SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2004
--------------
OR
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ___________ to ____________
Commission File Number: 000-50243
---------------
GIANT MOTORSPORTS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Nevada 33-1025552
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State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
13134 State Route 62, Salem, Ohio 44460
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(Address of Principal Executive Offices) (Zip Code)
(330) 332-8534
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12 months (or for
such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
As of May 14, 2004 the registrant had 10,425,000 shares of common
stock, $.001 par value, issued and outstanding.
GIANT MOTORSPORTS, INC.
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets as of March 31, 2004 4-5
(Unaudited) and December 31, 2003 (Audited)
Consolidated Unaudited Statements of Operations 6
for the Three Months Ended March 31, 2004 and 2003
Consolidated Unaudited Statement of Shareholders' 7
Equity for the Three Months Ended March 31, 2004
Consolidated Unaudited Statements of Cash Flows for 8
the Three Months Ended March 31, 2004 and 2003
Notes to Consolidated Unaudited Financial Statements 9-17
Item 2. Management's Discussion and Analysis of 18-22
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about 23
Market Risk
Item 4. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities, Use of Proceeds and 23
Issuer Purchasers of Equity Securities
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security 24
Holders
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
PART I
FINANCIAL INFORMATION
The Company's Financial Statements, Results Of Operations
And Liquidity And Capital Resources Disclosure In This Form 10-Q,
Only Provides Information Regarding W.W. Cycles, Inc., One Of The
Company's Wholly-Owned Operating Subsidiaries. Because Chicago
Cycles, The Company's Other Wholly-Owned, Operating Subsidiary,
Only Was Acquired By The Company In April 2004, Financial
Statements And Other Financial Disclosure For Chicago Cycles Are
Not Included In This Form 10-Q. As Disclosed In The Company's
Current Report On Form 8-K Filed With The SEC On May 11, 2004,
However, The Required Financial Statements For Chicago Cycles And
Pro-Form Financial Statements Will Be Filed With The SEC On Form
8-KA Within The Proscribed SEC Time Requirements.
Item 1. Financial Statements
3
BALANCE SHEETS
GIANT MOTORSPORTS, INC.
March 31, 2004 December 31, 2003
-------------- -----------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,275,916 $ 587,917
Accounts receivable, net 2,508,690 1,285,106
Accounts receivable, affiliates 5,326 315,343
Inventories 12,345,280 10,986,080
Deferred federal income taxes 35,700 -
Current portion of notes receivable, officers 768,516 679,405
Prepaid expenses 64,017 8,000
-------------- --------------
TOTAL CURRENT ASSETS 17,003,445 13,861,851
PROPERTY AND EQUIPMENT, NET 450,294 425,177
-------------- --------------
OTHER ASSETS
Deposits 16,000 16,000
-------------- --------------
TOTAL OTHER ASSETS 16,000 16,000
-------------- --------------
$ 17,469,739 $ 14,303,028
See accompanying notes to financial statements
4
BALANCE SHEETS (CONTINUED)
GIANT MOTORSPORTS, INC.
March 31, 2004 December 31, 2003
-------------- -----------------
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of credit $ 450,000 $ 450,000
Notes payable, floor plans 13,336,497 11,575,660
Note payable 1,250,000 -
Accounts payable, trade 713,315 675,042
Accrued expenses 269,311 258,412
Accrued income taxes 126,000 -
Customer deposits 166,839 215,632
Current portion of long-term debt 67,085 97,073
-------------- --------------
TOTAL CURRENT LIABILITIES 16,379,047 13,271,819
DEFERRED FEDERAL INCOME TAXES 19,700 -
LONG-TERM DEBT, NET 12,774 -
-------------- --------------
TOTAL LIABILITIES 16,411,521 13,271,819
COMMITMENTS - NOTE I
STOCKHOLDERS' EQUITY
Common stock, $.001 par value at March 31, 2004;
Authorized 75,000,000 shares at March 31, 2004;
Issued and outstanding 10,425,000 shares at
March 31, 2004 10,425 8,000
Paid-in capital 860,534 1,023,209
Retained earnings 187,259 -
TOTAL STOCKHOLDERS' EQUITY 1,058,218 1,031,209
-------------- --------------
$ 17,469,739 $ 14,303,028
See accompanying note to financial statements
5
STATEMENTS OF OPERATIONS
GIANT MOTORSPORTS, INC.
