FULLER, TUBB, POMEROY & STOKES
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
201 ROBERT S. KERR AVENUE, SUITE 1000
OKLAHOMA CITY, OK 73102
G. M. FULLER (1920-1999) TELEPHONE 405-235-2575
JERRY TUBB FACSIMILE 405-232-8384
DAVID POMEROY
TERRY STOKES
-----
OF COUNSEL:
MICHAEL A. BICKFORD
THOMAS J. KENAN
ROLAND TAGUE
May 23, 2000
Richard Wulff, Chief
Office of Small Business
Mail Stop 3-4
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0304
Re: Bad Toys, Inc.
Proxy Materials
SEC File No. 0-29836
Dear Mr. Wulff:
Bad Toys, Inc. hereby files its definitive proxy material with regard to
a special meeting of shareholders to be held June 12, 2000. The materials are
intended to be mailed on May 23, 2000 to shareholders of record as of April 26,
2000.
Sincerely,
/s/ Thomas J. Kenan
----------------------------------------
Thomas J. Kenan
e-mail: [email protected]
/sa
Enclosure
cc: Larry N. Lunan
Patti Massey
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Bad Toys, Inc.
(Exact name of registrant as specified in its charter)
......................................................
(Name of person(s) filing Proxy Statement if
other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01
2) Aggregate number of securities to which transaction applies:
(1) 40 million shares of Common Stock of the Registrant, and
(2) all the outstanding shares of a wholly-owned
subsidiary of the Registrant
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the
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amount on which the filing fee is calculated and state how it was
determined):
(1) for the sale of 40 million shares of Common Stock of the
Registrant in the acquisition of another company, the
Common Stock is valued at $0.84 a share, the average of
the closing bid ($0.75) and ask ($0.9375) price of the
stock on May 1, 2000 on the OTC Bulletin Board.
(2) For the sale of all the outstanding shares of a wholly-
owned subsidiary of the Registrant, which subsidiary
corporation has an accumulated capital deficit, one-third
of the stated value of $506,072 of the securities sold.
4) Proposed maximum aggregate value of transaction:
(1) $33,600,000 + (2) $506,072 = $34,106,072
5) Total fee paid:
$0.0002 times 34,106,072 = $6,822
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount previously paid:
.................................................................
2) Form, Schedule or Registration No:
.................................................................
3) Filing Party:
.................................................................
4) Date Filed:
.................................................................
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DEFINITIVE COPIES
BAD TOYS, INC.
2344 Woodridge Avenue
Kingsport, Tennessee 37664
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 12, 2000
Notice is hereby given that a special meeting (the "Special Meeting") of
Stockholders of Bad Toys, Inc. (the "Company") will be held at 2344 Woodridge
Avenue, Kingsport, TN 37664, on June 12, 2000, at 2:00 p.m., local time, for the
following purposes:
1. To consider and vote upon a proposal (the "Agreement of Merger
Proposal") to approve an Agreement of Merger dated March 31, 2000
(the "Agreement of Merger"), by and between the Company and Myca
Group, Inc. (presently named Mycom.com, Inc.) ("Mycom.com"), an
Ohio corporation with its principal offices in Cincinnati, Ohio;
pursuant to which, among other things, $800,000 in cash will be
paid and 40 million shares of the Company's common stock, par
value $0.01 per share (the "Common Stock"), will be issued to the
Mycom.com shareholders in exchange for all the issued and
outstanding shares of capital stock of Mycom.com.
2. To consider and vote upon a proposal to approve the issuance of
40 million shares of Common Stock to be issued in connection with
the Agreement of Merger (the "Stock Issuance Proposal").
3. To consider and vote upon a proposal to amend the Company's
Articles of Incorporation to increase the number of shares of
Common Stock the Company is authorized to issue from 10 million
to 90 million (the "Authorized Common Stock Proposal").
4. To consider and vote upon a proposal to amend the Company's
Articles of Incorporation to authorize the issuance of 10 million
shares of Preferred Stock, par value $0.01 per share (the
"Authorized Preferred Stock Proposal").
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5. To consider and vote upon a proposal to amend the Company's
Articles of Incorporation to change the name of the Company from
"Bad Toys, Inc." to "Mycom.com, Inc." (the "Name Change
Proposal").
6. To consider and vote upon a proposal to approve the sale by the
Company to Larry and Susan Lunan (the "Lunans") of the Company's
custom motorcycle manufacturing business, all the Company's
assets that are associated with such business, and $300,000 in
cash, for a total value of approximately $666,333, such sale to
be in exchange for the Lunans' cancellation of $654,212 in debt
owed to them by the Company and their assumption of the
obligation to pay all other unpaid debt of the Company, of which
it is estimated the amount will be less than the $300,000 the
Lunans will receive (the "Sale of Assets Proposal").
7. To consider and vote upon a proposal to amend the Company's
Bylaws to provide that the Company's Board of Directors may be
comprised of no less than four and no more than nine members as
may be determined from time to time by either the stockholders or
a majority of the directors (the "Bylaw Amendment Proposal").
8. Any proposals necessary to transact such other business as may
properly come before the meeting and any adjournments thereof.
Approval of each of the Agreement of Merger Proposal, the Stock Issuance
Proposal, the Authorized Common Stock Proposal, the Authorized Preferred Stock
Proposal, the Name Change Proposal, the Sale of Assets Proposal and the Bylaw
Amendment Proposal (the foregoing proposals are referred to collectively herein
as the "Transaction Proposals") is a condition to the consummation of the
transactions contemplated by the Agreement of Merger. In the event that approval
of any of the Transaction Proposals is not obtained, the transactions
contemplated by the Agreement of Merger will not be consummated and all of the
Transaction Proposals will be withdrawn from consideration at the Special
Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
THE COMPANY VOTE FOR EACH OF THE TRANSACTION PROPOSALS.
Only holders of record of Common Stock as of the close of business on
April 26, 2000 (the "Record Date") are entitled to notice of and to vote at the
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Special Meeting, or any adjournments or postponement thereof.
By order of the Board of Directors,
/s/Susan Lunan
-----------------------------------
Susan Lunan, Secretary
May 23, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. NO POSTAGE IS NEEDED IF
MAILED IN THE UNITED STATES.
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DEFINITIVE COPIES
BAD TOYS, INC.
2344 Woodridge Avenue
Kingsport, Tennessee 37664
PROXY STATEMENT
This Proxy Statement is furnished to stockholders in connection with the
solicitation by the Board of Directors of Bad Toys, Inc., a Nevada corporation
(the "Company"), of proxies for use at the Special Meeting of Stockholders of
the Company to be held at 2344 Woodridge Avenue, Kingsport, TN 37664, on
June 12, 2000, at 2:00 p.m., local time, and at any adjournments thereof (the
"Special Meeting"). This Proxy Statement and the Notice of Special Meeting and
form of Proxy are being mailed to the Company's stockholders on or about May
23, 2000.
SPECIAL FACTORS
Proposal No. 6 of the seven Proposals described in this Proxy Statement
relates to the sale of substantially all the assets of Bad Toys to Larry and
Susan Lunan ("the Lunans"). The stockholders of Bad Toys should be aware of the
following matters as part of their determination to approve or to disapprove
this proposed sale of assets.
o The Lunans own approximately 62.4 percent of the outstanding
shares of Common Stock of Bad Toys, are its chief executive
officer and corporate secretary, and are two members of Bad Toys'
three-member board of directors. Mr. Lunan negotiated the terms
of the proposed sale of Bad Toys' assets to themselves.
o Because of the Lunans' control of Bad Toys, they have actual
conflicts of interest with regard to their participation in the
negotiation of the terms of the proposed sale. They have
potential conflicts of interest in the manner in which they vote
on the proposed sale of assets to them.
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o With regard to voting on the proposed sale of assets, the Lunans
will vote their shares of Common Stock in accordance with the
majority vote cast by all other stockholders.
o The book value of the assets proposed to be sold to the Lunans is
approximately $366,333. In exchange for such assets, the Lunans
will provide the following consideration:
o Cancel indebtedness of Bad Toys to the Lunans in the
approximate amount of $654,212.
o Assume the obligation to pay any unpaid debt of Bad
Toys, and to extinguish any unknown liabilities of Bad
Toys, as of the date of the sale of the assets, to the
Lunans. After cancellation of Bad Toys' indebtedness to
the Lunans as described above, it is estimated that the
amount of unpaid debt of Bad Toys is $182,186, which is
less than the $300,000 cash the Lunans are to receive.
o Bad Toys will nevertheless remain secondarily
liable with respect to all its liabilities
assumed by the Lunans, should the Lunans not
extinguish them.
o The Lunans are surrendering to Bad Toys, for
cancellation, options they own to purchase 1,000,000
shares of Common Stock of Bad Toys at an average price
of $0.50 a share.
o Six other proposals described in this Proxy Statement relate to
the acquisition by Bad Toys of all the capital stock of
Mycom.com, Inc., earlier named Myca Group, Inc., a Cincinnati,
Ohio-based company whose business shall become the business of
Bad Toys and whose 58 employees shall effectively become
employees of Bad Toys. The sale of Bad Toys' custom motorcycle
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business and assets to the Lunans is a coincidence of the
acquisition of the business and assets of Mycom.com. The sale of
assets to the Lunans will not occur unless the Bad Toys
stockholders approve the other six proposals described herein.
o Bad Toys is insolvent. If the seven proposals described herein
are not approved by the Bad Toys stockholders, the custom
motorcycle business of Bad Toys will likely fail in the immediate
future. In such a case, the Lunans would be the major creditor
of Bad Toys. By reason of this, in any bankruptcy or
reorganization case, the Lunans would be in a position to acquire
the substantial majority or all of Bad Toys' assets. Other Bad
Toys stockholders would likely receive nothing in such a
bankruptcy reorganization case.
o Bad Toys has received no offers for the sale of its custom
motorcycle business. It has never sold a motorcycle.
o Essentially, the business, management and control of the company
are to be changed. Because of the issuance by Bad Toys of 40
million shares of Common Stock to the Mycom.com shareholders in
exchange for all the capital stock of Mycom.com, the existing
stockholders of Bad Toys will experience an 83 percent dilution
in their share ownership of Bad Toys. However, they will realize
an increase in the book value of their shares from $(0.02) to
$0.02. Also, they will own shares in a growing company that
historically, in most years, has realized net income from its
operations, which should improve the market liquidity of Bad Toys
Common Stock.
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PROPOSALS TO BE CONSIDERED AT THE SPECIAL MEETING
AGREEMENT OF MERGER PROPOSAL. The Board of Directors of the Company (the
"Bad Toys Board") has unanimously approved, and recommends that the Company's
stockholders vote in favor of, the approval of an Agreement of Merger dated as
of March 31, 2000 (the "Agreement of Merger") between the Company and Myca
Group, Inc., now named "Mycom.com, Inc." ("Mycom.com"), an Ohio corporation with
its principal offices in Cincinnati, Ohio; pursuant to which, among other
things, $800,000 in cash will be paid and 40 million shares of the Company's
common stock, par value $0.01 per share (the "Common Stock"), will be issued to
the Mycom.com shareholders in exchange for all the issued and outstanding shares
of capital stock of Mycom.com. For a more complete description of the terms of
the Agreement of Merger, see "Proposal 1 - The Agreement of Merger Proposal."
STOCK ISSUANCE PROPOSAL. The Bad Toys Board has unanimously approved,
and recommends to the Company's stockholders, the approval of a proposal to
authorize the issuance of 40 million shares of Common Stock pursuant to the
Agreement of Merger (the "Stock Issuance Proposal"). For a more complete
description of the terms of the Stock Issuance Proposal, see "Proposal 2 - The
Stock Issuance Proposal."
AUTHORIZED COMMON STOCK PROPOSAL. The Bad Toys Board has unanimously
approved, and recommends to the Company's stockholders, the adoption of an
amendment to the Company's Articles of Incorporation (the "Articles of
Incorporation") to increase the number of shares of Common Stock that the
Company is authorized to issue from 10 million to 90 million (the "Authorized
Common Stock Proposal"). For a more complete description of the terms of the
Authorized Common Stock Proposal, see "Proposal 3 - The Authorized Common Stock
Proposal."
