SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT No. 1 to
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): May 3, 2004
GIANT MOTORSPORTS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 000-50243 33-1025552
----------------------- --------------------- -------------------
(State of Incorporation (Commission File No.) (IRS Identification
or Other Jurisdiction) Number)
13134 State Route 62, Salem, Ohio 44460
----------------------------------------
(Address of principal executive offices)
(330) 332-8534
-------------------------------------------------
Registrant's telephone number including area code
-------------------------------------------------------------
(Former name or former address, if changed since last report)
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits.
Financial Statements and Pro Forma Financial Information
--------------------------------------------------------
In connection with the events reported in the Registrant's
Form 8-K filed with the Commission on May 11, 2004, the
Registrant is filing the following financial statements of King
Motorsports, Inc. T/A Chicago Cycle Center ("Chicago Cycle"), in
connection with the Registrant's acquisition of substantially all
of the assets of Chicago Cycle, along with certain pro forma
financial information, as required pursuant to Item 7 of Form 8-K
herewith:
(a) Audited Financial Statements of Chicago Cycle for the
years ended December 31, 2003 and 2002;
(b) Unaudited Financial Statements of Chicago Cycle for the
three-months ended March 31, 2004 and 2003; and
(c) Pro forma financial information reflecting the
acquisition of substantially all of the assets of Chicago Cycle
by the Registrant, presented as required pursuant to Article 11
of Regulation S-X.
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 hereunto duly authorized.
GIANT MOTORSPORTS, INC.
By: /s/ Gregory A. Haehn
----------------------------
Gregory A. Haehn
President
Dated: As of July 14, 2004
FINANCIAL STATEMENTS
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
Years ended December 31, 2003 and 2002
- - - o o 0 o o - - -
C O N T E N T S
P A G E
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM.......................................... 1
BALANCE SHEETS................................................ 2-3
STATEMENTS OF INCOME.......................................... 4
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT).................. 5
STATEMENTS OF CASH FLOWS...................................... 6
NOTES TO FINANCIAL STATEMENTS................................. 7-14
- - - o o 0 o o - - -
Report of Independent Registered Public Accounting Firm
Kings Motorsports, Inc.
T/A Chicago Cycle Center
Chicago, Illinois
We have audited the accompanying balance sheets of Kings Motorsports, Inc. (an S
corporation), T/A Chicago Cycle Center, as of December 31, 2003 and 2002 and the
related statements of income, stockholders' equity (deficit) and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board in the United States of America. Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kings Motorsports, Inc., T/A
Chicago Cycle Center, as of December 31, 2003 and 2002 and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
Bagell, Josephs & Company LLC
Gibbsboro, NJ 08026
July 10, 2004
-1-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
BALANCE SHEETS
December 31, 2003 and 2002
ASSETS
2003 2002
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 97,467 $ 139,580
Accounts receivable, net 357,786 287,758
Accounts receivable, officers 203,069 119,927
Stock subscription receivable 49,000 49,000
Inventories 5,107,815 3,830,905
Current portion of note receivable, affiliate 33,990 27,330
---------- ----------
TOTAL CURRENT ASSETS 5,849,127 4,454,500
---------- ----------
PROPERTY AND EQUIPMENT, NET 199,001 257,025
---------- ----------
OTHER ASSETS
Intangibles, net 16,833 17,833
Note receivable, affiliate 53,856 87,845
---------- ----------
TOTAL OTHER ASSETS 70,689 105,678
---------- ----------
$6,118,817 $4,817,203
========== ==========
See accompanying notes to financial statements
-2-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
BALANCE SHEETS (CONTINUED)
December 31, 2003 and 2002
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
2003 2002
----------- -----------
CURRENT LIABILITIES
Notes payable, floor plans $ 4,626,962 $ 3,954,046
Accounts payable, trade 449,355 189,163
Accounts payable, officer 133,374 --
Accrued expenses 122,552 113,488
Customer deposits 317,151 342,414
Deferred service contract income 607,609 470,252
Current portion of long-term debt 1,990 29,951
----------- -----------
TOTAL CURRENT LIABILITIES 6,258,993 5,099,314
LONG-TERM DEBT, NET -- 1,990
----------- -----------
TOTAL LIABILITIES 6,258,993 5,101,304
----------- -----------
COMMITMENTS - NOTE K
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $1 par value:
Authorized 1,000,000 shares; issued and outstanding 50,000 shares 50,000 50,000
Retained earnings (deficit) (190,176) (334,101)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (140,176) (284,101)
----------- -----------
6,118,817 $ 4,817,203
=========== ===========
See accompanying notes to financial statements
-3-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
STATEMENTS OF INCOME
For the years ended December 31, 2003 and 2002
2003 2002
------------ ------------
OPERATING INCOME
Sales $ 39,105,922 $ 33,816,970
Finance, insurance and extended service revenues 1,419,961 2,042,402
Other operating income 67,767 55,099
------------ ------------
TOTAL OPERATING INCOME 40,593,650 35,914,471
COST OF MERCHANDISE SOLD 35,216,631 31,127,279
------------ ------------
GROSS PROFIT 5,377,019 4,787,192
------------ ------------
OPERATING EXPENSES
Selling expenses 1,647,281 1,428,116
General and administrative expenses 3,466,104 3,015,135
------------ ------------
5,113,385 4,443,251
------------ ------------
INCOME FROM OPERATIONS 263,634 343,941