For the three months ended March 31
2004 2003
-------------- --------------
(Unaudited) (Unaudited)
OPERATING INCOME
Sales $ 10,996,091 $ 9,408,830
Finance, insurance and extended service revenues 204,072 181,814
-------------- --------------
TOTAL OPERATING INCOME 11,200,163 9,590,644
COST OF MERCHANDISE SOLD 9,710,863 8,429,992
-------------- --------------
GROSS PROFIT 1,489,300 1,160,652
OPERATING EXPENSES
Selling expenses 596,064 592,852
General and administrative expenses 508,161 320,984
-------------- --------------
1,104,225 913,836
-------------- --------------
INCOME FROM OPERATIONS 385,075 246,816
OTHER INCOME AND (EXPENSE)
Other income, net 898 2,490
Interest expense, net (88,714) (63,166)
-------------- --------------
(87,816) (60,676)
-------------- --------------
INCOME BEFORE INCOME TAXES 297,259 186,140
INCOME TAXES 110,000 -
-------------- --------------
NET INCOME $ 187,259 $ 186,140
============== ==============
Basic and diluted earnings per share $ 0.02 0.02
============== ==============
Basic and diluted weighted average common
shares outstanding 10,425,000 8,000,000
============== ==============
See accompanying notes to financial statements
6
STATEMENTS OF STOCKHOLDERS' EQUITY
GIANT MOTORSPORTS, INC.
For the three Months ended March 31, 2004
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
---------- --------- ------------ ---------- ------------
Balance, December 31, 2003 8,000,000 $ 8,000 $ 1,023,209 $ - $ 1,031,209
Distribution to existing shareholders - - (154,000) - $ (154,000)
Shares issued to shareholders
of American Busing, Inc. 2,425,000 2,425 (23,675) - (21,250)
Stock warrants issued as compensation - - 15,000 - 15,000
Net income - - - 187,259 187,259
Balance, March 31, 2004 10,425,000 $ 10,425 $ 860,534 $ 187,259 $ 1,058,218
---------- --------- ------------ ---------- ------------
See accompanying notes to financial statements
7
STATEMENTS OF CASH FLOWS
GIANT MOTORSPORTS, INC.
For the three months ended March 31
2004 2003
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 187,259 $ 186,140
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 20,374 14,765
Deferred federal income taxes (16,000) -
Issuance of stock warrants for services 15,000 -
Increase in accounts receivable, net (1,223,584) (772,304)
Increase in inventories (1,359,200) (1,188,036)
Increase in floor plan liability 1,760,837 1,306,124
Increase in prepaid expenses (56,017) (63,288)
Decrease in customer deposits (48,793) 86,323
Increase in accounts payable trade 38,273 110,238
Increase in accrued income taxes 126,000 -
Increase in accrued expenses 10,899 (12,857)
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (544,952) (332,895)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (27,527) (30,136)
Decrease in accounts reivable affiliates 310,017 -
Increase in notes receivable from officers (89,111) (197,627)
-------------- --------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 193,379 (227,763)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings on note 1,250,000 -
Payments on long-term debt (35,178) (35,243)
Distributions (154,000) -
Repurchase 8,000,000 shares of common stock (21,250) -
-------------- --------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,039,572 (35,243)
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 687,999 (595,901)
CASH AND CASH EQUIVALENTS, beginning of Year 587,917 780,372
-------------- --------------
CASH AND CASH EQUIVALENTS, end of quarter $ 1,275,916 $ 184,471
-------------- --------------
OTHER SUPPLEMENTARY CASH FLOW INFORMATION
Long-term borrowings incurred for the
acquisition of a vehicle $ 17,964 $ -
Interest paid during the quarter $ 94,169 $ 63,166
Issuance of stock warrants for services $ 15,000 $ -
See accompanying notes to financial statements
8
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations:
--------------------
Giant Motorsports, Inc., through its wholly-owned subsidiary,
W.W. Cycles, Inc., (the Company), is doing business as Andrews
Cycles, operates a retail dealership of motorcycles, all terrain
vehicles, scooters and personal watercraft in northeastern Ohio.
On December 30, 2003, the stockholders of W.W. Cycles, Inc.
entered into a Stock Purchase and Reorganization Agreement in
which effective January 16, 2004 (the Closing Date) W.W. Cycles,
Inc. was issued an aggregate of 8,000,000 restricted shares of
common stock, $.001 par value, of American Busing Corporation in
exchange for all of the outstanding shares of the common stock of
the Company, resulting in W.W. Cycles, Inc. becoming a wholly-
owned subsidiary of American Busing Corporation, an inactive
public company. The acquisition was accounted for as a reverse
merger whereby, for accounting purposes, WW Cycles, Inc. is
considered the accounting acquirer and the historical financial
statements of WW Cycles, Inc. became the historical financial
statements of Giant Motorsports, Inc. Effective April 5, 2004
American Busing Corporation changed its name to Giant
Motorsports, Inc.
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.
