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 June 30, 2000
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 June 30, 2000, there were 8,892,006 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
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited) (Audited)
----------- ------------
ASSETS
------
<S> <C> <C>
Cash & Cash Equivalents $ 1,819 185
Inventory (Note 2) 325,408 202,428
Prepaid Expenses 13,989 16,982
----------- ---------
Total Current Assets 341,216 219,595
Property, Plant & Equipment
Net of Accumulated Depreciation (Note 3) 77,286 66,729
Organization Costs, net of accumulated amortization - 10,658
Syndication Costs 170,000 -
Utility Deposits 280 280
----------- ---------
Total Assets $ 588,782 297,262
=========== =========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<S> <C> <C>
Accounts Payable and Accrued Liabilities $ 116,949 76,661
Current Portion of Long Term Debt 23,469 26,245
Current Portion of Long Term Debt-Shareholders 737,730 438,726
----------- ---------
Total Current Liabilities 878,148 541,632
Notes Payable-Long Term - -
----------- ---------
Total Liabilities 878,148 541,632
SHAREHOLDERS' EQUITY:
Common Stock, par value $.01; 10,000,000 shares 87,320 78,270
Authorized, 8,732,006 & 7,827,006
Shares issued and outstanding, respectively
Additional Paid in Capital 935,750 616,700
Deficit Accumulated During the Development Stage (1,312,436) (939,340)
----------- ---------
Total Liabilities and Shareholders' Equity $ 588,782 297,262
=========== =========
</TABLE>
3
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
INCOME STATEMENTS -(Unaudited)
<TABLE>
<CAPTION>
The Three Months Ended The Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 19,473 14,545 $ 31,440 24,251
Cost of Sales 33,139 23,832 70,400 43,864
---------- ------- ------- -------
Gross Profit (13,666) (9,287) (38,960) (19,613)
General & Administrative
Expenses 230,930 179,356 291,897 234,969
---------- ------- ------- -------
Income (Loss) from Operations
Before Expense (244,596) (188,643) (330,857) (254,582)
Interest Expense 28,132 8,719 42,239 16,141
---------- ------- ------- -------
Net Loss $ (272,728) 197,362) (373,096) (270,723)
========== ======= ======= =======
Net Earnings (Loss) per Share $ (0.032275) (0.035235) (0.045224) (0.048568)
Weighted Average Shares 8,450,000 5,601,350 8,250,000 5,574,100
</TABLE>
See Accompanying Notes and Accountants' Review Report.
4
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY
STATEMENTS OF CASH FLOWS-(Unaudited)
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash Received from Customers $ 31,440 22,207
Cash Paid to Suppliers and Employees (157,295) (119,091)
Other Operating Disbursements (142,784) (27,709)
---------- ----------
Net Cash Used by Operating Activities (268,639) (124,593)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Payments for the Purchase of Equipment (19,152) (7,616)
---------- ----------
Net Cash Used for Investing Activities (19,152) (7,616)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt Reduction:
Long-Term - (3,819)
Short-Term (2,951) (1,987)
Proceeds from Additional Paid In Capital - 29,850
Proceeds from Shareholder Debt 292,376 112,572
Proceeds from Issuance of Common Stock - 150
---------- ----------
Net Cash Provided by Financing Activities 289,425 136,766
---------- ----------
Increase in Cash and Cash Equivalents 1,634 4,557
Cash and Cash Equivalents, Beginning of Year 185 1,757
---------- ----------
Cash and Cash Equivalents, End of Period $ 1,819 6,314
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash Paid during the Period for Interest $ 3,236 16,141
========== ==========
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net Income/(Loss) $ (370,382) (270,723)
---------- ----------
Adjustment to Reconcile Net Income (Loss) to
Net Cash
Provided by Operating Activities:
Depreciation and Amortization 19,257 11,516
Issuance of Stock for Services 328,100 161,200
(Increase) Decrease in Other Assets (170,000) 8,904
(Increase) Decrease in Accounts Receivable - (947)
(Increase) Decrease in Prepaid Expense 2,993 1,060
(Increase) Decrease in Inventories (122,980) (78,500)
Increase (Decrease) in Accounts Payable 3,061 15,081
Increase (Decrease) in Accrued Liabilities 36,575 24,514
Increase (Decrease) in Interest Payable 4,737 3,302
---------- ----------
Total Adjustments (101,743) (146,130)
---------- ----------
Net Cash Used By Operating Activities $ (268,639) (124,593)
========== ==========
</TABLE>
5
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION:
------------------------------
The financial statements and notes are representations of the Company's
management who is responsible for their integrity and objectivity. The
accounting policies followed conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements. In the opinion of management, the accompanying financial statements
contain all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the Company's financial condition as of June 30, 2000 and
the results of operations for the three months and six months ended June 30,
2000 and 1999 and cash flows for the six months ended June 30, 2000 and 1999.
