
|
)
|
|||
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
661,065
|
423,836
|
|||||
CASH
AND CASH EQUIVALENTS, beginning of Period
|
156,530
|
227,301
|
|||||
CASH
AND CASH EQUIVALENTS, end of Period
|
$
|
817,595
|
$
|
651,137
|
|||
OTHER
SUPPLEMENTARY CASH FLOW INFORMATION
|
|||||||
Income
taxes paid
|
$
|
-
|
$
|
158,550
|
|||
Interest
paid
|
$
|
416,611
|
$
|
277,412
|
|||
Preferred
stock dividends paid in common stock
|
$
|
92,703
|
$
|
126,722
|
|||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
|
Fixtures,
and equipment
|
3-7
years
|
Vehicles
|
5
years
|
Leasehold
Improvements
|
10
years
|
Gross
Carrying Amount
|
||||
Goodwill
|
$
|
1,588,950
|
||
Licensing
Agreement
|
100,000
|
|||
TOTAL
|
$
|
1,688,950
|
Three
Months Ended
|
|||||||
March
31,
2007
|
March
31,
2006
|
||||||
Net
income (loss) attributed to common shares
|
$
|
(566,436
|
)
|
$
|
(1,067,874
|
)
|
|
Weighted-average
common shares outstanding (Basic)
|
11,936,889
|
10,532,973
|
|||||
Weighted-average
common stock equivalents:
Warrants
|
-0-
|
-0-
|
|||||
|
|||||||
Weighted-average
common shares outstanding (Diluted)
|
11,936,889
|
10,532,973
|
March 31, 2007 | ||||
Fixtures
and equipment
|
$
|
2,153,076
|
||
Vehicles
|
420,675
|
|||
Leasehold
improvements
|
587,969
|
|||
|
3,161,720
|
|||
Less
accumulated depreciation
|
1,257,027
|
|||
NET
FIXED ASSETS
|
$
|
1,904,693
|
Year
Ending
|
Amount
|
|||
2008
|
$
|
1,028,209
|
||
2009
|
1,051,049
|
|||
2010
|
1,073,940
|
|||
2011
|
1,097,516
|
|||
2012
|
1,121,802
|
|||
$
|
5,372,516
|
March 31, 2007 | December 31,2006 | ||||||
Current
|
$
|
(247,100
|
)
|
$
|
(92,700
|
)
|
|
Deferred
|
(6,400
|
)
|
20,600
|
||||
$
|
(253,500
|
)
|
$
|
(72,100
|
)
|
March
31, 2007
|
December
31, 2006
|
||||||
Deferred
tax assets (liabilities) consisted of the following:
|
|||||||
Deferred
tax assets - current and long term:
|
|||||||
Allowance
for doubtful account and net
|
|||||||
operating
loss carryforward
|
$
|
361,000
|
$
|
113,900
|
|||
Deferred
tax liabilities - long term:
|
|||||||
Depreciation
|
(14,200
|
)
|
(20,600
|
)
|
|||
TOTALS
|
$
|
346,800
|
$
|
93,300
|
SEC
Filing fee
|
$
|
2,157.88
|
||
Accounting
Fees and Expenses
|
$
|
25,000.00
|
||
Legal
Fees and Expenses including those of counsel to the Selling
Shareholders
|
$
|
54,000.00
|
||
Miscellaneous
Expenses
|
$
|
5,000.00
|
||
|
||||
TOTAL
|
$
|
86,157.88
|
2.1
|
Stock
Purchase and Reorganization Agreement dated as of December 30, 2003
(1).
|
|
|
2.2
|
Repurchase
Agreement dated December 30, 2003 (1).
|
|
|
2.3
|
Stock
Purchase Agreement dated as of December 30, 2003 (1).
|
|
|
2.4
|
Share
Purchase Agreement dated as of December 30, 2003 (1).
|
|
|
2.5
|
Asset
Purchase Agreement dated April 2004 (Exhibit 2.1) (2).
|
|
|
3.1
|
Restated
Articles of Incorporation of Giant Motorsports, Inc.