9
Revenue Recognition:
-------------------
Vehicle Sales:
The Company records revenue when vehicles are delivered and
title has passed to the customer, when vehicle service or repair
work is performed and when parts are delivered. Sales promotions
that are offered to customers are accounted for as a reduction to
the sales price at the time of sale. Incentives, rebates and
holdbacks offered by manufacturers directly to the Company are
recognized at the time of sale if they are vehicle specific, or
as earned in accordance with the manufacturer program rules and
are recorded as a reduction of cost of merchandise sold.
Finance, Insurance and Extended Service Revenues:
The Company arranges financing for customers through various
financial institutions and receives a commission from the lender
equal to the difference between the interest rates charged to
customers and the interest rates set by the financing
institution. The Company also receives commissions from the sale
of various third party insurance products to customers and
extended service contracts. These commissions are recorded as
revenue at the time the customer enters into the contract. The
Company is not the obligor under any of these contracts. In the
case of finance contracts, a customer may prepay or fail to pay
their contract, thereby terminating the contract. Customers may
also terminate extended service contracts, which are fully paid
at purchase, and become eligible for refunds of unused premiums.
In these circumstances, a portion of the commissions the Company
receives may be charged back based on the relevant terms of the
contracts. The revenue the Company records relating to
commissions is net of an estimate of the ultimate amount of
chargebacks the Company will be required to pay. Such estimates
of chargeback experience 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, accounts payable and debt, including floor
plan notes payable. The carrying amount of all significant
financial instruments approximates fair value due either to
length or maturity or variable interest rates that approximate
prevailing market rates.
Inventories:
-----------
Parts and accessories inventories are stated at the lower of
cost or market using the first-in, first-out method. Vehicle
inventories are stated at the lower of cost or market using the
specific identification method.
Concentration of Credit Risk:
----------------------------
Financial instruments that potentially subject the Company to
credit risk consist of cash equivalents and accounts receivable.
The Company's policy is to review the amount of credit
exposure to any one financial institution and place investments
with financial institutions evaluated as being creditworthy. In
the ordinary course of business, the Company has bank deposits
and overnight repurchase agreements that may exceed federally
insured limits.
10
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.
Income Taxes:
------------
Income taxes are calculated using the liability method
specified by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
At March 31, 2004, income taxes are provided for amounts
currently due and deferred amounts arising from temporary
differences between income for financial reporting and income tax
purposes.
Product Warranty:
----------------
The Company sells both manufacturers and company warranties.
The anticipated costs related to company's product warranties are
accrued when units are sold.
Advertising Costs:
-----------------
Advertising costs are expensed when incurred. Charges to
operations amounted to $198,288 and $224,619 for the three months
ended March 31, 2004 and 2003 respectively.
Use of Estimates:
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
11
make estimates and assumptions that affect certain reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
NOTE B - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
March 31 December 31
2004 2003
------------ -----------
A/R-Customers and dealers $ 1,407,250 $ 651,932
A/R-Manufacturers 655,029 328,790
A/R-Employees 1,746 4,902
Contracts in transit 469,665 324,482
------------ -----------
2,533,690 1,310,106
Allowance for doubtful accounts 25,000 25,000
------------ -----------
$ 2,508,690 $ 1,285,106
============ ===========
NOTE C - INVENTORIES
Inventories consisted of the following:
March 31 December 31
2004 2003
------------ ------------
Parts and accessories $ 754,098 $ 736,308
Vehicles 11,591,182 10,249,772
------------ ------------
TOTALS $ 12,345,280 $ 10,986,080
============ ============
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
March 31 December 31
2004 2003
------------ -----------
Fixtures and equipment $ 206,264 $ 178,737
Vehicles 252,522 234,558
Leasehold improvements 264,328 264,328
------------ -----------
723,114 667,623
Less accumulated depreciation 272,820 252,446
------------ -----------
NET PROPERTY AND EQUIPMENT $ 450,294 $ 425,177
============ ===========
Depreciation expense charged to operations amounted to
$20,374 and $14,765 for the three months ended March 31, 2004 and
12
2003 respectively.
NOTE E - NOTES RECEIVABLE OFFICERS
Notes receivable officers consisted of advances to officers
and advances to companies that the officers own bearing interest
at 6% with no stipulated repayment terms. Interest income on
these notes amounted to $9,893 for the three months ended March
31, 2004. The notes are expected to be repaid by December 31,
2004.