AUTHORIZED PREFERRED STOCK PROPOSAL. The Bad Toys Board has unanimously
approved, and recommends to the Company's stockholders, the adoption of an
amendment to the Company's Articles of Incorporation to authorize the issuance
of 10 million shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock") (the "Authorized Preferred Stock Proposal"). For a more
complete
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description of the terms of the Authorized Preferred Stock Proposal, see
"Proposal 4 - The Authorized Preferred Stock Proposal."
NAME CHANGE PROPOSAL. The Bad Toys Board has unanimously approved, and
recommends to the Company's stockholders, the adoption of an amendment to the
Company's Articles of Incorporation to change the name of the Company from "Bad
Toys, Inc." to "Mycom.com, Inc." For a more complete description of the terms of
the Name Change Proposal, see "Proposal 5 - The Name Change Proposal."
SALE OF ASSETS PROPOSAL. The Bad Toys Board has unanimously approved,
and recommends to the Company's stockholders, the approval by the stockholders
of the proposal - which is part of the Agreement of Merger Proposal - that the
Company sell to the Lunans the Company's custom motorcycle manufacturing
business, all the Company's assets that are associated with such business, and
$300,000 in cash, such sale to be in exchange for the Lunans' cancellation of
$654,212 in debt owed to them by the Company and their assumption of the
obligation to pay all other outstanding debt of the Company, estimated to be
$182,186. For a more complete description of the terms of the Sale of Assets
Proposal, see "Proposal 6 - The Sale of Assets Proposal."
BYLAW AMENDMENT PROPOSAL. The Bad Toys Board has unanimously approved,
and recommends to the Company's stockholders, the adoption of an amendment to
the Company's Bylaws to provide that the Bad Toys Board be comprised of no less
than four and no more than nine members as may be determined from time to time
by either the stockholders or a majority of the directors (the "Bylaw Amendment
Proposal"). For a more complete description of the terms of the Bylaw Amendment
Proposal, see "Proposal 7 - The Bylaw Amendment Proposal."
The Agreement of Merger Proposal, the Stock Issuance Proposal, the
Authorized Common Stock Proposal, the Authorized Preferred Stock Proposal, the
Name Change Proposal, the Sale of Assets Proposal and the Bylaw Amendment
Proposal are referred to collectively herein as the "Transaction Proposals." The
Agreement of Merger provides that approval of each of the Transaction Proposals
is required as a condition to the consummation of the transactions contemplated
by the Agreement of Merger. In the event that each of the Transaction
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Proposals is not approved, all of the Transaction Proposals will be withdrawn
from consideration at the Special Meeting.
VOTING
Each valid proxy given pursuant to this solicitation and received in
time for the Special Meeting will be voted with respect to all shares
represented by it in accordance with the instructions, if any, given in the
proxy. If instructions are not given in the proxy, it will be voted FOR each of
the Transaction Proposals. In the event any other matter properly comes before
the Special Meeting, the shares of Common Stock represented by any valid proxy
will be voted in accordance with the best judgment of the persons named therein
as proxies on such matter. The submission of a signed proxy will not affect a
stockholder's right to attend, and to vote in person at, the Special Meeting.
Stockholders who execute a proxy may revoke it at any time before it is voted by
filing a written revocation with the Secretary of the Company, executing a proxy
bearing a later date, or attending and voting in person at the Special Meeting.
Only stockholders of record as of the close of business on April 26,
2000 (the "Record Date") will be entitled to notice of, and to vote at, the
Special Meeting. As of the close of business on the Record Date, there were
7,827,006 shares of the Company's Common Stock outstanding and entitled to vote.
Each share of Common Stock is entitled to one vote on all matters presented for
stockholder vote.
According to the Bylaws, the holders of a majority of shares of Common
Stock issued and outstanding and entitled to vote must be present in person or
be represented by proxy to constitute a quorum and to act upon proposed
business. Failure to obtain a quorum at the Special Meeting will necessitate an
adjournment during which time additional votes will be solicited and such a
solicitation will subject the Company to additional expense. When a quorum is
present at the Special Meeting, the Bylaws provide that the affirmative vote of
a majority of the shares of Common Stock present in person or represented by
proxy and entitled to vote shall decide any question brought before a meeting of
stockholders, unless a different vote is required by statute, the Articles of
Incorporation or the Bylaws.
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Approval of the Agreement of Merger, the Stock Issuance Proposal, the
Sale of Assets Proposal, and the Bylaws Amendment Proposal will require the
affirmative vote of the holders of a majority of the shares of Company Common
Stock represented in person or by proxy and entitled to vote at the Special
Meeting. Approval of the Authorized Common Stock Proposal, the Authorized
Preferred Stock Proposal, and the Name Change Proposal will require the
affirmative vote of the holders of a majority of the issued and outstanding
shares of the Company's Common Stock. Abstentions are deemed to be present and
entitled to vote and, therefore, are counted for purposes of determining the
presence or absence of a quorum with respect to any proposal presented for
consideration at the Special Meeting; consequently, an abstention will have the
effect of a vote against each proposal to which the abstention relates.
Unlike abstentions, broker non-votes, by their terms, do not have the
authority to be voted on the proposal to which the broker non-vote relates. As a
result, broker non-votes are excluded from the calculation of the quorum
regarding the proposal to which the broker non-vote relates and, therefore, will
have no effect on the outcome of the voting on the Agreement of Merger Proposal,
the Stock Issuance Proposal, the Sale of Assets Proposal, and the Bylaw
Amendment Proposal since such proposals must be approved by the affirmative vote
of a majority of the shares of Common Stock represented at the Special Meeting
and entitled to vote on such proposals. Conversely, since the Authorized Common
Stock Proposal, the Authorized Preferred Stock Proposal, and the Name Change
Proposal must be approved by a majority of the issued and outstanding shares of
the Company Common Stock, broker non-votes will have the effect of a vote
against such proposals.
The expense of solicitation of proxies will be borne by the Company.
Following the original mailing of the proxy material, solicitation of proxies
may be made by mail, telephone, telegraph, courier service or personal interview
by certain of the regular employees of the Company who will receive no
additional compensation for their services. In addition, the Company will
reimburse brokers and other nominees for reasonable expenses incurred in
forwarding soliciting material to beneficial owners.
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RIGHTS OF DISSENTING STOCKHOLDERS
Bad Toys Stockholders
- ---------------------
Stockholders of Bad Toys who do not vote for or consent in writing to
the proposed merger, and who continuously hold their shares through the
effective date of the merger (should it be effected), are entitled to exercise
dissenters' rights of appraisal. Generally, any stockholder of Bad Toys is
entitled to dissent from consummation of the plan of merger and to obtain
payment of the fair value of his shares should the merger be consummated. The
notice of the special meeting of stockholders of Bad Toys, at which the vote
shall be taken whether to approve the proposed merger, must state that all
stockholders are entitled to assert dissenters' rights. The notice must be
accompanied by a copy of the relevant portions of Nevada corporation law for the
stockholders, describing dissenters' rights, the procedure for exercise of
dissenters' rights, and the procedure for judicial appraisal of the value of the
shares of common stock of Bad Toys, should a dissenter and his or her
corporation not agree on the value of such shares.
"Fair value," with respect to a dissenter's shares, means the value of
the shares "immediately before the effectuation of the corporate action to which
he objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable." Bad Toys interprets
this statutory definition of "fair value" to mean the $0.25 closing bid price of
Bad Toys' common stock on March 20, 2000, the day before Bad Toys first
announced to the public that it had signed a letter of intent to merge with
Mycom.com, Inc.
THE STEPS TO EFFECT A DISSENT ARE SET FORTH IN THE RELEVANT STATUTES OF
NEVADA THAT ARE IN THE SAME ENVELOPE AS THIS PROXY STATEMENT. THE STEPS MUST BE
FOLLOWED PRECISELY AS PROVIDED BY THE STATUTE. THE STEPS REQUIRE AFFIRMATIVE
ACTION TO BE TAKEN BY THE DISSENTER WITHIN SPECIFIC PERIODS OF TIME. A FAILURE
TO FULLY COMPLY WITH THE STATUTORY REQUIREMENTS WILL RESULT IN A LOSS OF THE
RIGHT TO OBTAIN PAYMENT FOR A DISSENTER'S SHARES.
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The Agreement of Merger provides that, if holders of more than 39,135
shares of Bad Toys' common stock exercise their dissenters' rights, the merger
could be terminated.
Mycom.com Stockholders
- ----------------------
The four stockholders of Mycom.com have advised Bad Toys that they will
not exercise the dissenters' rights provided by Ohio law and that they will vote
to approve the merger.
TRANSACTION PROPOSALS
PROPOSAL I
AGREEMENT OF MERGER
PRINCIPAL PARTIES TO THE TRANSACTION
The principal parties to the transaction described below are:
The acquiring company:
Bad Toys, Inc.
2344 Woodridge Avenue
Kingsport, TN 37664
Telephone: 423-247-9560
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The company to be acquired:
Mycom.com, Inc.
602 Main Street
Cincinnati, OH 45202
Telephone: 513-352-5560
The persons to whom control of Bad Toys shall pass:
George W. Young
Cincinnati, Ohio
Joan Carroll
Cincinnati, Ohio
Patti Massey
Cincinnati, Ohio
G. Allan Massey
Cincinnati, Ohio
The persons who shall purchase Bad Toys' custom motorcycle business:
Larry and Susan Lunan
2344 Woodridge Avenue
Kingsport, TN 37664
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BACKGROUND OF THE TRANSACTION
During the period from late 1999 until the Agreement of Merger was
signed in March 2000, Bad Toys' management and Board of Directors have been
involved in discussions that culminated in a proposal for the Company to do the
following:
o Sell 83-percent control of the Company, through its issuance to
the four shareholders of Mycom.com, Inc. of shares of the
Company's Common Stock and $800,000 in cash, in exchange for all
the capital stock of Mycom.com, Inc. Mycom.com is a Cincinnati,
Ohio-based private company that is a provider of information
technology ("IT") solutions and consulting services related to E-
commerce and Web applications and a supplier and developer of
products for use by companies engaged in E-business-to-business
commerce.
o Sell to the Lunans the Company's custom motorcycle manufacturing
business, including $300,000 in cash and all assets associated
with such business, in exchange for (1) the Lunans' assuming the
obligation to pay all debt of the Company to third persons and
(2) the cancellation of all debt of the Company to the Lunans.
The above proposal would effectively cause the Company to abandon its efforts
with regard to the custom motorcycle business. The new business of the Company
would be the business of Mycom.com.
REASONS FOR ENGAGING IN THE TRANSACTION
Bad Toys' Board considered the facts that the Company has never had a
profitable quarter - indeed, has never sold a motorcycle, is in debt and unable
to identify the source of any new capital, and possibly faces liquidation or
receivership in the Year 2000.
Bad Toys Board also considered the impressive growth of Mycom.com.
Mycom.com has grown from five employees in 1991 to 58 employees on March 31,
2000. Its assets at December 31, 1999 were
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$975,419, against liabilities of $162,101. It had retained earnings of $323,414
on December 31, 1999 and sales for the twelve-month period ended December 31,
1999 of $5,317,805 with net loss of $(69,868) for this twelve-month period.
Bad Toys Board also considered the impressive customer list of
Mycom.com:
o Procter & Gamble
o General Electric
o AT&T
o Ohio Lottery Commission
o Miami University, Oxford, Ohio
o Gulfstream Aerospace
o CompuCom
o Maryland Communications Center
Bad Toys also considered the fact that by taking Mycom.com "public"
through a "reverse business combination" with a public company, such as Bad
Toys, Bad Toys would be enabling Mycom.com to offer the type of compensation -
stock options, in particular - to its employees that persons skilled in computer
software applications and the mechanics of the Internet are increasingly
demanding and getting. Based on these and other considerations, the Board
unanimously approved, and recommends that the stockholders approve, the
Transaction Proposals.
