U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Bad Toys, Inc.
(Exact name of registrant as specified in its charter)
Nevada 0-29836 33-0677545
- -------------- ------------------------- --------------
(state of (Commission File Number) (IRS Employer
incorporation) \ I.D. Number)
2344 Woodridge Avenue
Kingsport, TN 37664
423-247-9560
-------------------------------------------------------------------
(Address and telephone number of registrant's principal
executive offices and principal place of business)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 September 30, 1999, there were 5,355,000 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
2
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Balance Sheets
September 30, 1999 & December 31, 1998
<TABLE>
<CAPTION>
9/30/99 12/31/98
Unaudited Audited
Assets --------- ---------
- ------
<S> <C> <C>
Cash & Cash Equivalents $ 8,093 1,757
Accounts Receivable 10,133 1,097
Inventory (Note B) 279,975 180,160
Prepaid Expenses 18,685 23,543
------- -------
Total Current Assets 316,886 206,557
------- -------
Property, Plant, & Equipment,
net of accumulated depreciation (Note C) 78,830 70,954
Organization Costs, net of accumulated
amortization 14,780 27,146
Syndication Costs 0 14,400
Utility Deposits 280 280
------- -------
Total Assets 410,776 319,337
------- -------
Liabilities & Shareholders' Equity
Accounts Payable & Accrued Liabilities 113,167 57,499
Current Portion of Long Term Debt 3,811 8,459
Total Current Liabilities 116,978 65,958
------- -------
Notes Payable - Long Term 23,175 26,994
Notes Payable - Shareholders (Note F) 414,528 216,176
Total Liabilities 554,681 309,128
------- -------
Common Stock, par value $.01;
10,000,000 shares 57,932 53,550
Authorized, 5,793,200 & 5,355,000
Shares issued and outstanding
respectively
Additional Paid in Capital 436,150 249,332
Deficit Accumulated During the
Development Stage (637,987) (292,673)
Total Liabilities & Shareholders' Equity $ 410,776 319,337
------- -------
</TABLE>
See notes to financial statement
3
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30 September 30
1999 1998 1999 1998
--------------------- -------------------
<S> <C> <C> <C> <C>
Sales $ 53,721 35,034 $ 77,972 65,056
Cost of Sales 54,788 40,400 98,652 70,375
-------- -------- -------- --------
Gross Profit (1,067) (5,366) (20,680) (5,319)
-------- -------- -------- --------
General & Administrative
Expenses 62,649 35,322 297,618 74,964
Income (Loss) from operations
Before interest expense (63,716) (40,688) (318,298) (80,283)
Interest Expense 10,875 5,714 27,016 13,931
Net Earnings (Loss) $(74,591) (46,402) (345,314) (92,214)
-------- -------- -------- --------
Net Earning (Loss)
Per Share $(0.013257) (0.008803) $(0.061673) (0.017873)
-------- -------- -------- --------
Weighted Average Shares 5,626,350 5,271,300 5,599,100 5,271,300
--------- --------- --------- ---------
</TABLE>
See notes to financial statements
4
<PAGE>
Bad Toys, Inc
(A development Stage Company)
Statements of Cash Flows
For the Nine Months Ended
September 30, 1999 & September 30, 1998
<TABLE>
<CAPTION>
9/30/99 9/30/98
------- -------
<S> <C> <C>
Cash flow from operating activities:
Cash received from customers $ 68,936 64,395
Cash paid to suppliers and employees (252,467) (176,971)
Other operating disbursements (207,932) (79,983)
Depreciation & Amortization 17,274 17,274
---------- ----------
Net cash provided (used) by operating
activities (374,189) (175,285)
---------- ----------
Cash flows from investing activities:
Cash payments for the purchase of property 0 0
---------- ----------
Net cash provided (used) by investing
activities 0 0
---------- ----------
Cash flow from financing activities:
New borrowings
Proceeds from equipment and other loans 0 58,327
Debt reduction:
Long - Term (1,595) 0
Short - Term (7,117) (408)
Proceeds from additional paid in capital 186,818 30,112
Proceeds from shareholder debt 198,037 87,073
Proceeds from issuance of common stock 4,382 640
---------- ----------
Net cash provided (used) by financing
activities 380,525 175,744
---------- ----------
Net increase (decrease) in cash & equivalents
Cash & Equivalents, beginning of period 1,757 476
---------- ----------
Cash & Equivalents, end of period 8,093 935
---------- ----------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest Expense 27,016 13,931
</TABLE>
See notes to financial statements
5
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Nine Months Ended
September 30, 1999 & September 30, 1998
<TABLE>
<CAPTION>
9/30/99 9/30/98
------- -------
<S> <C> <C>
Reconciliation of net income to net cash
Provided by operating activities
Net Income/(Loss) $(345,314) (94,214)
Adjustments to reconcile net income
to net cash Provided by operating
activities:
Depreciation and amortization 17,274 17,274
(Increase) decrease in other assets 14,400 0
(Increase) decrease in accounts
receivable (9,036) (661)
(Increase) decrease in prepaid expense 4,858 4,725
(Increase) decrease in inventories (99,815) (73,596)
(Increase) decrease in fixed assets (12,225) (48,561)
Increase (decrease) in accounts
payable 1,613 15,130
Increase (decrease) in accrued
liabilities 49,074 4,069
Increase (decrease) in interest payable 4,982 549
---------- ----------
Total adjustments (28,875) (81,071)
---------- ----------
Net cash provided (used) by investing
activities (374,189) (175,285)
---------- ----------
</TABLE>
See notes to financial statements
6
<PAGE>
Bad Toys, Inc.