NOTE F - LINES OF CREDIT
The Company's line of credit agreements consisted of the
following:
March 31 December 31
2004 2003
------------ -----------
$250,000 line of credit with one of its suppliers
bearing interest at 7.5%. The loan is collateralized
by substantially all of the Company's assets. The
outstanding principal balance is payable in full by
December 2004. The Company can re-borrow on
the line one month subsequent to payoff. $ 150,000 $ 150,000
$300,000 revolving line of credit at a bank bearing
interest at a variable rate of prime plus one percent
(5% at March 31, 2004). The loan is collateralized by
substantially all the Company's assets and the building
owned personally by an officer. 300,000 300,000
------------ -----------
TOTALS $ 450,000 $ 450,000
============ ===========
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
floor plan financing agreements consisted of the following:
March 31 December 31
2004 2003
------------ -----------
Kawasaki Motors Finance Company floor plan
agreement provides for borrowings up to
$1,240,010. 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 7% to 18%
at March 31, 2004). Principal payments are
due upon the sale of the specific units financed. $ 1,152,313 $ 720,246
------------ -----------
CARRIED FORWARD 1,152,313 720,246
13
March 31 December 31
2004 2003
------------ ------------
BROUGHT FORWARD $ 1,152,313 $ 720,246
American Honda Finance floor plan agreement
provides for borrowings up to $2,000,000.
Manufacturers at their 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 4.5% to 6% at
March 31, 2004). Principal payments are due upon
the sale of the specific units financed. 3,772,469 3,706,011
Deutsche Financial Service floor plan agreement for
Yamaha units 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 3.3% to 5.83% at March 31, 2004).
Principal payments are due upon the sale of the
specific units financed. 1,146,969 1,247,034
Deutsche Financial Service floor plan agreement for
Suzuki units provides for borrowings up to $1,000,000.
Manufacturers at their 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 3% to 4.583% at March 31, 2004).
Principal payments are due upon the sale of the specific
units financed. 4,914,447 4,508,402
Polaris Acceptance floor plan agreement provides for
borrowings up to $325,000. Manufacturers at their
discretion may increase the borrowings. The agreement
is collateralized by specific units financed (ranging from
2.43% to 3.61% at March 31, 2004). Principal
payments are due the earlier of date of sale or one
year after financing. 232,259 398,230
Fifth Third Bank 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 (4% at
March 31, 2004). Principal payments are due
upon the sale of the specific units financed. 2,118,040 995,737
------------ ------------
TOTALS $ 13,336,497 $ 11,575,660
============ ============
14
NOTE H - NOTE PAYABLE
Note payable consisted of a $1,250,000 note payable to a bank
bearing interest at prime plus one percent (5% at March 31,
2004). The note is collateralized by substantially all the
Company's assets and is guaranteed by the majority stockholder's.
The note is due May 31, 2004.
NOTE I - LONG-TERM DEBT
The following is a summary of long-term debt:
March 31 December 31
2004 2003
------------ ------------
Note payable to bank bearing interest at 6.85%,
payable in monthly installments of $1,635, through
July 2004, collateralized by vehicle. $ 6,446 $ 11,186
Noninterest bearing note payable to finance company,
payable in monthly installments of $518, through
November 2004, collateralized by vehicle. 3,624 5,177
Note payable to bank bearing interest at 5.75%,
payable in monthly installments of $7,576, through
November 2004, collateralized by second mortgage
on commercial real estate owned by a shareholder. 51,825 80,710
Note payable to bank bearing interest at 8%,
payable in monthly installments of $537, through
May 2007, collateralized by vehicle. 17,964 0
------------ ------------
79,859 97,073
Less current maturities 67,085 97,073
------------ ------------
TOTALS $ 12,774 $ 0
============ ============
NOTE J - INCOME TAXES
Income taxes (credit) consisted of the following:
March 31 December 31
2004 2003
------------ ------------
Federal:
Current $ 102,000 $ -
Deferred (16,000) -
------------ ------------
86,000 -
------------ ------------
State:
Current 24,000 -
Deferred - -
------------ ------------
24,000 -
------------ ------------
TOTALS $ 110,000 $ -
============ ============
No income taxes were paid for the quarters ended March 31,
2004 and 2003.
15
Deferred tax assets (liabilities) consisted of the
following:
March 31 December 31
2004 2003
------------ ------------
Deferred tax assets - current:
Allowance for doubtful accounts 8,500 -
Accrual 27,200 -
------------ ------------
Gross deferred tax assets 35,700 -
------------ ------------
Deferred tax liabilities - long-term:
Depreciation $ (19,700) $ -
------------ ------------
TOTALS $ 16,000 $ -
============ ============
NOTE K - RELATED PARTY TRANSACTIONS
Related Party Transactions:
Accounts receivable, affiliates consisted of the following:
March 31 December 31
2004 2003
------------ ------------
Noninterest bearing advances to and transfer of
product at cost to Andrews North, Inc., a corporation
in Cleveland, Ohio affiliated through common
ownership interest to be repaid within one year $ - $ 220,000
Non-interest bearing advances of $-0- at March 31,
2004 and $90,000 at December 31, 2003 and sale
of product of $5,326 at March 31, 2004 and $5,343
at December 31, 2003 to individuals related to
the shareholders of the corporation to be repaid
within one year 5,326 95,343
------------ ------------
TOTALS $ 5,326 $ 315,343
============ ============
Notes receivable officers amounted to $768,516 at March 31,
2004 and $679,405 at December 31, 2003 (See Note E).