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AGREEMENT OF MERGER
GENERAL
The Agreement of Merger which Bad Toys and Myca Group, Inc., now known
as Mycom.com, Inc., entered into contemplates two transactions:
The Bad Toys-Mycom.com Merger Transaction. Bad Toys and Mycom.com shall
-----------------------------------------
merge on the following basis:
o Bad Toys shall be the surviving corporation;
o Bad Toys shall transfer $800,000 in cash and 40 million shares
of Bad Toys' common stock to the shareholders of Mycom.com, pro
rata, in exchange for all the capital stock of Mycom.com;
o The officers and directors of Mycom.com at the time of the
merger shall become the officers and directors of Bad
Toys;
o Bad Toys shall increase its authorized capital from 10 million
shares of Common Stock, $0.01 par value, to 90 million shares of
Common Stock, $0.01 par value, and 10 million shares of Preferred
Stock, $0.01 par value;
o Bad Toys, prior to the closing of the terms of the merger, shall
attempt to raise at least $2 million for the Company, from which
amount the $800,000 cash obligation of the merger would be paid,
$300,000 would be paid to the Lunans, and $900,000 would be
retained by the Company for product and service development; and
o Bad Toys will change its name to MyCom.com, Inc.
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The Lunans-Bad Toys transaction. Bad Toys shall sell to the Lunans its
--------------------------------
motorcycle business, all assets of the Company associated with such business,
and $300,000 in cash in exchange for the Lunans' paying all debts and
liabilities of the Company owed to third persons ($190,326 as of March 31,
2000), cancelling all debt of the Company owed to them ($506,072 as of March 31,
2000) and surrendering for cancellation options to purchase 1,000,000 shares of
common stock of Bad Toys at an average exercise price of $0.50. This transaction
shall be effected as follows, should the Bad Toys shareholders approve the
Agreement of Merger Proposal:
o Bad Toys shall incorporate a new corporation ("Bad Toys Sub").
o Susan Lunan shall resign as a director of Bad Toys.
o Bad Toys shall then transfer to Bad Toys Sub all its assets
comprising the custom motorcycle manufacturing business, which
assets have a book value of approximately $365,524, plus $300,000
in exchange for all the capital stock of Bad Toys Sub. Bad Toys
Sub and the Lunans shall assume the obligation to pay, and shall
pay, any unpaid debts of Bad Toys other than the liabilities of
Bad Toys to the Lunans.
o Larry Lunan, the sole remaining director of Bad Toys, shall elect
a designee of the Mycom.com shareholders to fill the vacancy on
the Bad Toys Board created by the resignation of Susan Lunan.
Larry Lunan shall then resign as an officer and a director of Bad
Toys.
o The Bad Toys Board shall then elect the Lunans to be the
directors of Bad Toys Sub.
o The Bad Toys Board shall then authorize the sale to the Lunans of
all the capital stock of Bad Toys Sub, which, after Bad Toys
Sub's paying approximately $190,326 in debt owed to persons other
than the Lunans from the $300,000 transferred to Bad Toys Sub,
would have a book value of approximately $475,198, in exchange
for the Lunans'
17
<PAGE>
cancellation of all debt owed to them by Bad Toys, which debt is
approximately $506,072, and the surrender to Bad Toys for
cancellation stock options to purchase 1,000,000 shares of common
stock of Bad Toys at an average exercise price of $0.50.
NET EFFECT OF THE AGREEMENT OF MERGER PROPOSAL
The net effect of the consummation of the Agreement of Merger Proposal
would be as follows:
o The current custom motorcycle manufacturing business of the
Company will have been transferred to a corporation wholly owned
by the Lunans.
o The new business of the Company will be the business currently
conducted by Mycom.com.
o The Company will be under the control of the current shareholders
of Mycom.com. The Lunans' ownership of the Company's Common Stock
will have been reduced from approximately 67.4 percent to
approximately 2.2 percent.
o The Company's approximately $190,326 in liabilities owed to
creditors other than the Lunans will have been paid from the
$300,000 cash acquired by Bad Toys Sub. The Company's
approximately $506,072 debt to the Lunans will have been
cancelled. Bad Toys will have no liabilities.
o The Company's senior management will be Carroll, Young, Patti
Massey, and G. Allan Massey of Mycom.com.
o The historical financial statements of the Company will be those
of Mycom.com, not Bad Toys. The transaction will be accounted for
as a recapitalization of Mycom.com.
18
<PAGE>
o For Federal income tax purposes, the Bad Toys-Mycom.com Merger
Transaction will be tax-free to the four shareholders of
Mycom.com except for the $800,000 in cash received by them, which
shall be a taxable realization of capital gain, pursuant to the
Provisions of Section 368(a)(1)(A) of the Internal Revenue Code.
There will be no income tax consequences to the stockholders of
Bad Toys. Bad Toys will realize ordinary income to the extent
that the Lunans cancel debt of Bad Toys owed to them and assume
the obligation to personally pay other debt of Bad Toys and do
pay such debt.
o There are no material differences in the rights of Bad Toys
stockholders as a result of the transaction.
o Bad Toys would be renamed "Mycom.com, Inc."
THE DESCRIPTION OF THE AGREEMENT OF MERGER CONTAINED IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE AGREEMENT OF MERGER,
A COPY OF WHICH IS INCLUDED AS ANNEX IV TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN IN ITS ENTIRETY BY THIS REFERENCE.
CONDITIONS TO THE CONSUMMATION OF THE AGREEMENT OF MERGER
CONDITIONS TO THE CLOSING BY THE COMPANY. The obligation of the Company
to consummate the transactions contemplated by the Agreement of Merger is
subject to the satisfaction, or waiver by the Company, of certain conditions
including the following:
(i) The representations and warranties made by Mycom.com under the
Agreement of Merger must be true and correct as of the date of
the Agreement of Merger and as of the Closing Date with the same
force and effect as if they had been made on the Closing Date;
and
(ii) All covenants, agreements and conditions contained in the
Agreement of Merger must be performed or complied with by
19
<PAGE>
Mycom.com on or prior to the Closing Date in all material
respects; and
(iii) The Company must have obtained stockholder approval of the
Transaction Proposals at the Special Meeting of its stockholders
called to vote on the Transaction Proposals.
At such meeting the Lunans, who own approximately 67.4 percent of the
outstanding voting stock of Bad Toys, will vote their shares in accordance with
the majority vote of the other Bad Toys stockholders on all Transaction
Proposals.
CONDITIONS TO THE CLOSING BY Mycom.com. The obligation of Mycom.com to
consummate the transactions contemplated by the Agreement of Merger is subject
to the satisfaction, or waiver by Mycom.com, of certain conditions including the
following:
(i) The representations and warranties made by Bay Toys under the
Agreement of Merger must be true and correct as of the date of
the Agreement of Merger and as of the Closing Date with the same
force and effect as if they had been made on the Closing Date;
and
(ii) All covenants, agreements and conditions contained in the
Agreement of Merger must be performed or complied with by Bad
Toys on or prior to the Closing Date in all material respects;
(iii) Prior to the Closing, Bad Toys shall not have suffered any
material adverse change;
(iv) Bad Toys shall have raised at least the $2 million required for
the $800,000 cash obligation of the merger, the $300,000 to be
paid to the Lunans and the $900,000 to be retained by the company
for product and service development; and
20
<PAGE>
(v) The holders of not more than 39,135 shares of Bad Toys' Common
Stock shall have exercised their rights as dissenting
shareholders.
REPRESENTATIONS AND COVENANTS OF THE PARTIES
COMPANY REPRESENTATIONS AND COVENANTS. Under the terms of the Agreement
of Merger, the Company has made numerous representations and agreed to abide by
several affirmative covenants, among which are the following:
(i) The financial statements of Bad Toys, attached as Exhibit 10(f)
to the Agreement of Merger, present fairly the financial
condition and results of operations of Bad Toys in accordance
with generally accepted accounting practices;
(ii) All material liabilities of Bad Toys, contingent or matured, are
revealed either in the financial statements or in Exhibit 10(i)
attached to the Agreement of Merger.
(iii) Bad Toys has filed, or will file prior to the Closing, all tax
returns required to be filed by any taxing authority and has paid
or accrued all taxes required to be paid; and
(iv) Bad Toys has not made any material misstatements of fact or
omitted to state any material fact necessary or desirable to make
complete, accurate and not misleading every representation set
forth in the Agreement of Merger.
MYCOM.COM REPRESENTATIONS AND COVENANTS. Under the terms of the
Agreement of Merger, Mycom.com has made numerous representations and agreed to
abide by several affirmative covenants, among which are the following:
(i) The financial statements of Mycom.com, attached as Exhibit 11(g)
to the Agreement of Merger, present fairly the financial
condition and results of operations of
21
<PAGE>
Mycom.com in accordance with generally accepted accounting
practices;
(ii) All material liabilities of Mycom.com, contingent or matured, are
revealed either in the financial statements or in Exhibit 11(i)
attached to the Agreement of Merger.
(iii) Mycom.com has filed, or will file prior to the Closing, all tax
returns required to be filed by any taxing authority and has paid
or accrued all taxes required to be paid; and
(iv) Mycom.com has not made any material misstatements of fact or
omitted to state any material fact necessary or desirable to make
complete, accurate and not misleading every representation set
forth in the Agreement of Merger.
APPROVALS AND CONSENTS
Other than the approval of the Bad Toys stockholders of the Transaction
Proposals, the transactions contemplated by the Agreement of Merger do not
require the approval or consent of third parties, including governmental
entities, in order for the parties to perform their obligations under the
Agreement of Merger. The Company is of the opinion that no consents are
required.
OTHER REPRESENTATIONS AND WARRANTIES
The Agreement of Merger contains customary representations and
warranties of the Company and of the Mycom.com relating to, among other things,
(i) organization, good standing, qualification to do business and other
corporate matters; (ii) the authorization, execution, delivery and
enforceability of the Agreement of Merger; (iii) the status of the shares of
Common Stock of the Company and of Mycom.com to be delivered; (iv) the status of
certain financial statements referenced in the Agreement of Merger; (v) the
absence of certain changes or events since the date of the balance sheet
referenced in the Agreement of Merger; (vi) the status of the Company's
contracts and commitments; (vii) the absence of certain
22
<PAGE>
litigation; (viii) the employees and employee benefit programs of the Company;
(ix) required consents and approvals; (x) compliance with laws; (xi) the title
of the Company and of Mycom.com to its property and assets; (xii) tax matters;
and (xiii) related party transactions, including indebtedness to officers and
directors.
OTHER TRANSACTIONS AMONG THE PARTIES
Other than as set forth in the Agreement of Merger, there are no past,
present or proposed material contracts, arrangements, undertakings,
relationships, negotiations or transactions between or among the parties to the
Agreement of Merger.
CHANGE OF CONTROL
The 40 million shares of Common Stock to be sold pursuant to the
Agreement of Merger represent, in the aggregate, a greater number of shares of
Common Stock than the number of shares of Common Stock currently issued and
outstanding (approximately 7,827,006 as of the date of this Proxy Statement). As
a result, following the consummation of the transactions contemplated by the
Agreement of Merger, the number of shares that will be controlled by the present
four shareholders of Mycom.com will enable them, acting in concert, to
effectively control the outcome of any matter presented to the stockholders,
including the election of all of the members of the Bad Toys Board.
TRADING PRICE OF BAD TOYS COMMON STOCK
On March 20, 2000, the last trading day preceding public announcement of
the proposed transaction described herein, the high and the low sale prices for
the Bad Toys Common Stock were as follows:
High Low
---- ---
$3.625 $2.125
23
<PAGE>
Bad Toys Common Stock trades on the OTC Bulletin Board under the stock symbol
"BDTY.OB".
INFORMATION WITH RESPECT TO BAD TOYS
Business Development
Bad Toys, Inc. (the "Company") was incorporated on April 21, 1995 in the
State of Nevada. Our initial operations were conducted in southern California
but were moved to Kingsport, Tennessee in 1996. We first had revenues from
operations in March, 1998.
Business of the Company
The Company
o manufactures for sale Harley-Davidson-type motorcycles from
component parts,
o maintains a customizing and motorcycle servicing operation,
o special orders premium accessories, parts, customizing items and
apparel related to Harley-Davidson motorcycles, and
o proposes to rebuild used Harleys for resale.
The Manufacture for Sale of Motorcycles from Component Parts.