------------ ------------
OTHER INCOME AND (EXPENSE)
Other income, net 7,354 84,573
Interest expense, net (127,063) (174,719)
------------ ------------
(119,709) (90,146)
------------ ------------
NET INCOME $ 143,925 $ 253,795
============ ============
See accompanying notes to financial statements
-4-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 2003 and 2002
Common Stock
------------------------- Accumulated
Shares Amount Deficit Total
--------- --------- --------- ---------
Balance, January 1, 2002 50,000 $ 50,000 $(587,896) $(537,896)
Net income -- -- 253,795 253,795
--------- --------- --------- ---------
Balance, December 31, 2002 50,000 50,000 (334,101) (284,101)
Net income -- -- 143,925 143,925
--------- --------- --------- ---------
Balance, December 31, 2003 50,000 $ 50,000 $(190,176) $(140,176)
========= ========= ========= =========
See accompanying notes to financial statements
-5-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2003 and 2002
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 143,925 $ 253,795
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 65,390 63,305
(Increase) in accounts receivable, net (70,028) (181,466)
(Increase) in inventories (1,276,910) (1,154,430)
Increase in floor plan liability 672,916 1,392,798
Increase (decrease) in customer deposits (25,263) 127,569
Increase (decrease) in deferred service contract income 137,357 (6,805)
Increase in accounts payable trade 260,192 143,530
Increase in accrued expenses 9,064 18,487
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (83,357) 656,783
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (6,366) (16,372)
(Increase) decrease in note receivable affiliate 27,329 (115,175)
(Increase) decrease in accounts receivable, officers 50,232 (119,927)
Decrease in other assets -- 17,000
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 71,195 (234,474)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of officer loans -- (392,179)
Payments on long-term debt (29,951) (26,046)
----------- -----------
NET CASH (USED IN) FINANCING ACTIVITIES (29,951) (418,225)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (42,113) 4,084
CASH AND CASH EQUIVALENTS, beginning of Year 139,580 135,496
----------- -----------
CASH AND CASH EQUIVALENTS, end of Year $ 97,467 $ 139,580
=========== ===========
OTHER SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid during the year $ 127,386 $ 169,623
=========== ===========
See accompanying notes to financial statements
-6-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS:
Kings Motorsports, Inc. (the Company), doing business as Chicago Cycle
Center, was incorporated in Illinois in 2000 and operates as a retail dealer of
motorcycles, all terrain vehicles, scooters and automobiles in northern
Illinois.
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 no allowance is necessary
at December 31, 2003 and 2002.
-7-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003 and 2002
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 the chargeback the
Company will be required to pay. Such estimate of chargeback experience is based
on our historical chargeback expense arising from similar contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial instruments consist of cash and cash equivalents, accounts
receivable, notes 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.
-8-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003 and 2002
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.
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 and equipment 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.......................... 5-7 years
Vehicles ........................................ 5 years
Leasehold Improvements........................... 15 years
IMPAIRMENT OF LONG-LIVED ASSETS:
Long-lived assets are reviewed for impairment whenever events such as
product discontinuances, product dispositions or other changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds the sum of
non-discounted cash flows expected to result from the asset's use and eventual
disposition. An impairment loss is measured as the amount by which the carrying
amount exceeds its fair value, which is typically calculated using discounted
expected future cash flows. The discount rate to these cash flows is based on
the Company's weighted average cost of capital, which represents the blended
after-tax costs of debt and equity. There were no indications of impairments at
December 31, 2003 or 2002.
-9-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003 and 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES:
Intangibles at December 31, 2003 and 2002 consisted of goodwill of
$5,000 and a $15,000 covenant not to compete being amortized over 15 years.
Accumulated amortization amounted to $3,167 at December 31, 2003 and $2,167 at
December 31, 2002.
INCOME TAXES:
The Company, with the consent of its stockholders, has elected to have
its income taxed as an S corporation under Section 1362 of the Internal Revenue
Code. As such, the Company does not pay corporate income taxes and is not
allowed net operating tax loss carrybacks or carryovers as deductions. Instead,
the stockholders include their proportionate share of the Company's taxable
income or loss in their individual income tax returns.
The book basis of net assets differ from the tax basis primarily due to
depreciation differences caused by accelerated depreciation methods used for tax
and certain accrued expenses which are not deductible for tax until paid.
PRODUCT WARRANTY:
The Company sells both manufacturers and company warranties. The
revenues are deferred over the term of the contracts. The warranty costs are
expensed as incurred. Product warranties are insignificant.
ADVERTISING COSTS:
Advertising costs are expensed when incurred. Charges to operations
amounted to $683,702 in 2003 and $558,807 in 2002.
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.