Notes to Financial Statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Bad Toys, Inc. (the Company)
is presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management
who is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Nature of Operations
- --------------------
The Company was organized and incorporated on April 21, 1995 and began business
on April 1, 1998. The company operates a custom motorcycle manufacturing and
service facility in Kingsport, TN. The Company offers retail parts and product
sales as well as motorcycle service to its customers seven days a week. Although
principally located in Kingsport, TN, the Company's customers are located
primarily throughout the United States.
Inventories
- -----------
The Company's inventories are stated at the lower of standard cost (which
approximates average cost) or market.
Property and Equipment
- ----------------------
Property and equipment are carried at cost. For financial statement and federal
income tax purposes, depreciation is computed using the modified accelerated
cost recovery system. Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. Depreciation of
property and equipment is provided using rates based on the following useful
lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Machinery and equipment 3-10
Furniture and fixtures 3-10
Leasehold Improvements 20-30
</TABLE>
Depreciation expense for the Nine months ended September 30, 1999 is $ 4,908
Organization Costs
- ------------------
Costs of organizing the Company are recorded as organization costs and amortized
over five years on a straight-line basis.
Concentrations of Credit Risk
- -----------------------------
The Company is engaged in the manufacture and service of highly customized
motorcycles. The sales revenues are primarily derived from an area encompassing
a two hundred mile radius of Kingsport, Tennessee. The Company performs credit
evaluations of customers in the rare case where credit is granted, and generally
requires no collateral from its customers.
7
<PAGE>
Bad Toys, Inc.
Notes to Financial Statements
NOTE B - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
Work in Process $ 104,625 $ 82,862
Finished goods 175,350 97,298
-------------- -------------
$ 279,975 $ 180,160
</TABLE>
Inventories are stated at the lower of standard cost (which approximates average
cost) or market. The Company's current inventory levels are an accumulation of
motorcycle parts surrounding the production models. Inventory obsolescence and
pilferage is adjusted to cost sales in the period incurred. Work in process
consists of partially manufactured motorcycle models. Finished goods consist of
completed motorcycle models and saleable motorcycle parts, suitable for a
variety of Harley-Davidson-type motorcycles. Parts within finished goods are
either directly saleable to the public or used in the manufacturing of the
Company's production units.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications as follows:
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
Vehicles $ 20,328 $ 20,328
Equipment 21,782 10,042
Furniture and Fixtures 2,457 2,082
Leasehold Improvements 45,155 45,045
-------------- -------------
89,722 77,497
Less accumulated
depreciation (10,892) (6,543)
-------------- -------------
$ 78,830 $ 70,954
</TABLE>
8
<PAGE>
Bad Toys, Inc.
Notes to Financial Statements
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
Bank note payable $ 629.04 per month plus
Interest accrued at 9.75%, secured by vehicle. $ 1,042 $ 5,425
Bank note payable $285.60 per month plus
Interest accrued at 9.5%, secured by vehicle. 2,769 5,503
Notes payable to individuals, corporations,
And limited liability companies, with interest
At 10-15%, due at renewal cycle, or at payoff
Dates ranging from 6-18 months, secured by
Equity securities 23,175 24,525
Notes payable to stockholders due Dec. 31,
2000 with interest at 10.5%, unsecured. 414,528 216,176
-------------- -------------
441,514 251,629
-------------- -------------
Less current portion (3,811) (8,459)
-------------- -------------
Long term debt $ 437,703 $ 243,170
-------------- -------------
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
----------- --------
<S> <C>
1999 $ 3,811
2000 437,703
--------
441,514
</TABLE>
9
<PAGE>
Bad Toys, Inc.
Notes to Financial Statements
NOTE E - INCOME TAXES
Operating Loss Carryforwards
The Company has loss carryforwards totaling $144,154 as of the tax year ended
December 31, 1998 that may be offset against future taxable income. If not used,
the carryforwards will expire as follows:
<TABLE>
<CAPTION>
Operating
Losses
------
<S> <C>
Year 11 $ 849
Year 12 15,001
Year 13 43,093
Year 14 85,211
------
$144,154
</TABLE>
NOTE F - RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and affiliated entities:
1. Notes payable to related parties as September 30, 1999 and December 31, 1998,
consisted of the following:
<TABLE>
<CAPTION>
Sept. 30, 1999 Dec. 31, 1998
-------------- -------------
<S> <C> <C>
Notes payable to Larry & Susan Lunan due
December 31, 2000 with interest at 10.5% $ 333,389 $ 178,082
Notes payable to Barrick Properties, LLC,
with interest at 10-10.5%, with annual
renewal options. 81,131 38,094
-------------- -------------
$ 414,529 $ 217,176
-------------- -------------
</TABLE>
2. The Company leases its facilities from a minority stockholder as described in
Note G below.