------------------------------------------------------------
We devoted the majority of our efforts from the Company's inception in
April 1995 until early 1999 to the design and development of a distinctive
Harley-Davidson-type motorcycle. The motorcycle is named the "Phoenix" model. We
build it from component
24
<PAGE>
parts available from motorcycle parts suppliers. We have three "Phoenix" models
on hand for display and for selling purposes.
In motorcycle circles, the Phoenix is known as a custommanufactured,
V-Twin, HD-type motorcycle. It is said to be a "V- Twin," because it has a
two-cylinder, four-stroke motorcycle engine with the cylinders set at a
45-degree angle to each other. It is said to be an "HD-type" because of its
resemblance to the motorcycles manufactured by Harley-Davidson. It is custom
manufactured, because Bad Toys, Inc. will build many features of it to a
customer's order.
The "Phoenix" was first shown to the public on our Internet home page -
www.badtoysinc.com - in early 1999. In April 1999 we showed the "Phoenix" to
motorcycle dealers and enthusiasts at a motorcycle show in Laughlin, Nevada.
We offer to manufacture, to customers' orders, V-Twin, HD-type
motorcycles from component parts in five basic styles:
o Traditional-classic, the full fenders model Harley-Davidson made
famous,
o Pro Street, a lowered frame with wide tires, short fender and a
low back fender,
o Outlaw Low Riders, with narrow forks and stubby fenders,
o Tour Glide package, with foot rests rather than foot pegs,
saddlebags with windshield option, and
o Street Custom conversion, with wide tires and short fenders.
We are quite able and equipped to build custom-manufactured motorcycles
in our shop in Kingsport, Tennessee. The frames and
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most of the parts are in inventory to build four motorcycles. We will require
up-front, partial payments from customers to finance our purchase of custom
parts not in inventory.
Our choice of sparsely populated Kingsport, Tennessee for our first
location was beneficial only in providing us a two-year, low-overhead
environment for completing the design and development of the Phoenix motorcycle.
We face the material risk that, unless we can open a second location in a major
metropolitan area, our product will be too highly priced for the majority of
motorcycle buyers in the area where we now operate.
The Customizing and Motorcycle Servicing Operation.
--------------------------------------------------
Most motorcycle owners "customize" their bikes to a certain extent. We
cater to this market by stocking bolt-on upgrades such as billet grips, foot
pegs, mirrors, chrome bolts and "custom" seats. We provide immediate
installation of the bolt-on conversions.
We commenced servicing motorcycles in 1998. As soon as this facet of our
business should increase, we will attempt to revolutionize the motorcycle
service business by providing a quick turnaround in an industry known for its
"leave it today, pick it up next month" approach to motorcycle repair. Subject
to the availability of repair business, we will operate our service department
seven days a week, twenty-four hours a day.
Special Orders of Premium Accessories, Parts, Customizing Items and
------------------------------------------------------------------------
Apparel Related to Harley-Davidson Motorcycles.
- ----------------------------------------------
We commenced taking special orders in 1998.
The fixed displays in our showroom premiere the high markup, bolt-on,
premium custom items in bullet aluminum or chrome. The product lines we maintain
as an authorized dealer include Pro One, Bay Area Custom, Arlen Ness and
Performance Machine, and others.
26
<PAGE>
We believe we have the only customer self-service station that includes
all available catalogs and parts books. We plan to soon add a user-friendly
computer terminal and screen through which our customers can easily locate a
desired part and print a purchase order.
Rebuilding Used Harleys for Resale.
----------------------------------
We have not yet commenced this part of our business plan - the purchase
of used motorcycles and rebuilding them for resale. Subject to the availability
of funds - the source of which we are not aware - we propose to acquire and
recondition used Harley- Davidson motorcycles for resale. All resale bikes would
be placed into a like-new condition. This would include
o new tires, paint and chrome,
o polished aluminum and,
o excellent running condition.
We expect this activity will commence in 2000. It will require a
constant advertising campaign for used motorcycles conducted in trade magazines
and in high-circulation magazines for Harley- Davidson riders. We do not now
have funds available to allocate to the purchase of used bikes; the opening of a
second shop and store in a major city such as Phoenix, Arizona is our primary
focus and is more critical to our business turning profitable than buying used
bikes and reconditioning them for resale.
The reconditioning of used bikes is financially consistent, however,
with our desire to provide around-the-clock repair service. Mechanics not
repairing customers' motorcycles on same-day service can be reconditioning used
motorcycles on no time schedule - and still be available for the drop-in
customer with a repair job to be done.
27
<PAGE>
Distribution Methods
--------------------
We have commenced marketing our custom manufactured, V-Twin, HD-type
motorcycles on a national basis. Our Phoenix bikes are featured now on our
Internet home page (badtoysinc.com). We presently sell premium accessories,
parts, customizing items and apparel through our Kingsport, Tennessee, retail
outlet. Our Phoenix-model motorcycle is now featured in the Atlas Pro Magnum
catalog.
Advertising. We propose to develop an advertising program consisting of:
-----------
1. Newsletters: monthly or quarterly
2. Direct mail - motorcycle listings
3. Cycle magazines
4. Nontraditional magazines 5. Internet home page
The newsletter will highlight new product introductions, repair or
maintenance subjects, after-market product evaluations, local and major national
events and periodic Company-advertised specials.
Direct mail advertising will initially consist of an annual mailing of a
high-quality brochure. The brochure will market our custom-built motorcycle
program, our mail order catalog program and the availability of refurbished or
new motorcycles for sale. By specific request we will add an addressee to our
newsletter mailing list.
Subject to the availability of funds, our monthly advertising program
will be advertisements in high-circulation magazines for Harley-Davidson riders,
magazines such as American Iron, Hot Bike, etc. We plan one-half to full-page,
two-color ads for custom manufacture and catalog sales.
28
<PAGE>
Subject to the availability of funds, Bad Toys plans to commence a
non-traditional advertising program in magazines such as Newsweek, Time, Sports
Illustrated, and the New Yorker. The demographics for Harley-Davidson riders now
span every social economic group from truck drivers to company presidents,
doctors, lawyers and accountants. Upper-middle class to the wealthy now comprise
the largest group of Harley riders.
The Internet home page is already a reality.
Competition
-----------
Licensed Harley-Davidson dealerships generally offer for sale only new,
manufactured HD motorcycles. Dealerships generally do not maintain significant
inventories of used or custom-built motorcycles for resale to the riding public.
Individuals account for the majority of used motorcycle sales with the remainder
being provided by small, under-capitalized, sole-proprietor motorcycle shops.
Titan has commenced to use some of these shops as a distribution network for its
motorcycles, but Titan does not compete at Harley- Davidson prices.
The provision of special construction, custom-built motorcycles, HD
type, as we propose to do, is an emerging market. Arlen Ness, Ultra, CMC and
Titan earlier entered this market, have name recognition and dominate this
market today. This market segment has long been treated as an ancillary business
and not as a primary focus. There are currently few companies that are
manufacturing custom-built motorcycles for inventory for sale. Bad Toys proposes
to maintain a ten to fifteen, custom-built-motorcycle inventory at each location
in addition to our ground-up, custom- built, customer-selected program.
Repair service is the most neglected segment in the motorcycle business.
Dealers provide the most significant competition in this arena, as they are
adequately capitalized, maintain a significant number of service bays, and have
large inventories of parts. Dealerships typically have the negative attributes
of limited hours for access - 8 am to 5 pm, closed Sundays - and no concept of
quick service turnaround. In essence, the traditional queuing system is the
foundation for all repair service; i.e., if the customer needs a
29
<PAGE>
three-hour seal replacement, he can leave the bike for a month. Small shops
exhibit the same characteristics as the large dealerships, but service
turnaround is further exaggerated by limited inventories and no capital. In many
instances the small shop has to collect the money from the customer in advance
to purchase the necessary replacement parts; this, of course, extends the
service turnaround time.
Supplies
--------
We obtain our supplies from after-market Harley-Davidson suppliers and
other manufacturers of motorcycle parts, such as Pro One, Bay Area Custom, J.
Brake, Arlen Ness and Performance Machine. These supplies are readily available.
Although we are authorized dealers of all the above-named suppliers and many
others, we are still required to pay cash for most large motorcycle parts.
Dependence on Major Customers
-----------------------------
We are not dependent on any major customers.
Patents, Trademarks and Licenses
--------------------------------
We have filed applications in the U.S. to register "Bad Toys,"
"Phoenix," and BT(and)Design as trademarks and service marks. We are not a
licensed Harley-Davidson dealer, as we do not sell new Harley-Davidson
motorcycles.
Government Approval and Regulations
-----------------------------------
We need no U.S. Department of Transportation approval to build special
construction motorcycles that are custom-made to a customer's order, to rebuild
motorcycles or to assemble a motorcycle from component parts that are available
in the open market. Our business is subject to no government regulations other
than those of OSHA, regulating safety in the workplace, and those of EPA,
regulating the disposal of oil, grease, tires, batteries and the prevention of
pollution. We are able to comply with OSHA and EPA
30
<PAGE>
regulations without onerous financial or other burdens. All motorcycles are
built by hand, rather than in a moving assembly line. Safety goggles are used
when required, and fire extinguishers are readily available. We dispose of
pollutants by periodically taking them to authorized disposal sites.
Year 2000 Computer Problems.
---------------------------
We have determined that we do not face material costs, problems or
uncertainties about the year 2000 computer problem. This problem affects many
companies and organizations and stems from the fact that many existing computer
programs use only two digits to identify a year in the date field and do not
consider the impact of the year 2000. We are newly organized, presently use
off-the-shelf and easily replaceable software programs, and have yet to devise
our own software programs.
We have been advised by our parts suppliers that they are Year 2000
compliant. Should they not be and should difficulties arise in ordering parts
from suppliers, we should still be able to obtain all needed parts from other,
larger motorcycle dealers who would have the parts in inventory.
Research and Development
------------------------
We have expended no funds during the last two years on research and
development.
Cost of Compliance with Environmental Laws
------------------------------------------
The expense of complying with environmental regulations is of minimal
consequence. The compliance consists of the proper disposal of oil, tires and
batteries. We put all used oil in 55-gallon drums and transport them by truck to
a Johnson City, Tennessee firm that cleans the oil for reuse. We take used tires
to a nearby landfill. Old batteries are disposed of by the suppliers of new
batteries. We are in compliance with all environmental laws and regulations.
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<PAGE>
Employees
---------
We employ five persons, four persons full time and one person part time.
PROPERTIES
The Company leases a retail and manufacturing operation at a single
facility in a specially designed 3,000-square-foot retail and service building.
The retail facility is at 2046 West Stone Drive, Kingsport, Tennessee 37660.
The facility is in a high traffic area with approximately 15,000
vehicles passing by a day. The facility is easily accessible by freeway and
should draw customers from a 150-mile radius with a population of 3,000,000
people. The property has ample parking and an outside area for weekend events
and motorcycle display.
The forward area of the showroom is for the display of company
custom-built and rebuilt Harleys for sale.
The facility showroom, when stocked with inventory, will emphasize
permanently affixed displays of products with secured inventory storage
compartments. This should provide an efficient use of display space, increased
security, efficient showroom stocking maintenance and enhanced inventory
control.
The showroom will be organized to allow for variation in location of
displays to accommodate customer traffic flow within the store and to heighten
interest.
The warehouse area of the facility has adequate space to stock and store
quantities of all items on display in the showroom in addition to numerous other
mechanical parts and items not displayed which are in daily demand.
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<PAGE>
The service and assembly area is large enough to house a staff of
mechanics and service personnel and is capable of accommodating the custom
building and rebuilding of motorcycles.
The lease on the facility expires in September 2002.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Bad Toys' Common Stock is quoted on the OTC Bulletin Board under the
stock symbol "BDTY." It was first quoted on the OTC Bulletin Board and trading
commenced in the second quarter of our 1999 fiscal year. The following sets
forth our Common Stock's range of high and low bid information on the Bulletin
Board for each quarter the stock has traded. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions:
High Low
---- ---
2nd Qtr, 1999 (no inside quotes reported)
3rd Qtr, 1999 0.75 0.125
4th Qtr, 1999 0.375 0.625
1st Qtr, 2000 3.625 0.21875
On March 31, 2000 there were 7,827,006 shares of Common Stock
outstanding. An additional 1,000,000 shares of Common Stock are subject to
outstanding options to purchase such shares of stock. Such options are held by
the Lunans but will be surrendered to the Company should the Transactions
described herein be approved by the Bad Toys Stockholders.