-10-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003 and 2002
NOTE B - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
2003 2002
---------- ----------
A/R-Customers and dealers $ 25,808 $ 14,463
A/R-Manufacturers 180,942 114,318
Contracts in transit 151,036 158,977
---------- ----------
TOTALS $ 357,786 $ 287,758
========== ==========
NOTE C - INVENTORIES
Inventories consisted of the following:
2003 2002
---------- ----------
Parts and accessories $ 585,760 $ 503,420
Vehicles 4,522,055 3,327,485
---------- ----------
TOTALS $5,107,815 $3,830,905
========== ==========
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
2003 2002
---------- ----------
Fixtures and equipment $ 345,011 $ 345,011
Vehicles 39,770 34,039
Leasehold improvements 2,914 2,914
---------- ----------
387,695 381,964
Less accumulated depreciation 188,694 124,939
---------- ----------
NET PROPERTY AND EQUIPMENT $ 199,001 $ 257,025
========== ==========
Depreciation expense charged to operations amounted to $64,390 in 2003
and $62,305 in 2002.
NOTE E - ACCOUNTS RECEIVABLE, OFFICERS
Accounts receivable officers consisted of advances to the officers with
no stipulated repayment terms or interest charged. Amounts due from the officers
were $203,069 at December 31, 2003 and $119,927 at December 31, 2002.
-11-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003 and 2002
NOTE F - NOTES RECEIVABLE AFFILIATE
Note receivable, affiliate consisted of the following:
2003 2002
---------- ----------
3% interest bearing advances to 7320 N. Western
Realty Company, a corporation in Chicago
Illinois affiliated through common ownership,
maturing in June 2006. $ 87,846 $ 115,175
Less current maturities 33,990 27,330
---------- ----------
TOTALS $ 53,856 $ 87,845
========== ==========
NOTE G - NOTES PAYABLE - FLOOR PLANS
The Company has floor plan financing agreements for the purchase of its
new and used vehicle inventory. The floor plans are collateralized by
substantially all corporate assets. The following is a summary of floor plan
financing agreements:
2003 2002
---------- ----------
American Honda Finance floor plan agreement provides for borrowings
up to $2,000,000. 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 4.5% to
6% at December 31, 2003). Principal payments are due
upon the sale of the specific units financed. $1,666,085 $1,483,671
GE Financial Service floor plan agreement for Suzuki
units provides for borrowings up to $2,000,000. 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 3% to 4.583% at December 31, 2003)
Principal payments are due upon the sale of the specific units financed. 1,067,786 583,936
GE Financial Service floor plan agreement for Yamaha
units provides for borrowings up to $2,000,000. 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 3.3% to 5.83% at December 31, 2003)
Principal payments are due upon the sale of the specific units financed. 1,175,465 1,311,914
---------- ----------
CARRIED FORWARD 3,909,336 3,379,521
-12-
KINGS MOTORSPORTS, INC
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003 and 2002
NOTE G - NOTES PAYABLE - FLOOR PLANS (CONTINUED)
2003 2002
---------- ----------
BROUGHT FORWARD $3,909,336 $3,379,521
GE Financial Service floor plan agreement for Ducati units provides
for borrowings up to $2,000,000. 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 3% to 5.5% at December 31, 2003). Principal payments are due
upon the sale of the specific units financed. 202,601 382,725
Bank of Waukegan floor plan agreements provide for
borrowings up to $2,750,000. 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 4.5% to 4.75% at December 31, 2003). Principal
payments are due the earlier of date of sale or one
year after financing. 515,025 191,800
---------- ----------
TOTALS $4,626,962 $3,954,046
========== ==========
NOTE H - ACCOUNTS PAYABLE , OFFICER
Accounts payable, officer consisted of advances from an officer with no
stipulated repayment terms or interest charged. Amounts due to officer were
$133,374 at December 31, 2003 and $-0- at December 31, 2002
NOTE I - LONG-TERM DEBT
Long-term debt consisted of two notes for computer equipment that mature
in February 2004. The interest rate is approximately 8%. The following
summarizes the maturity:
2003 2002
---------- ----------
Current $ 1,990 $ 29,951
Long term 0 1,990
---------- ----------
TOTALS $ 1,990 $ 31,941
========== ==========
-13-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2003 and 2002
NOTE J - RELATED PARTY TRANSACTIONS
Related Party Transactions:
Related party receivables and payables consisted of the following:
2003 2002
-------- --------
Accounts receivable, officers $203,069 $119,927
Notes receivable, affiliate $ 87,846 $115,175
Accounts payable, officer $133,374 $ 0
The Company rents its facilities from an affiliate related through
common ownership. Rent amounted to $211,000 for 2003 and $8,000 for 2002.
Interest income received on notes receivable from affiliate amounted to
$2,671 for 2003 and $1,269 for 2002.
NOTE K - COMMITMENTS AND CONTINGENCIES
The Company has certain lawsuits pending in the circuit courts of
Carroll County and Cook County, Illinois. The Company is vigorously defending
these and the outcome is not certain. However, management believes the monetary
damages, if any, will not have a material effect on the financial statements.