The Company leases its retail facility from a shareholder
under a five-year agreement with two five year renewal terms.
The Company guarantees the debt on the building which amounted to
approximately $350,000 at March 31, 2004.
Charges to operations amounted to $45,000 for the three
months ended March 31, 2004 and 2003.
16
The following is a summary of future minimum lease payments
under operating leases that have initial or remaining
noncancellable terms in excess of one year as of March 31, 2004:
YEAR ENDING AMOUNT
2004 $ 135,000
2005 180,000
2006 180,000
2007 180,000
2008 180,000
$ 855,000
NOTE M - SUBSEQUENT EVENTS
On April 30, 2004, Giant Motorsports, Inc. purchased
substantially all the assets of a motorcycle dealership in
Chicago currently operating as Chicago Cycles for $2,925,000.
The Chicago dealership will operate as a wholly owned subsidiary
of Giant Motorsports, Inc.
17
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
-------------------------------------------------
This document includes statements that may constitute
forward-looking statements made pursuant to the Safe Harbor
provisions of the Private Securities Litigation Reform Act of
1995. The Company would like to caution readers regarding certain
forward-looking statements in this document and in all of its
communications to shareholders and others, press releases,
securities filings, and all other communications. Statements that
are based on management's projections, estimates and assumptions
are forward-looking statements. The words "believe," "expect,"
"anticipate," "intend," "will," and similar expressions
generally identify forward-looking statements. While the Company
believes in the veracity of all statements made herein, forward-
looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by
the Company, are inherently subject to significant business,
economic and competitive uncertainties and contingencies and
known and unknown risks. Many of the uncertainties and
contingencies can affect events and the Company's actual results
and could cause its actual results to differ materially from
those expressed in any forward-looking statements made by, or on
behalf of, the Company.
GENERAL
The Company's goal is to become one of the largest dealers
of powersports in the United States through acquisitions and
internal growth.
The motorsports industry is highly fragmented with an
estimated 4,000 retail stores throughout the United States. The
Company is attempting to capitalize upon the consolidation
opportunities available and increase its revenues and income by
acquiring additional dealers and improving its performance and
profitability.
Management plans to maximize the operating and financial
performance of its dealerships by achieving certain efficiencies
that will enhance internal growth and profitability. By
consolidating functions within the Company, management believes
it can reduce overall expenses, simplify dealership management
and create economies of scale.
The Company will specifically target dealers in markets with
strong buyer demographics that, due to under-management or under-
capitalization, are unable to realize their market share
potential and can benefit substantially from the Company's
systems and operating strategy.
The Company, together with its two (2) wholly-owned
subsidiaries, owns and operates two (2) retail powersport
superstores. The Company's core brands include Suzuki, Yamaha,
Honda, Ducat and Kawasaki. The Company superstores operate under
the names "Andrews Cycles" and "Chicago Cycles." Andrews Cycles
is located in Salem, Ohio, has approximately fifty (50) employees
as of March 31, 2004 and operates from an approximately thirty-
five thousand (35,000) square foot facility. Chicago Cycles is
located in Chicago, Illinois, has approximately sixty (60)
employees and operates from an approximately thirty thousand
(30,000) square foot facility. The Company believes Andrews
18
Cycles and Chicago Cycles are two of the largest volume dealers
of powersports in the Midwest.
On April 30, 2004, pursuant to an Asset Purchase Agreement
(the "Asset Agreement"), dated as of April 30, 2004 by and among
the Company, King's Motorsports, Inc., d/b/a Chicago Cycle
("Chicago Cycle"), Jason Haubner and Jerry Fokas, the two (2)
shareholders of Chicago Cycle, the Company acquired (the
"Acquisition"), substantially all of the assets of Chicago Cycle
(the "Chicago Assets"). In consideration for the Chicago Assets
and pursuant to the Asset Agreement, the Company (i) assumed
certain specified liabilities of Chicago Cycle, and (ii) agreed
to pay to Chicago Cycle $2,925,000, as follows: (a) $1,250,000 at
the closing of the Acquisition (the "Initial Payment"), and (b)
$1,675,000 through the issuance to Chicago Cycle of a 6%
$1,675,000 aggregate principal amount promissory note (the
"Note"). The principal amount of the Note matures as follows:
(i) $500,000 on July 29, 2004, (ii) $250,000 on October 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 Chicago Assets pursuant to a Commercial Security Agreement
dated as of April 30, 2004, by and among the Company and Chicago
Cycle, and guaranteed pursuant to a Guaranty dated April 30, 2004
by and among Chicago Cycle, the Company, Russell Haehn and
Gregory Haehn, the current executive officers, directors and
controlling shareholders of the Company (each an "Executive,"
and, collectively, the "Executives").