Holders
As of March 31, 2000 there were approximately 73 holders of record of
our Common Stock.
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Dividends
We have paid no dividends to our stockholders and do not plan to pay
dividends on our Common Stock in the foreseeable future. We currently intend to
retain any earnings to finance future growth.
LEGAL PROCEEDINGS
Neither the Company nor our property is a party to any pending legal
proceeding or any known proceeding that a governmental authority is
contemplating.
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.
Overview
We commenced commercial activity in March 1998 in a small retail shop in
Kingsport, Tennessee. The facility was used both for retail sales and for the
design and construction of a prototype of a motorcycle to be sold nationally. We
had limited resources, and our activity was funded by our friends. We also sold
$85,500 worth of our common stock in a non-registered public offering. Our stock
began to trade on the OTC Bulletin Board. In 1999 we registered our common stock
with the Securities and Exchange Commission pursuant to the 1934 Securities
Exchange Act. Shortly after the commencement of trading in our stock, our
private source of funding withdrew a funding commitment, which materially
affected our ability to market our motorcycle models and to expand operations to
sunbelt states. As a consequence, we maintained our small retail outlet and
devoted the majority of our energies and resources to our motorcycle models and
their development.
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<PAGE>
In the Spring of 2000, we will complete three additional models, which
will give us a full line of four models for the year 2000.
In January of 2000, we were approached by Mycom.com, Inc., a Cincinnati,
Ohio "high tech" company, with regard to the management of our company buying
the company's motorcycle business and selling to Mycom.com the "shell
corporation" produced by this withdrawal of assets from the company. On March
31, 2000, our company and Mycom.com signed the Agreement of Merger.
Results of Operations
The following table presents certain selected data for each of the two
years in the period ended December 31, 1999 and the interim, three-month periods
ended March 31, 1999 and March 31, 2000:
<TABLE>
<CAPTION>
Year Ended Three Months Ended 3-31
------------------------ -----------------------
1998 1999 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 77,451 $ 85,231 $ 9,706 $ 11,967
Cost of Sales 80,885 219,913 20,032 37,261
--------- --------- --------- ---------
Gross Margin (Loss) (3,434) (134,682) (10,326) (25,294)
Operating Expenses 158,371 471,283 55,613 60,667
Other Income and
Expenses, Net 20,259 40,702 7,422 14,107
--------- --------- --------- ---------
Net (Loss) $(182,064) $(646,667) $ (73,361) $(100,068)
Sales
</TABLE>
Sales for 1999 increased $7,780 (ten percent) over 1998 sales. This
nominal increase over 1998 is a result of not devoting our limited cash
resources to our retail merchandise line but, instead, of increasing our
inventory of hard parts, such as engine components, transmission components,
frames, etc. to be used in our motorcycle prototype construction. During the
first half of 1999 we entirely suspended our retail operations to
35
<PAGE>
concentrate on prototype development, namely our Phoenix model, and to
participate in a West Coast show.
Interim results. Sales for the first fiscal quarter (Q1) of 2000
increased $2,261 (23 percent) over Q1 of 1999 sales. This nominal increase over
Q1 1999 is a direct result of not increasing our retail merchandise to include
soft goods such as hats, shirts, clothing, boots, and various other motorcycle
accessories. Instead, the company concentrated on inventory of hard parts such
as engine components, transmission components, frames, etc. to be used in its
motorcycle prototype construction.
Cost of Sales
Our cost of sales increased $139,029 (175 percent) over 1998, while our
sales increased only ten percent. This large increase in the cost of sales is
due to our writing off the cost of certain work in process associated with the
development of the Phoenix model motorcycle in the amount of $85,000 and
charging to the current period all costs associated with the development of the
new models.
Interim results. The cost of sales in Q1 2000 increased $17,229 (86
percent) over Q1 1999, while sales increased only 23 percent. This large
increase in the cost of sales is due to an increase in company payroll and other
related costs associated with the development of the company's new models. In
the second quarter (June) the company will debut its three new models to the
public. These development costs account for the increase when compared to the
1999 cost of sales.
Gross Margin
The company's gross margin (loss) increased $131,248 when compared to
1998 and is attributable to the write-off of work in process inventory and the
charging of model development to the current period, as noted above.
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<PAGE>
Interim results. Gross margin (loss) increased $14,968 in Q1 2000 over
Q1 1999 and is attributable to an increase in development activity and the
charging of model development to the current period as noted above.
Operating Expenses
Operating expenses for 1999 increased $312,912 (198 percent) over 1998.
This dramatic increase in general and administrative expenses is attributable
to:
o advertising costs related to our participation in the Laughlin,
Nevada River Run motorcycle show;
o the costs of our company's spokesman for his attendance and
representation of the company at the River Run motorcycle show;
o radio and television advertising expenses incurred to promote the
company and its product;
o promotional fees paid with regard to our Phoenix model motorcycle
being featured in a planned television airing on the Discovery or
Learning Channels; and
o consulting fees paid with regard to a planned expansion and
general business consulting.
Interim results. Operating expenses for Q1 2000 increased $20,022
(thirty percent) over Q1 1999. The increase in general and administrative
expenses is attributed to increased professional fees and costs related to the
proposed merger.
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Net Income (Loss)
We had a net loss of $646,667 as compared with a net loss of $182,064 in
1998. This increase in loss of $464,603 is attributed to the factors discussed
above under "cost of sales" and "operating expenses." In July 1999, our primary
source of capital withdrew its commitment to provide funds through December
1999. This lack of working capital prevented us from expanding our retail
operation as planned and severely limited our ability to market and display our
flagship model, the Phoenix.
Interim results. The company had a net loss of $100,068 in Q1 2000 as
compared with a net loss of $73,361 in Q1 1999. The increase in loss of $26,707
is discussed in the previous sections.
Liquidity and Capital Resources
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 accept the
proposal of Mycom.com, Inc. to 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
assets for the extinguishment of the company's debt to management - which debt
was $506,072 on March 31, 2000. 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.
Interim results. The company had negative cash flow from operations of
$160,902 in Q1 2000 as compared to a negative cash flow from operations of
$85,594 in Q1 1999. The two major contributors to the negative cash flow from
operations were the operating loss of $100,068 and the increase in inventories
of $63,933 to facilitate our expanded model development.
INFORMATION WITH RESPECT TO MYCOM.COM, INC.
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BUSINESS DEVELOPMENT
Mycom.com, Inc., formerly known as Myca Group, Inc. ("Mycom.com"), is a
provider of information technology ("IT") solutions and consulting services
related to E-commerce and Web applications and a supplier and developer of
products for use by companies engaged in E-business-to-business commerce.
Since its organization in 1991, Mycom.com's business has centered on
communications software and database technologies that help its clients share
and utilize information more effectively. As its clients have increased their
focus on the Internet and its uses, Mycom.com has expanded its capabilities and
now assists its clients in developing their strategy relating to E-commerce and
Web applications, building the services to achieve that strategy and maintaining
and supporting the strategy on an on-going basis.
Mycom.com offers a wide range of applications development
and intra-company communications services that include
o Website development,
o Web-enabled applications,
o database applications,
o corporate portals, and
o online training and documentation.
As a result of its technology, communications and advertising
capabilities, Mycom.com has the ability to create the content, graphics and
programming of its Website developments and Web-enabled applications services.
Mycom.com believes that its services and products enable its clients to improve
their
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employee productivity, operational efficiencies and ability to compete
successfully in their respective markets. To date, substantially all of
Mycom.com's revenues have been generated by its provision of these core business
services. However, Mycom.com now has two products to offer to clients and is in
the process of developing several other technology product offerings for use on
the Internet.
Mycom.com estimates that the E-commerce market will grow from $145
billion in 1999 to $2.79 trillion in 2004. Mycom.com believes that its
combination of knowledge of corporate infrastructures combined with its array of
services and products positions it advantageously to obtain a larger share of
this growing B2B E-commerce market.
Mycom.com has already hired two people to lead its sales and marketing
efforts for e-Business. As its business grows, Mycom.com believes that it will
be necessary to hire a technical recruiter.
To remain competitive and to provide its clients the best technology
solutions for their e-Business needs, Mycom.com is investing, and the Company
will continue to invest, in training and educating its employees in the latest
technology and communications skills and trends. Well-trained and highly skilled
employees will provide the Company with the flexibility that its needs to
maintain its competitive edge. These same employees will enhance the Company's
knowledge of the marketplace and clients' needs, the Company's competitors'
abilities and service and product offerings and future trends in the
marketplace.
To achieve its goals, the Company believes that it needs to raise its
positive profile for excellence in the business and community environments.
Establishing its name recognition and reputation for excellence will increase
the Company's opportunities to obtain additional business. The Company intends
to hire a public relations resource to assist it in these efforts.
Divisions
---------
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Mycom.com conducts its business through two divisions:
o Mycom.com E-Business
o Mycom.com E-Advertising
I. Mycom.com E-Business
--------------------
Management is positioning the Mycom.com E-Business Division as a total
solutions provider of E-commerce and Web solutions to clients that conduct their
business nationally and globally. In addition to offering a wide range of
application development, intra-company communications services, and consulting
services for Web architecture and design, the Division will also develop and
market Web designed templates, corporate portal templates for specific functions
and industries and online products that expand the functionality of databases.
The Division delivers content through training, documentation, education and
enterprise communications. The goal is to obtain a larger market share of the
growing E-B2B market by capitalizing on Mycom.com's Internet expertise.
The E-Business Division has three separate business units that function
both independently and together to provide value-added solutions to Mycom.com's
clients. The units are:
o Technology Solutions
o Communications
o Product Development
The Technology Solutions Unit focuses on the custom development of Web-
based and online applications and on the management and expansion of a client's
existing information technology (IT) with new initiatives. The Unit's Web-
enabled applications provide clients with cost-effective internal (execution and
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productivity) as well as external (customer services) improvements and
efficiencies. The Web-enabled applications range from simple applications that
result in efficiencies and cost savings for online ordering, scheduling work
flow and information management to applications that significantly improve
supply chain management processes and customer, supplier and distributor
relationships.
The Communications Unit provides the content required to effectively
deploy the Web-based and online applications. This Unit delivers content through
training, education, documentation and enterprise communications using various
forms of multimedia. Some of the services that this Unit provides are set forth
below:
A. Technology-Based Training
o Design and development of Interactive Multimedia
Instruction (IMI)
o Design and development of Computer-Based Training (CBT)
o Design and development of Web-based Training (WBT)
o Video/audio and other multimedia training tools
o Online help for Microsoft and Web-based applications
B. Training/User Education
o Curriculum and courseware development
o Web, online and information systems documentation
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o Instructor guides/Student manuals
o Quick reference cards/booklets
C. Enterprise Communications
o Comprehensive communications consulting/plans
o Technology rollouts
o Newsletters/Brochures
o Presentations
o Event Planning
o Video/audio scripting and production
o CD-ROM development
o Distribution services (fulfillment)
These services offer the client the ability to market, communicate and
implement (both externally and internally) its Web-based and online
applications.
Both the Technology Solutions and Communications Units market their
services to clients' senior management. The Units' consultants meet with the
client's senior management to define IT business needs consistent with corporate
objectives, to create comprehensive communications plans and to determine the
technology delivery systems necessary to accomplish the
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objectives. Thus, in many cases, the services of both Units are necessary to
develop and implement a total solution and are marketed in a complementary
fashion.
To illustrate how these Units work together to create quality Websites
and Web-enabled applications:
o Content organization and design - the Communication Unit's
specialists work with the client's personnel to determine the
"right content" for the Website or application.
o Visual - the Communications Unit's in-house, online, graphic
specialists create visually appealing Websites and applications.
o Web development - the Technology Solutions Unit's HTML
programming and software specialists develop applications that
result in significant business benefits to the client.
o Documentation - the Communications Unit's technical communicators
create both hard copy and online documentation for the
implementation of the Website or online application.