NOTE L - SUBSEQUENT EVENTS
The Company, as of April 30, 2004, sold substantially all of its assets
to Giant Motorsports, Inc., a publicly traded company (GMOS) on the over the
counter bulletin board, for $3,000,000. Giant Motorsports, Inc. in consideration
for the acquired assets also assumed certain liabilities and agreed to pay the
company cash of $1,250,000 and a 6% promissory note of $1,675,000. The note
matures as follows:
July 29, 2004 $ 500,000
October 27, 2004 250,000
April 30, 2005 925,000
-------------
$ 1,675,000
=============
-14-
FINANCIAL STATEMENTS
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
For the three months ended March 31, 2004 and 2003
(See Accountants' Review Report)
- - - o o 0 o o - - -
C O N T E N T S
P A G E
ACCOUNTANTS LETTER............................................... 1
BALANCE SHEETS................................................... 2-3
STATEMENTS OF INCOME............................................. 4
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)..................... 5
STATEMENTS OF CASH FLOWS......................................... 6
NOTES TO FINANCIAL STATEMENTS.................................... 7-14
- - - o o 0 o o - - -
Board of Directors
Kings Motorsports, Inc.
Chicago, Illinois
We have reviewed the accompanying balance sheets of Kings Motorsports, Inc. (an
S corporation), T/A Chicago Cycle Center, as of March 31, 2004 and 2003 and the
related statements of income, stockholders' equity (deficit) and cash flows for
the three months then ended in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Kings Motorsports, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
Bagell, Josephs & Company, LLC
Gibbsboro, NJ 08026
July 10, 2004
-1-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
BALANCE SHEETS
March 31, 2004 and 2003
(See Accountants' Review Report)
ASSETS
2004 2003
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 58,041 $ 450,080
Accounts receivable, net 459,926 382,219
Accounts receivable, officers 38,169 20,806
Stock subscription receivable 49,000 49,000
Inventories 8,334,833 5,097,022
Current portion of note receivable, affiliate 35,954 28,995
---------- ----------
TOTAL CURRENT ASSETS 8,975,923 6,028,122
---------- ----------
PROPERTY AND EQUIPMENT, NET 182,728 241,103
---------- ----------
OTHER ASSETS
Intangibles, net 16,583 17,583
Note receivable, affiliate 35,392 79,169
---------- ----------
TOTAL OTHER ASSETS 51,975 96,752
---------- ----------
$9,210,626 $6,365,977
========== ==========
See accompanying notes to financial statements
-2-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
BALANCE SHEETS (CONTINUED)
March 31, 2004 and 2003
(See Accountants' Review Report)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
2004 2003
----------- -----------
CURRENT LIABILITIES
Notes payable, floor plans $ 7,815,597 $ 5,392,037
Accounts payable, trade 398,576 268,230
Accounts payable, officers 137,974 --
Accrued expenses 93,337 88,839
Customer deposits 308,530 255,150
Deferred service contract income 532,864 591,852
Current portion of long-term debt -- 24,639
----------- -----------
TOTAL CURRENT LIABILITIES 9,286,878 6,620,747
----------- -----------
COMMITMENTS - NOTE K
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - $1 par value:
Authorized 1,000,000 shares; issued and outstanding 50,000 shares 50,000 50,000
Retained earnings (deficit) (126,252) (304,770)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (76,252) (254,770)
----------- -----------
$ 9,210,626 $ 6,365,977
=========== ===========
See accompanying notes to financial statements
-3-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
STATEMENTS OF INCOME
For the three months ended March 31, 2004 and 2003
(See Accountants' Review Report)
2004 2003
----------- -----------
OPERATING INCOME
Sales $ 7,754,975 $ 7,780,972
Finance, insurance and extended service revenues 390,355 340,712
----------- -----------
TOTAL OPERATING INCOME 8,145,330 8,121,684
COST OF MERCHANDISE SOLD 6,999,370 6,939,667
----------- -----------
GROSS PROFIT 1,145,960 1,182,017
----------- -----------
OPERATING EXPENSES
Selling expenses 334,884 382,264
General and administrative expenses 721,992 756,637
----------- -----------
1,056,876 1,138,901
----------- -----------
INCOME FROM OPERATIONS 89,084 43,116
----------- -----------
OTHER INCOME AND (EXPENSE)
Other income, net 3,636 7,936
Interest expense, net (28,796) (21,721)
----------- -----------
(25,160) (13,785)
----------- -----------
NET INCOME $ 63,924 $ 29,331
=========== ===========
See accompanying notes to financial statements
-4-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the three months ended March 31, 2004 and 2003
(See Accountants' Review Report)
Common Stock
------------------------- Accumulated
Shares Amount Deficit Total
--------- --------- --------- ---------
Balance, January 1, 2003 50,000 $ 50,000 $(334,101) $(284,101)
Net income -- -- 29,331 29,331
--------- --------- --------- ---------
Balance, March 31, 2003 50,000 $ 50,000 $(304,770) $(254,770)
========= ========= ========= =========
Balance, January 1, 2004 50,000 $ 50,000 $(190,176) $(140,176)
Net income -- -- 63,924 63,924
--------- --------- --------- ---------
Balance, March 31, 2004 50,000 $ 50,000 $(126,252) $ (76,252)
========= ========= ========= =========
See accompanying notes to financial statements
-5-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2004 and 2003
(See Accountants' Review Report)
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 63,924 $ 29,331
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 16,523 16,172
(Increase) in accounts receivable, net (102,140) (94,461)
(Increase) in inventories (3,227,018) (1,266,117)