(3).
|
|
|
3.2
|
Bylaws
of Giant Motorsports, Inc. (4).
|
|
|
4.1
|
Form
of Warrant for 1,000,000 shares of common stock dated January 20,
2004
(1).
|
|
|
4.2
|
Form
of Warrant for 100,000 shares of common stock dated April 19, 2004
(5).
|
|
|
4.3
|
Stock
Option Agreement with Russell A. Haehn (1,000,000 shares) (Exhibit
4.2)
(6).
|
|
|
4.4
|
Stock
Option Agreement with Gregory A. Haehn (500,000 shares) (Exhibit
4.3)
(6).
|
|
|
4.5
|
Certificate
of Designation of Series A Convertible Preferred Stock (Exhibit 99.1)
(7).
|
|
|
4.6
|
Form
of Investor Warrant (September 2005 Private Placement) (Exhibit 99.2)
(7).
|
|
|
4.7
|
Form
of Purchase Option (September 2005 Private Placement) (Exhibit 99.3)
(7).
|
|
|
4.8
|
Registration
Rights Agreement (September 2005 Private Placement (Exhibit 99.4)
(7).
|
|
|
4.9
|
Specimen
stock certificate for shares of common stock (8).
|
|
|
4.10
|
Specimen
stock certificate for Series A Shares (8).
|
|
|
4.11
|
Specimen
Warrant Certificate (9).
|
|
|
4.12
|
Form
of Warrant Agreement between Olde Monmouth Stock Transfer Co., Inc.
and
the Company (9).
|
|
|
5.1
|
Opinion
of Gusrae, Kaplan, Bruno & Nusbaum, PLLC.*
|
10.1
|
Agency
Agreement between Giant Motorsports, Inc. and HCPF/Brenner Securities
LLC
dated
September 9, 2005 (7).
|
|
|
10.2
|
Lease
dated October 1, 2006, effective January 1, 2007, between Russell A.
Haehn d/b/a
Marck's Real Estate and W.W. Cycles,
Inc. (10)
|
20.1
|
Secured
Promissory Note dated April 2004 in the principal amount of $1,675,000
(2).
|
|
|
20.2
|
Commercial
Security Agreement dated April 2004 (2).
|
20.3
|
Management
Agreement between King's Motorsports Inc. d/b/a Chicago Cycle and
Giant
Motorsports, Inc. dated April 2004 (2).
|
21
|
Subsidiaries.*
|
23.1
|
Consent
of Bagell, Josephs, Levine & Company, LLC.**
|
23.4
|
Consent
of Gusrae, Kaplan, Bruno & Nusbaum, PLLC, included in the opinion
filed
as Exhibit 5.1
|
(1) |
Filed
as an exhibit to the Form 8-K filed January 23, 2004 and incorporated
herein by reference.
|
(2) |
Filed
as an exhibit to the Form 8-K filed May 11, 2004 and incorporated
herein
by reference.
|
(3) |
Filed
as an exhibit to the Definitive Schedule 14C filed March 15, 2004
and
incorporated herein by reference.
|
(4) |
Filed
as an exhibit to the Form 10-KSB filed April 15, 2005 and incorporated
herein by reference.
|
(5) |
Filed
as an exhibit to the Form 8-K filed on April 21, 2004 and incorporated
herein by reference.
|
(6) |
Filed
as an exhibit to the Form 8-K filed on August 18, 2004 and incorporated
herein by reference.
|
(7) |
Filed
as an exhibit to the Form 8-K filed on September 22, 2005 and incorporated
herein by reference.
|
(8) |
Filed
as an exhibit to the Registration Statement on Form S1/A filed on
January
12, 2006 and incorporated herein by
reference.
|
(9) |
Filed
as an exhibit to the Registration Statement on Form 8-A filed on
January
19, 2006 and incorporated herein by
reference.
|
(10) |
Filed
as an exhibit to the Form 10-K filed April 17, 2007
|
GIANT MOTORSPORTS, INC. | ||
|
|
|
Date: May 31, 2007 | By: | /s/ Russell A. Haehn |
Russell
A. Haehn, Chairman and
Chief
Executive Officer
|
||
Name
|
Office
|
Date
|
||
/s/
Russell A. Haehn
|
Chairman,
Chief Executive Officer and Director
(Principal
Executive Officer)
|
May
31, 2007
|
||
Russell
A. Haehn
|
||||
/s/
Gregory A. Haehn
|
President,
Chief Operating Officer and Director
(Principal
Financial and Accounting Officer)
|
May
31, 2007
|
||
Gregory
A. Haehn
|