The accompanying unaudited financial statements have been prepared in accordance
with the instructions for Form 10-QSB. These financial statements should be read
in conjunction with the financial statements and the notes included in the
Company's Annual Report for the year ended December 31, 1999.
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:
Years
-----
Machinery and equipment 3-10
Furniture and fixtures 3-10
Leasehold Improvements 20-30
Depreciation expense for the six months ended June 30, 2000 is $8,599.
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.
NOTE 2. INVENTORIES:
--------------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Work in Process $ 21,831 13,731
Finished Goods 303,577 188,697
----------- ----------
$ 325,408 202,428
=========== ==========
</TABLE>
6
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 2. INVENTORIES (CONTINUED):
--------------------------------
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 of 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 included in finished goods
are either directly saleable to the public or used in the manufacturing of the
Company's production units.
NOTE 3. PROPERTY AND EQUIPMENT:
-------------------------------
Property and equipment are summarized by major classifications as follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Vehicles $ 20,328 $ 20,328
Equipment 37,370 24,856
Furniture and Fixtures 7,509 2,620
Leasehold Improvements 47,166 45,414
----------- -----------
112,373 93,218
Less accumulated depreciation (35,087) (26,489)
----------- ----------
$ 77,286 $ 66,729
=========== ==========
</TABLE>
NOTE 4. SYNDICATION COSTS:
--------------------------
During the second quarter of 2000, the Company paid $170,000 in a refundable
syndication cost, related to the intent to sell control of the Company. (Note 8)
NOTE 5. LONG-TERM DEBT:
Loans at December 31 are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
Bank note payable $629.04 per month plus
<S> <C> <C>
Interest accrued at 9.75%, secured by vehicle$ $ 0 $ 310
Bank note payable $285.60 per month plus
Interest accrued at 9.50% secured by vehicle 294 2,935
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 23,000
------ ------
$23,469 26,245
</TABLE>
7
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
NOTE 5. LONG-TERM DEBT (CONTINUED):
-----------------------------------
Notes payable to stockholders due
December 31, 2000 With interest
<S> <C> <C>
at 10.5% unsecured. 737,730 438,726
--------- ---------
761,199 464,971
Less current portion (761,199) (464,971)
--------- ---------
Long term debt $ 0 0
========= =========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS:
-----------------------------------
The following transactions occurred between the Company and affiliated entities:
1. Notes payable to related parties as June 30, 2000 and December 31, 1999,
consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
Note payable to Larry & Susan Lunan due
<S> <C> <C>
December 31, 2000 with interest at 10.5% $ 645,075 $ 346,071
Notes payable to Barrick Properties, LLC, with
interest at 10-10.5% with annual renewal options. 92,655 92,655
---------- ----------
$ 737,730 $ 438,726
========== ==========
</TABLE>
2. The Company leases its facilities from a minority stockholder as described in
Note 7 below.
3. In addition, a lawsuit was brought against Bad Toys, Inc. by Barrick
Properties for payment of the outstanding notes. The notes could have been
converted to stock while they were current, but they are all considered to
be delinquent at this time. Barrick's is in possession of one motorcycle
until such time as the notes are paid. The lawsuit was dismissed with
prejudice in August and these notes are paid at the time of this report.
NOTE 7. LEASING ARRANGEMENTS:
-----------------------------
The Company conducts its operations from facilities that are leased under a
five-year non-cancelable 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 of the
lease. Monthly rent is $1,420, which includes monthly prepaid rent expensed of
$520.