Increase in floor plan liability 3,188,635 1,437,991
(Decrease) in customer deposits (8,621) (87,264)
Increase (decrease) in accounts payable trade (50,779) 79,067
(Decrease) in accrued expenses (29,215) (24,649)
Increase (decrease) in deferred service contract income (74,745) 121,600
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (223,436) 211,670
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in accounts receivable officers 31,526 99,121
Decrease in note receivable from affiliate 16,500 7,011
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 48,026 106,132
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from officers 137,974 0
Payments on long-term debt (1,990) (7,302)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 135,984 (7,302)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (39,426) 310,500
CASH AND CASH EQUIVALENTS, beginning of Year 97,467 139,580
----------- -----------
CASH AND CASH EQUIVALENTS, end of quarter $ 58,041 $ 450,080
=========== ===========
OTHER SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid during the quarter $ 26,527 $ 23,153
=========== ===========
See accompanying notes to financial statements
-6-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS
March 31, 2004 and 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS:
Kings Motorsports, Inc. (the Company), doing business as Chicago Cycle
Center, was incorporated in Illinois in 2000 and operates as a retail dealer of
motorcycles, all terrain vehicles, scooters and automobiles in northern
Illinois.
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 no allowance is necessary
at March 31, 2004 and 2003.
-7-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004 and 2003
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 the chargeback the
Company will be required to pay. Such estimate of chargeback experience is based
on our historical chargeback expense arising from similar contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial instruments consist of cash and cash equivalents, accounts
receivable, notes 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.
-8-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004 and 2003
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.
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 and equipment 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............................... 5-7 years
Vehicles ............................................. 5 years
Leasehold Improvements................................ 15 years
IMPAIRMENT OF LONG-LIVED ASSETS:
Long-lived assets are reviewed for impairment whenever events such as
product discontinuances, product dispositions or other changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds the sum of
non-discounted cash flows expected to result from the asset's use and eventual
disposition. An impairment loss is measured as the amount by which the carrying
amount exceeds its fair value, which is typically calculated using discounted
expected future cash flows. The discount rate to these cash flows is based on
the Company's weighted average cost of capital, which represents the blended
after-tax costs of debt and equity. There were no indications of impairments at
March 31, 2004 or 2003.
-9-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004 and 2003
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES:
Intangibles consisted of goodwill of $5,000 at March 31, 2004 and 2003
and a $15,000 covenant not to compete being amortized over 15 years. Accumulated
amortization amounted to $3,417 at March 31, 2004 and $2,417 at March 31, 2003.
INCOME TAXES:
The Company, with the consent of its stockholders, has elected to have
its income taxed as an S corporation under Section 1362 of the Internal Revenue
Code. As such, the Company does not pay corporate income taxes and is not
allowed net operating tax loss carrybacks or carryovers as deductions. Instead,
the stockholders include their proportionate share of the Company's taxable
income or loss in their individual income tax returns.
The book basis of net assets differ from the tax basis primarily due to
depreciation differences caused by accelerated depreciation methods used for tax
and certain accrued expenses which are not deductible for tax until paid.
PRODUCT WARRANTY:
The Company sells both manufacturers and company warranties. The
revenues are deferred over the term of the contracts. The warranty costs are
expensed as incurred. Product warranties are insignificant.
ADVERTISING COSTS:
Advertising costs are expensed when incurred. Charges to operations
amounted to $125,586 in 2004 and $209,155 in 2003.
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.
-10-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004 and 2003
NOTE B - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
2004 2003
---------- ----------
A/R-Customers and dealers $ 98,757 $ 26,177
A/R-Manufacturers 170,059 161,042
Contracts in transit 191,110 195,000
---------- ----------
TOTALS $ 459,926 $ 382,219
========== ==========
NOTE C - INVENTORIES
Inventories consisted of the following:
2004 2003
---------- ----------
Parts and accessories $ 536,951 $ 480,548
Vehicles 7,797,882 4,616,474
---------- ----------
TOTALS $8,334,833 $5,097,022
========== ==========
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
2004 2003
---------- ----------
Fixtures and equipment $ 345,011 $ 345,011
Vehicles 39,770 34,038
Leasehold improvements 2,914 2,914
---------- ----------
387,695 381,963
Less accumulated depreciation 204,967 140,860
---------- ----------
NET PROPERTY AND EQUIPMENT $ 182,728 $ 241,103
========== ==========
Depreciation expense charged to operations amounted to $16,273 in 2004
and $15,922 in 2003.