To ensure the quality development and delivery of its services and
products, Mycom.com uses cross-functional project teams with different skill
sets so that all components of the Website or application development and
implementation are addressed.
The Product Development Unit currently has developed two new
products and has several other products under development. Each
is described below:
1. CybervillageUSA.com(TM)
-----------------------
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Mycom.com has developed CybervillageUSA, a community-based learning
network that brings to the African American and Hispanic Web communities a
wealth of ethnic-focused materials - for example, materials that empower them to
register to vote online, to mentor neighborhood children, to shop for ethnic
books and to locate ethnic-oriented restaurants in their community. The delivery
tool for CybervillageUSA is a Website located at www.CybervillageUSA.com.
Millions of ethnic minorities are "living online," and these audiences are
searching for relevant Websites that reflect their lifestyles and pique their
interest. CybervillageUSA is aimed at satisfying this need.
One of the primary purposes for establishing CybervillageUSA was to
provide technology learning opportunities for the underprivileged segment of
U.S. society. CybervillageUSA provides access to a suite of online learning
courses. The Company will offer these courses to 100,000 libraries, community
centers, churches and individual mentors who become part of the network. Through
CybervillageUSA and its learning courses and other content, these organizations
can positively impact their communities. Management hopes that one million new
voters will register to vote online by accessing www.CybervillageUSA.com at the
various community centers, churches and other organizations that are part of the
network.
2. DynaPoint(TM) and Related Products
----------------------------------
Mycom.com has reached an agreement in principle and is negotiating a
definitive agreement to obtain exclusive licensing and distribution rights to
DynaPoint(TM), a patent-pending technology that employs a sophisticated search
tool using telephone numbers to identify businesses or facilities within a
predetermined radius (the radius can be as limited as one mile). Currently, the
technology is available for Web use, but plans are underway to develop a
telephony and wireless component of the product.
Management anticipates that revenue for this product will be derived
from subscription and membership fees, licensing fees for users who want to
incorporate the technology into their particular Web, telephony or wireless
application, and advertising fees from the Websites that the Company develops
and owns.
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3. Other Products
--------------
Other products that Mycom.com has under development are set forth below.
Corporate E-Business Templates
Many corporations have established corporate intranets and other IT
systems on which they have deposited an enormous amount of information
concerning the corporation, its products, procedures and other matters that were
felt to be useful to the corporation's customers and employees. Corporations
established the intranets for a variety of purposes including their hope to (i)
increase employee productivity by making key information/data available with one
click, (ii) achieve cost savings by reducing the amount of employee training by
presenting information in a consistent manner to all employees, (iii) promote
collaboration, community and decreased time intervals for communications among
employees who are teaming on projects in various locations, and (iv) improve
customer relationships by making information easily and quickly accessible.
Unfortunately, many of these intranets, although providing access to the
available information, do not order, organize or manage such information in a
manner that achieves these goals.
To access a corporation's information on its intranet and information on
the Internet requires a well designed "portal." A portal serves as a gateway to
information in a corporation's legacy systems, corporate databases, and
intranet, extranet and Internet sites that improves employee productivity.
Mycom.com has developed over 100 corporate intranet sites. This
experience has given Mycom.com the ability to better understand the best
practices for intranet and portal development. As a result of its expertise in
the three distinct competencies of content, programming and design development,
together with its experience in portal development, Mycom.com has the ability to
develop a variety of "template" products for different types of business
functions. These templates can be customized to meet the unique requirements of
particular clients quickly and efficiently.
Management plans to license these templates to corporations to provide
standard functionality with limited development costs and then customize, at
Mycom.com's normal billing rates, the portal applications to meet the unique
requirements of its clients.
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Human Resource Products
Management plans to create a Human Resources product line by forming
alliances with existing human resource service providers. The alliance would
then jointly create Web-enabled tools for use by Fortune 1000 clients. Because
Mycom.com has already created some of the proposed applications, it hopes that
once the alliances are formed and detailed product specifications are completed,
the alliances will be positioned to market these products quickly. Management
anticipates that revenues for these products will be derived from licensing them
to human resource providers or to their clients or by delivering the services
provided by these products via the application service provider (ASP) model on a
subscription basis.
TechConnect(TM)
A key component of the www.CybervillageUSA.com site is the
TechConnect(C) suite of learning products. These products are designed to
prepare computer beginners for success in using technology. There is very little
learning material aimed at this audience, and minorities in particular represent
a fast-growing market segment for TechConnect(C) products.
Although initial product focus is on computers, the complete product
line will include all aspects of digital technology with a full complement of
materials, from beginner to advanced for each skill level. The products will be
designed for use in either the classroom or for outside school learning such as
neighborhood computer access centers.
TechConnect(C) products will coordinate with technology standards
established by the National Educational Technology Standards for Students and
ISTE Performance Indicators, as well as specific state guidelines (such as the
Ohio SchoolNet Learner Technology Profiles).
I. Mycom.com E-Advertising
-----------------------
The Mycom.com E-Advertising Division is a full-service advertising
agency which provides the same traditional services as its competitors, i.e.,
graphic design, broadcast production, print production, media planning and
placement and other related services. The Division is differentiated, however,
by its focus on the consumer side of E-commerce with its in-house core
competencies related to E-commerce and Internet solutions and its focus on the
growing African American and Hispanic consumer
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markets. The Division provides highly customized and innovative solutions for
companies that need interactive marketing and new media, online brochures,
promotions, public relations and market research, Web development and design and
E-commerce marketing.
Competition
Mycom.com has several advantages over its competition. First and
foremost, Mycom.com is one of the few dot-com companies that offer both services
and products. A number of start-up dot- com companies have flourished based on
one product idea, typically a portal site that generates revenue through
subscriptions, memberships, licensing, or ordering of products and services.
Mycom.com is an established company with an infrastructure and a variety of
services that have evolved over the past nine years. The Company is now well
positioned for significant growth.
Mycom.com competes in the commercial information technology services
market. This market is highly competitive and served by numerous firms. In
addition, this market is driven by clients' business requirements and advances
in technology. Participants in this market include systems consulting and
integration firms, application software firms, management and management
information systems outsourcing companies and general management consulting
firms. Some of these competitors are larger and have greater financial resources
than Mycom.com has or the Company will have. In addition, clients may seek to
increase their internal IT resources to satisfy their customer software
development needs.
Nevertheless, management believes that Mycom.com has the following
competitive strengths:
Excellent Client Relationships. From its roots of providing technical
marketing and documentation services for Procter & Gamble's Management Systems
Division and its continued services to such division and other P&G divisions as
well as other Fortune 50 companies (such as AT&T and General Electric),
Mycom.com (i) has acquired an excellent understanding of client businesses and
IT requirements as well as business organizations, and (ii) is very adept at
providing technology solutions in the business environment. Mycom.com has built
long-term relationships with most of its clients as shown by its continued
provision of services to Procter & Gamble since 1991 and several other clients
over a period of years.
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Expertise in the Technology and Communications Fields. Mycom.com's
technical abilities enable it to appreciate the new IT technologies as well as
understand the existing technologies and, therefore, plan, integrate and
implement appropriate E- business solutions. In addition, Mycom.com's roots in
the communications and advertising fields and its understanding of E- commerce
and Internet solutions enables it to educate and train a client's employees in
the implementation of these systems very effectively. Finally, its E-technology
and E-advertising divisions work synergistically to meet the solution needs of
each client as each division's "top-down marketing strategy" provides an
additional opportunity to create business for the other division.
Pricing. Based on its knowledge of the industry and competitive bid
situations in which it has been involved, management believes that Mycom.com's
hourly rate charges to clients is substantially below the hourly rate of its
competitors and, therefore, that its charges for most projects are below the
estimated prices of its competitors. Mycom.com's lower prices result, in part,
from its location in Cincinnati, Ohio and from its more limited reputation in
this field than its better-known competitors. Thus, Mycom.com has the ability to
be the lower-cost provider of solutions to a client without the client
sacrificing quality in terms of technological competence and Website development
skills.
Dependence on Major Clients
Mycom.com relies on significant clients for a large percentage of its
revenues. During 1999, its two largest clients, Procter & Gamble and Miami
University, Oxford, Ohio, represented approximately 81 percent of Mycom.com's
1999 revenues. Of this percentage, Procter & Gamble represented 77 percent and
Miami University represented four percent. During 2000, it is anticipated that
Procter & Gamble and the Ohio Lottery Commission will represent approximately 75
percent of Mycom.com's 2000 projected revenues, with Procter & Gamble
representing 35 percent and the Ohio Lottery Commission 40 percent. Mycom.com's
client concentration makes it vulnerable to a reduced need for Mycom.com's
services by its client base. Consequently, if a client experiences a significant
decrease in its business, and, as a result, its need for the Company's services
decreases, such a decrease could affect the Company's results and could have a
material adverse effect on the Company's business, results of operations,
financial condition and the value of shares of Common Stock. Mycom.com's risk of
losing all
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of its Procter & Gamble business at the same time is minimized by the fact that
Mycom.com is currently performing work in six different Procter & Gamble
divisions on a project-based basis, and Mycom.com believes that each such
division controls the continuation of the relationship with Mycom.com. In
addition, Mycom.com is a preferred supplier for communications and Web and
online services. However, if a Procter & Gamble division was dissatisfied with
Mycom.com's performance, Mycom.com's relationship with the other divisions could
be adversely affected.
Patents, Trademarks and Licenses
Mycom.com has obtained exclusive licensing and distribution rights to
DynaPoint(TM), a patent-pending technology that employs a sophisticated search
tool using telephone numbers to identify businesses or facilities within a
predetermined radius (the radius can be as limited as one mile). Currently, the
technology is available for Web use, but plans are underway to develop a
telephony and wireless component of the product.
Governmental Approval of Principal Products
Mycom.com does not need any governmental approval to conduct its
business and sell its services or principal products.
Governmental Regulations
The business of Mycom.com is not subject to any existing or probable
governmental regulations.
Cost and Effects of Compliance with Environmental Laws
The Company is not subject to any environmental controls or restrictions
that require the outlay of capital or the obtaining of a permit in order to
engage in business operations.
Research and Development
During each of the last two fiscal years, Mycom.com has spent
approximately $400,000 and $600,000, respectively, on its research and
development of new products. Mycom.com pays the costs of such research and
development from its operating capital and is not able to charge its clients for
such expenses.
Number of Employees
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On March 31, 2000, Mycom.com employed 55 persons full time and three
persons part-time.
Description of Property
Mycom.com owns no facilities or real property. It leases 14,733 square
feet at $20,680 per month for its principal office location in downtown
Cincinnati. Upon the expiration or termination of this lease, Mycom.com expects
that it could obtain comparable office space on commercially reasonable terms.
Mycom.com also leases substantially all of the computer hardware necessary to
conduct its business pursuant to operating leases. Management believes that its
facilities and equipment are adequate and have sufficient productive capacity to
meet its current needs.
Bad Toys leases a retail and manufacturing operation at a single
facility in a specially designed 3,000-square-foot retail and service building.
The retail facility is at 2046 West Stone Drive, Kingsport, Tennessee 37660. The
lease on the facility expires in September 2002. This lease will be transferred
as part of the distribution of the custom motorcycle business.
Legal Proceedings
Neither Mycom.com nor any of its property is a party to, or the subject
of, any material pending legal proceedings.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
There is no public market where Mycom.com's common stock is traded.
There are four stockholders of Mycom.com - Joan Carroll, Patti Massey,
George W. Young, and G. Allan Massey. The transaction described herein
contemplates that all the capital stock of Mycom.com will be acquired by Bad
Toys from these four stockholders.
There are no restrictions that would limit the ability of Bad Toys to
pay dividends to Bad Toys stockholders should the transaction described herein
be approved by the Bad Toys stockholders and Mycom.com should merge into Bad
Toys.
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PRO FORMA FINANCIAL INFORMATION
The following pro forma information shows the effects of the acquisition
of Mycom.com by Bad Toys and the sale to the Lunans of the custom motorcycle
business of Bad Toys. It also takes into account, and adjusts for, the transfer
to another corporation by Mycom.com of two of its historic operating divisions
that, by agreement between Bad Toys and Mycom.com, are not intended to be part
of the post-merger business of the company.