NOTE G - LEASING ARRANGEMENTS
The Company conducts its operations from facilities that are leased under a
five-year noncancelable operating lease expiring in September, 2002. There is no
option to renew the lease. The lessor of the facility is a stockholder of the
Company. Lessor has received shares of stock as prepaid rent for the term lease.
Monthly rent is $1,420, which includes monthly-prepaid rent expensed of $520.
10
<PAGE>
Bad Toys, Inc.
Notes to Financial Statements
NOTE G - LEASING ARRANGEMENTS (continued)
The following is a schedule of future minimum rental payments required under the
above operating lease (excluding prepaid rent expense) as of September 30, 1999:
<TABLE>
<CAPTION>
Year Ending
Dec. 31 Amount
------- -------
<S> <C>
1999 $ 2,700
2000 10,800
2001 10,800
2002 8,100
-------
$32,400
-------
</TABLE>
Rental expense for the Nine months ended September 30, 1999 and the twelve
months ended December 31, 1998 were $ 15,030 and $ 20,040, respectively.
NOTE H - OPERATING AND CASH FLOW DEFICITS
The Company has experienced significant adversity during the development stage
of its existence. As a result, the Company has a cumulative operating deficit of
$ 637,987, and current payables, including the current portion of long term
debt, exceeds cash and current receivables by $ 98,752 at September 30, 1999.
Management is anticipating a large capital inflow from private placement of
equity in the winter of 1999. While the proposed capital injection as well as
potential conversions of long term debt to common stock, do project to improve
the Company's working capital position, there can be no assurance that the
Company will be successful in accomplishing its objectives.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the financial statements and the accompanying notes thereto and is qualified in
its entirety by the foregoing and by more detailed financial information
appearing elsewhere. See "Item 1. Financial Statements."
Results of Operations - Third Quarter of 1999 Compared to Third Quarter of 1998
- --------------------------------------------------------------------------------
Bad Toys, Inc.'s sales increased from $35,034 in the 3rd Quarter 1998 to
$53,721 in the 3rd Quarter 1999. The increase is due to higher customer traffic
in the Kingsport store. Revenues are comprised of part sales and service and do
not include any sales of motorcycles. The company was unable to place a model
for customer display and demonstration in any of the targeted cities. The
company recently placed a model in Nashville for display.
The cost of sales in the 3rd Quarter 1999 exceeded sales by $1,067 as
compared to cost of sales exceeding sales by $5,366 in the 3rd Quarter of 1998.
The improvement in the company's operating cost is due to the increased customer
volume.
General and Administrative expenses were $35,322 in the 3rd Quarter 1998
and increased to $62,716 in the 3rd Quarter 1999. The increase in the 3rd
Quarter 1999 was due to (1) higher executive salaries and (2) a general increase
due to a higher level of activity.
Results of Operations - First Nine Months of 1999 Compared to First Nine Months
- --------------------------------------------------------------------------------
of 1998
- -------
The company remains in the development stage as it has not yet marketed its
motorcycle. With sales of $65,056 during the first nine months of 1998, the
company has only improved sales by $12,916 in the first nine months of 1999 to
$77,972.
The General and Administrative expenses increased from $80,283 in the first
nine months of 1998 to $318,298 in the first nine months of 1999. The dramatic
increase is accountable by the significant increase in the general and
administrative increase during the 2nd Quarter which costs were related to
promotion and advertising. This produced a net loss from operations of $345,000
in the first nine months of 1999 or $0.062 (loss per share) as compared to a net
loss of $92,214 in the first nine months of 1998 or $0.018 (loss per share).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
12
<PAGE>
(b) Forms 8-K
None
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: November 15, 1999 Bad Toys, Inc.
By /s/Larry N. Lunan
-----------------------------
Larry N. Lunan, President and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,093
<SECURITIES> 0
<RECEIVABLES> 10,133
<ALLOWANCES> 0
<INVENTORY> 279,975
<CURRENT-ASSETS> 316,886
<PP&E> 89,722
<DEPRECIATION> (10,892)
<TOTAL-ASSETS> 410,776
<CURRENT-LIABILITIES> 116,978
<BONDS> 0
0
0
<COMMON> 57,932
<OTHER-SE> 436,150
<TOTAL-LIABILITY-AND-EQUITY> 410,776
<SALES> 77,972
<TOTAL-REVENUES> 77,972
<CGS> 98,652
<TOTAL-COSTS> 98,652
<OTHER-EXPENSES> 297,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,016
<INCOME-PRETAX> (345,314)
<INCOME-TAX> 0
<INCOME-CONTINUING> (345,314)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (345,314)
<EPS-BASIC> (0.062)
<EPS-DILUTED> (0.062)
</TABLE>