NOTE E - ACCOUNTS RECEIVABLE, OFFICERS
Accounts receivable officers consisted of advances to the officers with
no stipulated repayment terms or interest charged. Amounts due from the officers
were $38,169 at March 31, 2004 and $20,806 at March 31, 2003.
-11-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004 and 2003
NOTE F - NOTES RECEIVABLE AFFILIATE
Note receivable, affiliate consisted of the following:
2004 2003
---------- ----------
3% interest bearing advances to 7320 N. Western
Realty Company, a corporation in Chicago
Illinois affiliated through common ownership,
maturing in June 2006. $ 71,346 $ 108,164
Less current maturities 35,954 28,995
---------- ----------
TOTALS $ 35,392 $ 79,169
========== ==========
NOTE G - NOTES PAYABLE - FLOOR PLANS
The Company has floor plan financing agreements for the purchase of its
new and used vehicle inventory. The floor plans are collateralized by
substantially all corporate assets. The manufacturers at their discretion may
increase the borrowings. The following is a summary of floor plan financing
agreements:
2004 2003
---------- ----------
American Honda Finance floor plan agreement provides for borrowings
up to $2,500,000. 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 4.5% to
6% at March 31, 2004). Principal payments are due
upon the sale of the specific units financed. $1,743,275 $2,239,741
GE Financial Service floor plan agreement for Suzuki
units provides for borrowings up to $2,000,000. 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 3% to 4.583% at March 31, 2004)
Principal payments are due upon the sale of the specific units financed. 2,630,951 1,192,502
GE Financial Service floor plan agreement for Yamaha
units provides for borrowings up to $2,000,000. 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 3.3% to 5.83% at March 31, 2004)
Principal payments are due upon the sale of the specific units financed. 2,295,038 860,259
---------- ----------
CARRIED FORWARD 6,669,264 4,292,502
-12-
KINGS MOTORSPORTS, INC
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004 and 2003
NOTE G - NOTES PAYABLE - FLOOR PLANS (CONTINUED)
2004 2003
---------- ----------
BROUGHT FORWARD $6,669,264 $4,292,502
GE Financial Service floor plan agreement for Ducati units provides
for borrowings up to $2,000,000 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 3% to 5.5% at March 31, 2004). Principal payments are due
upon the sale of the specific units financed. 359,636 465,923
Bank of Waukegan floor plan agreements provide for
borrowings up to $2,750,000. 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 4.5% to 4.75% at March 31, 2004). Principal payments
are due the earlier of date of sale or one year after financing. 786,697 633,612
---------- ----------
TOTALS $7,815,597 $5,392,037
========== ==========
NOTE H - ACCOUNTS PAYABLE, OFFICER
Accounts payable, officer consisted of advances from an officer with no
stipulated repayment terms or interest charged. Amounts due to officer were
$137,974 at March 31, 2004 and $-0- at March 31, 2003
NOTE I - LONG-TERM DEBT
Long-term debt consisted of two notes for computer equipment that mature
in February 2004. The interest rate is approximately 8%. The following
summarizes the maturity:
2004 2003
---------- ----------
Current $ 0 $ 24,639
Long term 0 0
---------- ----------
TOTALS $ 0 $ 24,639
========== ==========
-13-
KINGS MOTORSPORTS, INC.
T/A CHICAGO CYCLE CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 2004 and 2003
NOTE J - RELATED PARTY TRANSACTIONS
Related Party Transactions:
Related party receivables and payables consisted of the following:
2004 2003
-------- --------
Accounts receivable, officers $ 38,169 $ 20,806
Notes receivable, affiliate $ 71,346 $108,164
Accounts payable, officer $137,974 $ 0
The Company rents its facilities from an affiliate related through
common ownership. Rent amounted to $60,000 for 2004 and $52,750 for 2003.
Interest income received on notes receivable from affiliate amounted to
$459 for 2004 and $568 for 2003.
NOTE K - COMMITMENTS AND CONTINGENCIES
The Company has certain lawsuits pending in the circuit courts of
Carroll County and Cook County, Illinois. The Company is vigorously defending
these and the outcome is not certain. However, management believes the monetary
damages, if any, will not have a material effect on the financial statements.
NOTE L - SUBSEQUENT EVENTS
The Company as of April 30, 2004 sold substantially all of its assets to
Giant Motorsports, Inc. a publicly traded company (GMOS) on the over the counter
bulletin board for $3,000,000. Giant Motorsports, Inc. in consideration for the
acquired assets also assumed certain liabilities and agreed to pay the company
cash of $1,250,000 and a 6% promissory note of $1,675,000. The note matures as
follows:
July 29, 2004 $ 500,000
October 27, 2004 250,000
April 30, 2005 925,000
-------------
$ 1,675,000
=============
-14-
GIANT MOTORSPORTS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2004
GIANT MOTORSPORTS, INC. AND SUBSIDIARY
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S)
Introduction to Unaudited Pro forma Condensed Consolidated
Financial Statements 1
Balance Sheet 2
Statement of Income for the three months ended
March 31, 2004 4
Statement of Income for the Year ended
December 31, 2003 5
Notes to Financial Statements 6
GIANT MOTORSPORTS, INC. AND SUBSIDIARY
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to an Asset Purchase Agreement (the "Asset Agreement"), dated
April 30, 2004 by and among Giant Motorsports, Inc. (the "Company"), Kings
Motorsports, Inc. ("King"), Chicago Cycle Center ("Chicago Cycle"), Jason
Haubner and Jerry Fokas, the shareholders of Chicago Cycle Center, the Company
acquired, substantially all of the assets of Chicago Cycle Center.