To fund the $1,250,000 Initial Payment, the Company pursuant
to a Term Note dated March 12, 2004, by and among the Company and
The Fifth Third Bancorp Bank (the "Bank") borrowed $1,250,000
(the "Loan") from the Bank. The Loan matures on May 31, 2004, and
bears interest at the rate of prime plus one percent (1%) per
annum. The Company's payment obligations under the Loan are
guaranteed by the Executives pursuant to a Secured Continuing
Guaranty Unlimited dated as of March 12, 2004 by each Executive
and the Bank. The Loan is also secured pursuant to a Security
Agreement dated March 12, 2004 by and between the Bank and the
Company, by a first priority lien on all of the assets of the
Company (including, but not limited to, the Chicago Assets). The
Company believes it will restructure the terms of the Loan to,
among other items, extend the maturity date of the loan by
converting the Loan into a 3-5 year term loan.
Pursuant to a Management Agreement dated April 30, 2004, by
and among the Company and Chicago Cycle, in the event the Company
does not receive dealership franchise approvals and floor plan
financing by approximately August 30, 2004, the Company has the
right to require Chicago Cycle to repurchase the Chicago Assets
for $1,675,000.
In connection with the Acquisition and pursuant to the Asset
Purchase Agreement, the Company entered into a Noncompetition
Agreement ("Noncompetition Agreement"), dated April 30, 2004 with
Mr. Haubner, pursuant to which Mr. Haubner agreed to limit his
business activities to those not competing with Chicago Cycle
until December 31, 2006. In consideration for the Noncompetition
Agreement, the Company agreed to (i) pay to Mr. Haubner a monthly
fee of $20,833 from January 20, 2005 through December 31, 2006,
and (ii) provide Mr. Haubner with certain health insurance
coverage.
Pursuant to an Employment Agreement ("Employment
Agreement"), dated April 30, 2004 between the Company and Jerry
Fokas (the "Employee"), the Company agreed to employ Mr. Fokas as
19
a sales manager for a two (2) year period. In consideration for
such employment, the Company agreed to, among other things, pay
to the Employee (i) a salary of $2,500 per week from May 1, 2004
to April 30, 2005, and $3,000 per week from May 1, 2005 to April
30, 2006, and (ii) a quarterly bonus equal to five percent (5%)
of Chicago Cycle's quarterly earnings before interest, taxes,
depreciation and amortization (as determined by the certified
public accounting firm that regularly provides accounting
services to Chicago Cycle and/or the Company).
On April 20, 2004, pursuant to a $500,000 aggregate
principal amount promissory note bearing interest at the rate of
fourteen (14%) percent per annum (the "Bridge Note"), the Company
received from a third party lender (the "Lender") a $500,000
aggregate principal amount bridge loan (the "Bridge Loan"). All
outstanding principal on the Bridge Note is due on October 19,
2004. To secure the repayment of principal and interest on the
Bridge Note, each Executive (i) pledged to the Lender 150,000
shares (300,000 shares in the aggregate) of the common stock, par
value $0.001 per share, of the Company (the "Common Stock") owned
by each such Executive, and (ii) guaranteed the payment of all of
the Company's payment obligations to the Lender under the Bridge
Note. As partial consideration for the Bridge Loan, the Company
issued to the Lender a five (5) year warrant to purchase 100,000
shares of Common Stock (the "Warrant Shares"), at an exercise
price of $2.25. The Company also granted to the Lender certain
piggyback registration rights with respect to the Warrant Shares.
The Company used $500,000 Bridge Loan proceeds for working and
operating capital.
On April 5, 2004, the Company changed its name from American
Busing Corporation to Giant Motorsports, Inc.
On January 16, 2004, pursuant to a Stock Purchase and
Reorganization Agreement dated as of December 30, 2003 (the
"Agreement"), between, among others, the Company, W.W. Cycles,
Inc. ("Cycles") and the Executives, the Company issued to the
Executives and one (1) other Cycles' employee, an aggregate of
7,850,000 shares of Common Stock in exchange for all of the
issued and outstanding shares of the capital stock of Cycles,
resulting in Cycles becoming a wholly-owned subsidiary of the
Company (the "Initial Acquisition"). On such date, the
Executives also purchased an additional 150,000 shares of Common
Stock from a then shareholder of the Company for an aggregate
purchase price of $178,750. Simultaneously with the Closing of
the Initial Acquisition, the then sole director and officer of
the Company resigned as a director and officer of the Company and
was replaced by the Executives. Russell A. Haehn became the
Chairman, Chief Executive Officer, Secretary and a Director of
the Company and Gregory A. Haehn became the President, Chief
Operating Officer, Treasurer and a Director of the Company.