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1999
Bad Toys Adjustments Mycom.com Adjustments Pro Forma
---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets $ 297,262 $ (297,262) $ 975,419 0 $ 975,419
Liabilities 541,632 (541,632) 651,925 0 651,925
Common Stock and
Surplus 694,970 300,000 80 0 995,050
Retained Earnings
(Deficit) (292,673) 0 323,282 0 100,609
Net Income (Loss) (646,667) (55,630) (69,868) 0 (772,165)
Total Liabilities and
Capital $ 297,262 $ 975,419 0 $ 974,419
</TABLE>
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<TABLE>
<CAPTION>
PRO FORMA STATEMENT OF OPERATIONS
Bad Toys Adjustments Mycom.com Adjustments Pro Forma
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C>
Income $ 85,231 $5,317,805 $5,403,036
Cost of Sales 219,913 915,317 1,135,230
General, Selling &
Administrative 511,985
Expenses 4,402,488 5,017,436
Net Income (Loss)
Before Taxes (646,667) (102,963) (749,630)
Provision for Income
Taxes - 33,095 33,095
Net Income (646,667) (69,868) (716,535)
Earnings per Share $(0.014) $(0.001) $(0.015)
</TABLE>
FINANCIAL STATEMENTS
There appears in Annex I the following financial statements of Bad Toys, Inc.:
Independent accountant's report ........................................ I-1
Balance Sheets for the Years Ended
December 31, 1999 and December 31, 1998 ........................ I-2
Statements of Income for the Years Ended
December 31, 1999 and December 31, 1998 ........................ I-4
Statements of Cash Flows for the Years Ended
December 31, 1999 and December 31, 1998 ........................ I-5
Statements of Changes in Stockholders' Equity
for the Years Ending in December 31, 1999 and
December 31, 1998 ..............................................
Notes to Financial Statements .......................................... I-7
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Balance Sheets (unaudited) March 31, 2000
and March 31, 1999 ............................................. I-12
Statement of Operations (unaudited) March 31,
2000 and March 31, 1999 ........................................ I-13
Statements of Cash Flows (unaudited) March 31,
2000 and March 31, 1999 ........................................ I-14
Notes to Financial Statements .......................................... I-16
There also appears in Annex I the following financial statements
of Mycom.com, Inc.:
Report of Independent Certified Public
Accountant ..................................................... I-21
Balance Sheet at December 31, 1999 ..................................... I-22
Statement of Operations and Retained Earnings
for the Years Ended December 31,
1999 and 1998 .................................................. I-23
Statement of Cash Flows for the Years Ended
December 31, 1999 and 1998 ..................................... I-24
Notes to Financial Statements .......................................... I-26
Report of Independent Certified Public
Accountants .................................................... I-30
Balance Sheet (unaudited) March 31, 2000 ............................... I-31
Statement of Operations and Retained
Earnings (unaudited) Three Months
Ended March 31, 2000 ........................................... I-32
Statement of Cash Flows (unaudited) Three Months
Ended March 31, 2000 ........................................... I-33
Notes to Financial Statements .......................................... I-34
VOTE REQUIRED FOR APPROVAL
The affirmative vote of at least a majority of shares of Common Stock
represented in person or by proxy and entitled to
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vote at the Special meeting is needed for the approval of the Agreement of
Merger Proposal.
BAD TOYS BOARD RECOMMENDATION
THE BAD TOYS BOARD, BY UNANIMOUS ACTION OF THE DIRECTORS, RECOMMENDS A
VOTE FOR THE Agreement of Merger PROPOSAL.
PROPOSAL 2
STOCK ISSUANCE PROPOSAL
The Bad Toys Board has adopted, by unanimous action of the directors, a
resolution approving and recommending to the Company's stockholders the approval
of a proposal to authorize the issuance of 40 million shares of Common Stock
pursuant to the Agreement of Merger.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of at least a majority of the shares of Common
Stock represented in person or by proxy and entitled to vote at the Special
Meeting is needed for approval of the Stock Issuance Proposal.
BAD TOYS BOARD RECOMMENDATION
THE BAD TOYS BOARD, BY UNANIMOUS ACTION OF THE DIRECTORS, RECOMMENDS A
VOTE FOR THE STOCK ISSUANCE PROPOSAL.
PROPOSAL 3
AUTHORIZED COMMON STOCK PROPOSAL
The Bad Toys Board, by action of the directors, has unanimously
approved, and recommends to the Company's stockholders, the adoption of an
amendment to the Company's Articles of Incorporation, increasing the number of
shares of Common Stock the Company is authorized to issue from 10 million shares
to 90 million shares. A copy of the proposed amendment to the Company's Articles
of Incorporation is attached hereto as Annex II and is incorporated herein by
this reference.
The Company does not presently have sufficient shares of Common Stock
available to engage in the various transactions described in this Proxy
Statement. As of the Record Date, approximately 7,827,006 shares of Common Stock
were issued and outstanding. Assuming the Transaction Proposals are approved and
the transaction contemplated by the Agreement of Merger is
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<PAGE>
consummated, the Company will issue 40 million shares of Common Stock in
connection with the Agreement of Merger.
The Board of Directors of the Company recommends the increase in the
number of shares of authorized Common Stock to enable the Company to have (i)
sufficient shares available for issuance in connection with the shares to be
issued pursuant to the terms of the Agreement of Merger; (ii) sufficient shares
available to underlie options that might be granted to employees of the Company
and consultants to the Company; and (iii) additional shares available for
issuance in connection with future acquisitions, financings involving the sale
of Common Stock or securities convertible into Common Stock, employee benefit
plans and other purposes. If the Authorized Common Stock Proposal is approved,
the Board of Directors of the Company will have greater flexibility to issue
additional shares of Common Stock without the expense and delay of a
stockholders' meeting, unless stockholder approval is otherwise required. As of
the Record Date, approximately 2,172,994 unreserved shares of Common Stock were
available for issuance. If the stockholders of the Company approve the
Authorized Common Stock Proposal, approximately 52,172,994 authorized and
unreserved shares of Common Stock will be available for future issuance
following completion of the transactions contemplated by the Agreement of Merger
and the Private Placement.
The Bad Toys Board has the authority to authorize the issuance of
additional but unissued shares of Common Stock without stockholder approval,
unless such approval is otherwise required by applicable law. The issuance of
additional shares of Common Stock could, under certain circumstances, render
more difficult or discourage an attempt by a third party to obtain control of
the Company making it potentially less likely that stockholders of the Company
will obtain the change of control premium sometimes realized in connection with
change of control transactions. For example, the issuance of shares of Common
Stock in a public or private sale, merger or similar transaction would increase
the number of outstanding shares of the Company, thereby diluting the interest
of a party seeking to acquire control of the Company and increase the cost of
such transaction.
Issuances of additional shares of Common Stock of the Company, depending
on the timing and circumstances, could dilute earnings per share and decrease
the book value per share of the shares already outstanding and each
stockholder's percentage ownership of the Company may be proportionately
reduced.
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VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the issued and outstanding shares
of Common Stock is needed for approval of the Authorized Common Stock Proposal.
BAD TOYS BOARD RECOMMENDATION
THE BAD TOYS BOARD, BY UNANIMOUS ACTION OF THE DIRECTORS, RECOMMENDS A
VOTE FOR THE AUTHORIZED COMMON STOCK PROPOSAL.
PROPOSAL 4
AUTHORIZED PREFERRED STOCK PROPOSAL
The Bad Toys Board, by action of the directors, has unanimously
approved, and recommends to the Company's stockholders, the approval of an
amendment to the Company's Articles of Incorporation that would authorize for
issuance 10 million shares of Preferred Stock. A copy of the proposed amendment
to the Company's Articles of Incorporation is attached hereto as Annex II and is
incorporated herein by this reference.
The Bad Toys Board recommends the authorization of 10 million shares of
Preferred Stock to enable the Company to have shares of Preferred Stock
available for issuance in connection with future acquisitions, financings or
other purposes. If the Authorized Preferred Stock Proposal is approved, the
Board of Directors of the Company will have greater flexibility to issue shares
of Preferred Stock without the expense and delay of a stockholder meeting,
unless stockholder approval is otherwise required.
Issuances of shares of Preferred Stock of the Company, depending upon
the timing and circumstances, could dilute earnings per share and decrease book
value per share of the shares already outstanding and each stockholder's
percentage ownership of the Company may be proportionately reduced.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the issued and outstanding shares
of Common Stock is needed for approval of the Authorized Preferred Stock
Proposal.
57
<PAGE>
BAD TOYS BOARD RECOMMENDATION
THE BAD TOYS BOARD, BY UNANIMOUS ACTION OF THE DIRECTORS, RECOMMENDS A
VOTE FOR THE AUTHORIZED PREFERRED STOCK PROPOSAL.
PROPOSAL 5
NAME CHANGE PROPOSAL
The Bad Toys Board, by action of the directors, has unanimously
approved, and recommends to the Company's stockholders, the adoption of an
amendment to the Company's Articles of Incorporation, changing the name of the
Company from "Bad Toys, Inc." to "Mycom.com, Inc." A copy of the proposed
amendment to the Company's Articles of Incorporation is attached hereto as Annex
II and is incorporated herein by this reference.
The Agreement of Merger requires that this change of name be approved.
Accordingly, this amendment to the Company's Articles of Incorporation must be
approved for the merger to be effected.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the issued and outstanding shares
of Common Stock is needed for approval of the Name Change Proposal.
BAD TOYS BOARD RECOMMENDATION
THE BAD TOYS BOARD, BY UNANIMOUS ACTION OF THE DIRECTORS, RECOMMENDS A
VOTE FOR THE NAME CHANGE PROPOSAL.
PROPOSAL 6
SALE OF ASSETS PROPOSAL
See the "Special Factors" section on pages 4 through 6 of this Proxy
Statement.
The Bad Toys Board, by action of the directors, has unanimously
approved, and recommends to the Company's stockholders, the approval of the sale
by the Company to the Lunans of the Company's custom motorcycle manufacturing
business, all the Company's assets that are associated with such business, the
book value of which is approximately $365,524, and $300,000 in cash, such sale
to be in exchange for the Lunans' cancellation of $506,072 in debt owed to them
by Bad Toys as of March 31, 2000 and their assumption of the obligation to pay
any remaining
58
<PAGE>
unpaid debts of the Company, of which it is estimated there are $190,326 in such
unpaid debts as of March 31, 2000.
This transaction shall be effected as follows, should the Bad Toys
shareholders approve the Agreement of Merger Proposal:
o Bad Toys shall incorporate a new corporation ("Bad Toys Sub").
o Susan Lunan shall resign as a director of Bad Toys.
o Bad Toys shall then transfer to Bad Toys Sub all its assets
comprising the custom motorcycle manufacturing business, which
assets have a book value of approximately $365,524, plus $300,000
in exchange for all the capital stock of Bad Toys Sub. Bad Toys
Sub and the Lunans shall assume the obligation to pay, and shall
pay, any unpaid debts of Bad Toys other than the liabilities of
Bad Toys to the Lunans.
o Larry Lunan, the sole remaining director of Bad Toys, shall elect
a designee of the Mycom.com shareholders to fill the vacancy on
the Bad Toys Board created by the resignation of Susan Lunan.
Larry Lunan shall then resign as an officer and a director of Bad
Toys.
o The Bad Toys Board shall then elect the Lunans to be the
directors of Bad Toys Sub.
o The Bad Toys Board shall then authorize the sale to the Lunans of
all the capital stock of Bad Toys Sub, which, after paying
approximately $190,326 in debt owed to persons other than the
Lunans from the $300,000 transferred to Bad Toys Sub, would have
a book value of approximately $475,198, in exchange for the
Lunans' cancellation of all debt owed to them by Bad Toys, which
debt is approximately $506,072, and the surrender to Bad Toys for
cancellation stock options to purchase 1,000,000 shares of common
stock of Bad Toys at an average exercise price of $0.50.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the issued and outstanding shares
of Common Stock is needed for approval of the Sale of Assets Proposal.