The assets and certain liabilities of Chicago Cycle Center were
recorded in the Company's wholly owned subsidiary Chicago Cycle, Inc. (A Nevada
Corporation) established on April 28, 2004. Before the transaction Chicago
Cycle, Inc had no assets or liabilities. These statements adjust the Kings
Motorsports, Inc balance sheet to reflect the assets and liabilities that came
over to Chicago Cycle , Inc in the transaction.
The accompanying unaudited pro forma condensed consolidated balance
sheet as of March 31, 2004 has been presented as if the acquisition had occurred
on March 31, 2004. The unaudited pro forma condensed consolidated statements of
income for the three months ended March 31, 2004 and for the year ended December
31, 2003 have been presented as if the acquisition had occurred January 1, 2004,
and January 1, 2003, respectively.
The unaudited pro forma condensed consolidated statements do not
necessarily represent the actual results that would have been achieved had the
companies been combined at the beginning of the year, nor may they be indicative
of future operations. These unaudited pro forma condensed financial statements
should be read in conjunction with the companies' respective historical
financial statements and notes included thereto.
1
GIANT MOTORSPORTS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
Giant Kings
Motorsports Inc. Motorsports, Inc. Note Adjustments Pro forma
---------------- ----------------- ---- ------------ ------------
Current Assets:
Cash and cash equivalents $ 1,275,916 $ 58,041 a $ (1,308,041) $ 25,916
Accounts receivable - net 2,508,690 459,926 a (459,926) 2,508,690
Accounts receivable - affiliates 5,326 35,392 a (35,392) 5,326
Notes receivable - officers -- 33,569 a (33,569) --
Inventories 12,345,280 8,334,833 -- 20,680,113
Deferred federal income taxes 35,700 -- -- 35,700
Note receivable - current portion 768,516 35,954 a (35,964) 768,506
Common stock subscription receivable -- 49,000 a (49,000) --
Prepaid expenses and other 64,017 -- -- 64,017
------------ ------------ ------------ ------------
Total Current Assets 17,003,445 9,006,715 (1,921,892) 24,088,268
------------ ------------ ------------ ------------
Fixed assets, net of depreciation 450,294 182,728 500,000 1,133,022
------------ ------------ ------------ ------------
Other Assets:
Intangible assets (net) -- 16,583 a 1,781,463 1,798,046
Deposits 16,000 -- -- 16,000
------------ ------------ ------------ ------------
Total Other Assets 16,000 16,583 1,781,463 1,814,046
------------ ------------ ------------ ------------
TOTAL ASSETS $ 17,469,739 $ 9,206,026 $ 359,571 $ 27,035,336
============ ============ ============ ============
See notes to unaudited pro forma financial statements
2
GIANT MOTORSPORTS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
MARCH 31, 2004
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Giant Kings
Motorsports Inc. Motorsports, Inc. Note Adjustments Pro forma
---------------- ----------------- ---- ------------ ------------
Current Liabilities:
Lines of credit $ 450,000 $ -- -- $ 450,000
Notes payable - Floor plans 13,336,497 7,815,597 -- 21,152,094
Notes payable 1,250,000 -- -- 1,250,000
Accounts payable - trade 713,315 398,576 a (323,576) 788,315
Accounts payable - officers -- 133,374 a (133,374) --
Accrued expenses 269,311 93,337 a (93,337) 269,311
Accrued income taxes 126,000 -- -- 126,000
Customer deposits 166,839 308,530 a (308,530) 166,839
Deferred service contract revenue -- 532,864 a (532,864) --
Long-term debt - current portion 67,085 -- 750,000 817,085
------------ ------------ ------------ ------------
Total Current Liabilities 16,379,047 9,282,278 (641,681) 25,019,644
Deferred Federal Income Taxes 19,700 -- -- 19,700
------------ ------------
Long-term debt (net of current) 12,774 -- a 925,000 937,774
------------ ------------ ------------ ------------
Total Liabilities 16,411,521 9,282,278 283,319 25,977,118
------------ ------------ ------------ ------------
Stockholders' Equity (Deficit):
Common Stock, $.001 par value; 75,000,000 shares
authorized and 10,425,000 issued and outstanding 10,425 50,000 a (50,000) 10,425
------------
Additional paid-in capital 860,534 -- -- 860,534
Retained earnings (Deficit) 187,259 (126,252) a 126,252 187,259
------------ ------------ ------------ ------------
------------
Total Stockholders' Equity (Deficit) 1,058,218 (76,252) 76,252 1,058,218
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND --
STOCKHOLDERS' EQUITY $ 17,469,739 $ 9,206,026 $ 359,571 $ 27,035,336
============ ============ ============ ============
See notes to unaudited pro forma financial statements
3
GIANT MOTORSPORTS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2004