8
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 7. 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 June 30, 2000:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
----------- ------
<S> <C> <C>
2000 $ 5,400
2001 10,800
2002 8,100
--------
$ 24,300
</TABLE>
Rental expense for the six months ended June 30, 2000 and the twelve months
ended December 31, 1999 was $10,020 and $20,040, respectively.
NOTE 8. INTENT TO SELL:
-----------------------
On March 31, 2000, Bad Toys, Inc. entered into an agreement of merger with
MYCA Group, Inc. The consummation of the transaction is subject to several
conditions, including the approval of the transaction by the Bad Toys, Inc.
stockholders. Upon consummation of the transaction, the MYCA Group principals
will be the majority shareholders.
NOTE 9. 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
$1,312,436, and current payables, including the current portion of long term
debt, exceeds cash and current receivables by $536,932 at June 30, 2000.
Management is anticipating the sell to MYCA will be completed in the near
future. While the proposed sell would improve the Company's financial position,
there can be no assurance that the Company will be successful in accomplishing
its objective.
NOTE 10. SUBSEQUENT EVENTS:
---------------------------
On June 12, 2000 the shareholders of Bad Toys unanimously approved the merger.
9
<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 - Second Quarter of 2000 Compared to Second
------------------------------------------------------------------------
Quarter of 1999
---------------
Bad Toys' sales increased from $14,545 in Q2 1999 to $19,473 in Q2 2000.
All sales represented parts and services. We have not yet sold our first
custom-made motorcycle.
The cost of sales in Q2 2000 exceeded sales by $13,666, as compared to a
gross loss of $9,287 in Q2 1999. The increase is due to an increase in company
payroll and other related costs associated with the development of the company's
new models.
The significant operational item was general and administrative expenses
- $179,356 in Q2 1999 but increasing to $230,930 in Q2 2000. This produced a net
loss from operations, before interest expense of $28,132, of $244,596 in Q2
2000, or $0.032 a share, as compared to a net loss of $188,643, before interest
expense of $8,719 in Q2 1999, or $0.035 a share.
The reason for the increase in general and administrative expenses in
Q2 2000 was increased professional fees and costs related to our proposed
merger with Mycom.com, Inc. of Cincinnati, Ohio.
We financed this loss by sales of common stock for services and loans
from shareholders.
Results of Operations - First Half of 2000 Compared to First Half of
------------------------------------------------------------------------
1999
----
It is evident that we are still in the development stage. From sales of
$24,251 during the first half of 1999, we were able to manage sales of only
$31,440 during the first half of 2000.
General and administrative expenses increased from $234,969 during the
first half of 1999 to $291,897 during the first half of 2000 - an increase of 24
percent. These increased expenses reflect the costs of pursuing the proposed
merger with Mycom.com, Inc., which has not yet been consummated.
Plans for the Rest of 2000; Liquidity; Sources of Liquidity
-----------------------------------------------------------
We have exhausted our cash resources, which have largely been
contributions to the company's capital by management since June 1999. Management
has concluded that it is in the best interests of our stockholders to effectuate
the merger with Mycom.com, Inc. and thereby offer our company's corporate shell
to Mycom.com (1) in exchange for sufficient cash to pay all debt of the company
except debt owed to management and (2) to exchange the motorcycle business and
its attendant
10
<PAGE>
assets for the extinguishment of the company's debt to management. The company's
business will become what is the present business of Mycom.com, and the
stockholders should have much better prospects for the future.
Going Concern Issue
-------------------
The independent auditor has identified a substantial doubt about our
ability to continue as a going concern. Our solution is the merger with
Mycom.com, Inc., which merger has been approved by our shareholders but awaits
the completion of certain conditions required before the merger can be
consummated. If the merger should not be consummated, Bad Toys, Inc. would
continue to sustain losses until sufficient capital could be raised to mount an
aggressive advertising campaign and until Bad Toys could open a second facility
in a major metropolitan area. There is no certainty that Bad Toys, Inc. can
attract the necessary capital to continue operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(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: August 14, 2000 Bad Toys, Inc.
By/s/Larry N. Lunan
-----------------------------
Larry N. Lunan, President and
Chief Financial Officer
11