Immediately following the Initial Acquisition and the
consummation of certain other related transactions, the Company
had 10,425,000 issued and outstanding shares of Common Stock, of
which the Executives owned in the aggregate, 7,850,000 shares of
Common Stock, representing approximately 76.74% of the issued and
outstanding shares of Common Stock. Of such amount, Russell A.
Haehn owns 4,710,000 shares of Common Stock, Gregory A. Haehn
owns 2,740,000 shares of Common Stock and a third prior
shareholder of Cycles owns the remaining 400,000 shares of Common
Stock. The Company also issued to a financial advisor six-year
warrants to purchase up to 1,000,000 shares of the Common Stock
in consideration for financial advisory services provided to
20
Cycles in connection with the Initial Acquisition and to the
Company following the Initial Acquisition.
RESULTS OF OPERATIONS
Three months ended March 31, 2004, compared to the three
months ended March 31, 2003.
--------------------------------------------------------
Revenues
--------
Revenues for the first three months of 2004 were $11,200,163
representing an increase of $1,609,519 (16.7%) from the
$9,590,644 reported for the three months ending March 31, 2003.
Our results were impacted positively by the inclusion of sales to
Lehman Trikes, Inc. In addition, our sales increase can also be
attributed to our aggressive marketing and advertising campaigns.
Cost of Sales
-------------
Cost of sales for the first quarter of 2004 increased by
$1,280,871 (15.2%) from the same period in 2003. This increase
reflects the additional cost of units needed to realize the
increase in sales.
Operating Expenses
------------------
Selling, general and administrative expenses for the first
quarter of 2004 were $1,104,225 an increase of $190,389 over the
same period ended in 2003. The aggregate increase in such costs
were principally related to approximately $141,000 of legal,
accounting and auditing fees associated with the requirements of
becoming a public entity ("Going Public Expenses"). Interest
expense increased approximately $25,548 in the first quarter of
2004 as compared to the first quarter of 2003. This increase is
primarily due to an increase in interest bearing floor plan
inventory. We anticipate floor plan interest expense to decline
over the remaining quarters of 2004 as the principal balance
of our floor planned inventory is reduced.
Operating Income
----------------
Operating income for the three months ended March 31, 2004
increased by $138,259 to $385,075, as compared to $246,816 over
the same period 2003. Operating income in 2004 was also
substantially affected by approximately $141,000 of Going Public
Expenses. This generally is a result of an increase of sales.
Income Before Taxes, Depreciation and Amortization
--------------------------------------------------
Income before provision for taxes and depreciation and
amortization, for the first three months ended 2004 was $317,633,
which is $116,728 greater than the comparable period last year.
The income tax increase of $110,000 for the first quarter of
2004, as compared to the first quarter of 2003, is a result of
the Company's tax filing status that changed from an S-Corp in
the first quarter of 2003 to a C-Corp effective on January 1,
2004. Depreciation and amortization was approximately $20,374 for
the first three months of 2004 as compared to $14,765 for the
comparable period in 2003.
21
Net Income
----------
Net income for the three months ended March 31, 2004 was
$187,259 as compared to $186,140 for the comparable period in
2003. As discussed above, net income in 2004 was substantially
affected by approximatley $141,000 of Going Public Expenses.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity has been cash generated by
operations and borrowings under various credit facilities. At
March 31, 2004, we had $1,275,915 in cash and cash equivalents,
compared to $587,917 at December 31, 2003. Until required for
operations, our policy is to invest excess cash in bank deposits
and money market funds. Net working capital at March 31, 2004
was $624,398 compared to $590,032 at December 31, 2003.
The Company receives floor plan financing from five
different motorcycle manufacturers who the Company sells the
manufacturer products for. The Company uses such floor plan
financing to assist it in financing and carrying the Company's
inventory necessary to achieve the Company's sales goals. Such
manufacturer's collateral includes all unit inventory plus a
general lien on all assets of Cycles.