Giant Kings
Motorsports Inc. Motorsports, Inc. Note Adjustments Pro forma
---------------- ----------------- ---- ----------- ------------
OPERATING REVENUES
Revenue $ 11,200,163 $ 8,145,330 $ 19,345,493
------------ ------------ ------------
OPERATING EXPENSES
Cost of sales 9,710,863 6,999,370 16,710,233
General and administrative expenses 508,161 721,992 1,230,153
Selling expenses 596,064 334,884 930,948
------------ ------------ ------------
Total Operating Expenses 10,815,088 8,056,246 18,871,334
------------ ------------ ------------
NET INCOME 385,075 89,084 474,159
------------ ------------ ------------
OTHER INCOME AND (EXPENSE)
Other income (net) 898 3,636 4,534
Interest expense (88,714) (28,796) (117,510)
------------ ------------ ------------
Total Other Income (Expense) (87,816) (25,160) (112,976)
------------ ------------ ------------
NET INCOME BEFORE
PROVISION FOR INCOME TAXES 297,259 63,924 361,183
Provision for income taxes 110,000 -- b 13,000 123,000
------------ ------------ ------------
NET INCOME APPLICABLE TO
COMMON SHARES $ 187,259 $ 63,924 $ 238,183
============ ============ ============
NET INCOME PER BASIC AND
DILUTED SHARES $ 0.018 $ 1.278 $ 0.023
============ ============ ============
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 10,425,000 50,000 10,425,000
============ ============ ============
See notes to unaudited pro forma financial statements
4
GIANT MOTORSPORTS, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAE ENDED DECEMBER 31, 2003
Giant Kings
Motorsports, Inc. Motorsports, Inc. Note Adjustments Pro forma
----------------- ----------------- ---- ------------ ------------
OPERATING REVENUES
Revenue $ 46,055,843 $ 40,593,650 $ 86,649,493
------------ ------------ ------------
OPERATING EXPENSES
Cost of sales 41,229,644 35,216,631 76,446,275
General and administrative expenses 1,460,092 3,466,104 4,926,196
Selling expenses 2,513,276 1,647,281 4,160,557
------------ ------------ ------------
Total Operating Expenses 45,203,012 40,330,016 85,533,028
------------ ------------ ------------
NET INCOME 852,831 263,634 1,116,465
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Other income (net) 6,608 7,354 13,962
Interest expense (net) (300,937) (127,063) (428,000)
------------ ------------ ------------
Total Other Income (Expense) (294,329) (119,709) (414,038)
------------ ------------ ------------
NET INCOME BEFORE
PROVISION FOR INCOME TAXES 558,502 143,925 702,427
Provision for income taxes -- -- b 210,425 (210,425)
------------ ------------ ------------
NET INCOME APPLICABLE TO
COMMON SHARES $ 558,502 $ 143,925 $ 492,002
============ ============ ============
NET INCOME PER BASIC AND
DILUTED SHARES $ 0.070 $ 2.879 $ 0.062
============ ============ ============
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 8,000,000 50,000 8,000,000
============ ============ ============
See notes to unaudited pro forma financial statements
5
GIANT MOTORSPORTS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma adjustments are included in the accompanying
unaudited pro forma condensed balance sheet at March 31, 2004 and the unaudited
pro forma condensed consolidated statements for the year ended December 31, 2003
and the three months ended March 31, 2004, to reflect the proposed combination
of Giant Motorsports, Inc. and Chicago Cycle Inc.
A. In consideration for the Acquired Assets and pursuant to the
Asset Agreement, the Company
(i) assumed certain specified liabilities of Chicago Cycle
Center, and
(ii) agreed to pay to Chicago Cycle Center $3,000,000, as
follows: (a) $1,250,000 at the closing of the
Acquisition (the "Initial Payment"), and (b) $1,675,000
through the issuance to Chicago Cycle Center a 6%
$1,675,000 aggregate principal amount promissory note
(the "Note") and assumed a $75,000 liability. The
principal amount of the Note matures as follows: (i)
$500,000 on July 29, 2004, (ii) $250,000 on October 27,
2004, and (iii) the remaining $925,000, plus accrued but
unpaid interest on April 30, 2005. The Note is secured
by a second lien on the Acquired Assets pursuant to a
Commercial Security Agreement dated as of April 30,
2004, by and among the Company and Chicago Cycle Center,
and guaranteed pursuant to a Guaranty dated April 30,
2004, by and among Chicago Cycle Center, the Company,
Russell Haehn and Gregory Haehn, the current executive
officers, directors and controlling shareholders of the
Company (each a "Control Person," and, collectively the
"Controlling Persons").
B. An adjustment for the Provision for income taxes has been
created due to the assumptions noted above. An effective rate of
approximately 20% and 30% has been utilized for the years 2004
and 2003, respectively.
6