On April 20, 2004, the Company borrowed from a third party
lender (the "Lender") the $500,000 Bridge Loan, evidenced by the
Bridge Note. All outstanding principal on the Bridge Note is due
on October 19, 2004. To secure the repayment of principal and
interest on the Bridge Note, each Executive (i) pledged to the
Lender 150,000 shares (300,000 shares in the aggregate) of Common
Stock owned by each such Executive, and (ii) guaranteed the
payment of all of the Company's payment obligations to the Lender
under the Bridge Note. As partial consideration for the Bridge
Loan, the Company issued to the Lender the Bridge Warrant to
purchase 100,000 Warrant Shares at an exercise price of $2.25 per
share. The Company also granted to the Lender certain piggyback
registration rights with respect to the Warrant Shares. The
Company used $500,000 Bridge Loan proceeds for working and
operating capital.
On March 12, 2004, the Company received the $1,250,000 Loan
from the Bank, which it used for the Initial Payment for its
Acquisition of Chicago Cycles. The Loan matures on May 31, 2004
and is guaranteed by each of the Executives. The Company
believes it will restructure the terms of the Loan to, among
other items, extend the maturity date by converting the Loan into
a 3-5 year term loan.
Although the Company believes that its current borrowing
facilities together with its cash generated from operations, will
be adequate to meet the Company's working capital requirements
for its current operating levels, the Company may in the future
attempt to raise additional financing through the sale of its
debt and/or equity securities.
SEASONALITY
The Company's two main products - Motorcycles and All
Terrain Vehicles ("ATVs") are subject to seasonality.
Traditionally, the motorcycle season begins in late February or
early March and runs until September. In September/October, the
22
sale of ATVs increases while motorcycle sales decrease.
IMPACT OF INFLATION
General inflation in the economy has driven the operating
expenses of many businesses higher, and, accordingly, the Company
has experienced increased salaries and higher prices for
supplies, goods and services. The Company continuously seeks
methods of reducing costs and streamlining operations while
maximizing efficiency through improved internal operating
procedures and controls. While the Company is subject to
inflation as described above, the Company's management believes
that inflation currently does not have a material effect on its
operating results, but there can be no assurance that this will
continue to be so in the future.
Item 3. Quantitative And Qualitative Disclosures About Market
Risk
-----------------------------------------------------
The Company does not have any material risk with respect to
changes in foreign currency exchange rates, commodities prices or
interest rates. The Company does not believe that it has any
other relevant market risk with respect to the categories
intended to be discussed in this item of this Report.
Item 4. Controls And Procedures
-----------------------
The Company's Chief Executive Officer and Chief Financial
Officer, after evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) under the Securities Exchange Act of 1934, as
amended) as of December 31, 2003, (the "Evaluation Date"), have
concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures were effective to ensure the
timely collection, evaluation, and disclosure of information
relating to the Company that would potentially be subject to
disclosure under the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated under the Act. There
were no significant changes in the Company's internal controls or
in other factors that could significantly affect the internal
controls subsequent to the Evaluation Date.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities
-------------------------------------------------
None
Item 3. Defaults upon Senior Securities
-------------------------------
None
23
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits And Reports On Form 8-K
--------------------------------
(a) Exhibits (Filed herewith)
--------
31.1 Certification of the Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
(Rule 13a-4(a))
31.2 Certification of the Chief Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
(Rule 13a-4(a))
32.1 Certification pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (Rule 13a-14(b)).
32.2 Certification pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (Rule 13a-14(b)).
(b) Reports on Form 8-K
-------------------
(i) Current Report on Form 8-K filed with the SEC on
May 11, 2004 (disclosing acquisition of Kings
Motorsports, Inc. d/b/a Chicago Cycles).
(ii) Current Report on Form 8-K filed with the SEC on
April 21, 2004 (disclosing $500,000 bridge loan)
(iii) Current Report on Form 8-K filed with the SEC
on April 5, 2004 (disclosing name change to Giant
Motorsports, Inc.)
(iv) Current Report on Form 8-KA, filed with the SEC on
March 31, 2004 (filing Audited Financial Statements
of W.W. Cycles, Inc. for years ended December 31,
2003 and 2002 and required pro-forma financial
statements)
(v) Current Report on Form 8-K, filed with the SEC on
February 27, 2004 (disclosing Letter of Intent of
the Company's proposed acquisition of Kings
Motorsports, Inc.
(vi) Current Report on Form 8-K, filed with the SEC on
January 23, 2004 (disclosing the Company's
acquisition of W.W. Cycles, Inc.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GIANT MOTORSPORTS, INC.
Date: May 17, 2004 /s/Russell A. Haehn
------------------------------------
Name: Russell A. Haehn
Title: Chairman of the Board of
Directors, Chief Executive
Officer and a Director
(Principal Executive Officer)
Date: May 17, 2004 /s/Gregory A. Haehn
------------------------------------
Name: Gregory A. Haehn
Title: President, Chief Operating
Officer, Treasurer, Secretary
and a Director
(Principal Financial and
Accounting Officer)
25