59
<PAGE>
BAD TOYS BOARD RECOMMENDATION
THE BAD TOYS BOARD, BY UNANIMOUS ACTION OF THE DIRECTORS, RECOMMENDS A
VOTE FOR THE SALE OF ASSETS PROPOSAL.
PROPOSAL 7
BYLAW AMENDMENT PROPOSAL
The Bad Toys Board, by action of the directors, has unanimously
approved, and recommends to the Company's stockholders, the adoption of an
amendment (the "Bylaw Amendment") to the Company's Bylaws to provide that the
Bad Toys Board be comprised of between four and nine members as such size may be
determined, from time to time, by the Company's stockholders or the Bad Toys
Board. A copy of a proposed amendment to the Bylaws is attached hereto as Annex
III and is incorporated herein by this reference.
The Bylaws Amendment provides that, in addition to action by
stockholders, upon the vote of a majority of the members of the Bad Toys Board,
the size of the Bad Toys Board may be increased or decreased within the range
described above. However, the Bylaw Amendment does not permit the Bad Toys Board
to reduce the size of the Bad Toys Board in a manner that would cause incumbent
directors duly elected by the Company's stockholders, to be displaced prior to
the expiration of the term for which they have been elected. The Bylaw Amendment
permits a majority of directors serving on the Bad Toys Board to fill any
vacancies created as a result of an increase in the size of the Bad Toys Board.
Additionally, the Bylaw Amendment would alter the Company's current Bylaws by
requiring that any future amendment changing the Bylaw Amendment be submitted to
a stockholder vote. Assuming that each of the Transaction Proposals is approved,
the current four stockholders of Mycom.com intend to take appropriate action to
increase the size of the Bad Toys Board to five members and appoint the present
five directors of Mycom.com to fill the board positions. For information
regarding such persons see, "New Director Designees" below under "Board of
Directors Matters."
The Bad Toys Board unanimously recommends the approval of the Bylaw
Amendment Proposal.
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<PAGE>
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the issued and outstanding shares
of Common Stock is needed for approval of the Bylaw Amendment Proposal.
BAD TOYS BOARD RECOMMENDATION
THE BAD TOYS BOARD, BY UNANIMOUS ACTION OF THE DIRECTORS, RECOMMENDS A
VOTE FOR THE BYLAW AMENDMENT PROPOSAL.
BOARD OF DIRECTORS MATTERS
CURRENT BAD TOYS DIRECTORS AND OFFICERS
Bad Toys' directors and officers occupying executive officer positions,
and their ages as of March 31, 2000, are set forth in the following table:
Director's
Director Term
Person Positions and Offices Since Expires
- ------------------ --------------------- -------- ----------
Larry N. Lunan, 59 President, CEO and 1998 2000
Chairman of the Board
of Directors
Roger A. Warren, 35 Vice President, CFO, 1995 2000
and Director
Susan H. Lunan, 48 Secretary and Director 1999 2000
LARRY N. LUNAN. Mr. Lunan founded Bad Toys, Inc. in April 1995 but has
devoted his full-time efforts to Bad Toys since mid- 1994. Mr. Lunan has been an
active motorcycle hobbyist since the mid-1950s. Mr. Lunan received a certified
public accountant certificate in 1968 and was an accountant with Haskins & Sells
from 1967 to 1971. From 1971 to 1975 Mr. Lunan was a controller and vice
president of finance for Itel Leasing Corporation. From 1975 until 1982 he was
vice president of finance for Arcata Book Group, a subsidiary of Arcata
Corporation. From 1982 until July 1994 he was employed as president of Fors
Capital Corporation, a wholly-owned business consulting firm. In this capacity
he was active in development-stage companies and capital formation. The most
successful of these enterprises was Callaway Golf, which is currently traded on
the New York Stock Exchange. From July 1989 until February 1995 Mr. Lunan also
served as president, CEO and chairman of the board of a Nevada corporation
mining company, Seahawk, Inc. Seahawk filed a voluntary chapter 11 petition in
January 1995. Within a month the case was converted to a
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<PAGE>
chapter 7 case, and a trustee was appointed. Seahawk was subsequently
liquidated.
ROGER A. WARREN. Mr. Warren is a C.P.A. for Stafford & Warren, a C.P.A.
firm specializing in small, start-up, and development-stage companies. Client
industries served include manufacturing enterprises, real estate, professional
service corporations, mining operations, and environmental clean-up. Mr. Warren
was an accountant with Arthur Young & Co. from 1986 to 1990 and received a
certified public accounting certificate in 1990. He then practiced accountancy
as a sole proprietor from 1990 until 1998, when he combined his practice with
Stafford & Associates to form Stafford and Warren.
SUSAN H. LUNAN. Ms. Lunan co-founded Bad Toys, Inc. in April 1995. She
has provided part-time services on a consulting basis since that date. Prior to
that, Ms. Lunan was an officer and director of Fors Capital Corporation,
specializing in small start-up companies. Fors Capital operated from 1984
through 1991, and was founded by Larry and Susan Lunan. Prior to Fors Capital,
she was employed as a legal secretary, medical secretary, and held various
executive secretarial positions. Ms. Lunan attended the University of Tennessee,
Knoxville.
NEW DIRECTOR DESIGNEES
Assuming that the Transaction Proposals are approved by the
stockholders, simultaneously with the consummation of the transactions
contemplated by, and pursuant to, the Agreement of Merger, the five directors of
Mycom.com will become the directors of Bad Toys. There are no agreements,
understandings or arrangements regarding any right by any other investor or
person to designate members of the Bad Toys Board. All directors will stand for
re-election at the Company's Annual Meeting in 2001.
The following is certain biographical information relating to each
designee for appointment to the Bad Toys Board as well as to each executive
officer who will serve the post-merger company:
Office Held Term
Person Positions and Offices Since Expires
- --------------------- --------------------- ----------- -------
George W. Young, 51 CEO and Chairman of the 1991 2001
Board of Directors
Joan Carroll, 54 President, COO and Director 1991 2001
Patricia A. Massey, 45 Executive Vice President, 1991 2001
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<PAGE>
Secretary and Director
G. Allan Massey, 45 Senior Vice President and 1991 2001
Director
Sharon Pinder, 46 Senior Vice President and 1996 2001
Director
Michael J. Sisk, 42 Vice President, 2000 N/A
Technology Solutions
Donna Banks, 42 Vice President, 1995 N/A
e-advertising
George W. Young, Chief Executive Officer
George Young brings a solid technical management background to his
position as Chief Executive Officer of Mycom.com. His experience encompasses 18
years of technology-based assignments with Procter & Gamble that range from
simulation modeling to systems design and implementation to group and section
manager responsibilities.
As a group manager in Project Systems and a section manager in both the
Engineering and Personal Care Divisions of P&G, George developed impressive
skills in systems analysis, project management and managerial organization
accountability. He managed several multimillion-dollar systems projects within
targeted budgets and schedules. At Mycom.com, George has consulted with various
project teams for Fortune 100 companies, working to document information systems
master plans and architectures, re- engineering changes and competency
processes. He provides overall direction for all of Mycom.com's internal
applications development activities.
George is one of the Mycom.com founding partners and oversees the
Technology Solutions Unit within the e-Business Division. George is a graduate
of North Carolina A&T University with a Bachelor of Science degree, Magna Cum
Laude in Engineering Mathematics.
Joan Carroll, President - Chief Operating Officer
Joan Carroll is responsible for the day-to-day operations of all
organizations within Mycom.com. Over the past ten years, she has acquired
exceptional expertise in fiscal management, cost control and strategic planning.
She has excellent marketing skills and is particularly strong in delivering new
product ideas. Her entrepreneurial enthusiasm has been a major force
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<PAGE>
behind the success of Mycom.com. Under her leadership Mycom.com has experienced
significant growth over the past five years.
A highly versatile marketing professional, Joan is also responsible for
business development of the corporation's e- Advertising Division. Her combined
advertising and technical background enables Joan to interface equally well with
technical and consumer marketing clients, bringing added value to each new
project Mycom.com undertakes.
An advertising professional with more than twenty-five years'
experience, Joan has successfully created and implemented marketing programs in
a number of highly competitive industries. She has served in a senior management
capacity with some of the nation's largest and most prestigious advertising
agencies and is widely recognized for her award-winning campaigns. Her client
list of Fortune 100 companies includes Procter & Gamble, Avon, General Foods,
Kodak, Corning, General Motors, Gulf Oil, AT&T, Kimberly-Clark, DeBeers, and
Bahamas Tourism.
Joan's marketing milestones include winning nine CEBA Awards, two ANDY
Awards of Merit, a CLIO Award of Merit, eleven Gold and Silver Awards in the
ADDY Competitions and two national Silver Microphone Awards. A public relations
campaign she developed for the State of Ohio Department of Health won a national
PRISM Award and the coveted Silver Anvil Award.
Joan is a founding partner of Mycom.com. She attended New York
University with English as a major course of study.
Patricia A. Massey, Executive Vice President - Chief Financial
Officer
As the corporation's Treasurer for the past nine years, Patti has been
responsible for Mycom.com's financial stability. She has instituted fiscal
policies, strong internal accounting controls and high standards of
accountability. Patti's superb financial management skills were developed over
the years working for several large advertising agencies, where she was in
charge of account services and managed budgets for a number of Fortune 500
clients. Her role as Chief Financial Officer includes overseeing a system of
internal controls for all Mycom.com business units. Working closely with the
corporation's accounting firm, Patti ensures the accuracy of all financial data.
In additional, Patti monitors the profitability of each business unit on a
monthly basis.
64
<PAGE>
One of the founding partners of Mycom.com, Patti has attended numerous
continuing education programs and majored in Marketing at the University of
Cincinnati.
65
<PAGE>
Sharon Pinder, Senior Vice President - Mid-Atlantic Region
Sharon Pinder is responsible for business development in the
Mid-Atlantic region. She has extensive experience in e-commerce and Internet
marketing.
Before joining Mycom.com, Sharon spent five years as Market Development
Manager-Internet Programs for General Electric Information Services. Responsible
for the development and execution of GE's global Internet strategy, she
commercialized GE's Secure Electronic Commerce Internet offering and she led
efforts to implement solutions internationally. Sharon was also instrumental in
delivering GE's World Wide Web and leading the corporate-wide effort to join
CommerceNet.
As Senior Vice President in the Technology Solutions Unit of the
e-Business Division within Mycom.com, Sharon provides superb leadership by
identifying, evaluating and applying emerging technologies to solve business
challenges. She spearheaded the creation of a new suite of products that provide
economic development professionals with a one-stop shop for information used to
"sell" the State of Maryland to prospective businesses looking to relocate.
Sharon holds a Master of Business Administration from the University of
Maryland.
Donna Banks, Vice President - e-Advertising Division
Donna Banks is an experienced advertising professional with specialized
skills in the areas of account service management, research, segmented
marketing, public relations and community development. She has worked
extensively with public and private sector clients. Her broad skills include the
planning and implementation of communications projects in specially targeted
areas, including government, education and ethnic markets.
Donna's strength in community mobilization and public affairs has been
developed through an unusual working relationship with key members of state and
federal bodies, legislative members and community leaders. She has a solid
networking base in several key markets, having worked for government agencies
and public service organizations.
She has successfully designed and implemented a variety of
marketing communications programs for clients such as the Ohio
66
<PAGE>
Department of Development, Ohio Department of Health, Miami University, Procter
& Gamble and AT&T.
Donna was a Marketing major at the University of Cincinnati. She is
responsible for day-to-day operations as well as growth and development of
Mycom.com's e-Advertising Division.
Allan Massey, Senior Vice President - Network Security & Support
Allan Massey has served in a variety of technical positions working with
PCs, midrange and mainframe computing systems. Al has more than 18 years
experience in systems integration technology. Prior to becoming a partner in
Mycom.com, he spent five years cultivating superb technical skills in automated
data collection and systems integration. He was with Cincinnati Time for nearly
eight years and has since provided automated data collection solutions for
several Fortune 1000 corporations, including Trane and Schlumberger.
As Senior Vice President, Al is responsible for the day-to-day
operations of the corporation's technical infrastructure, which includes
overseeing a comprehensive networked computing system, telephony, electronic
mail and Internet solutions. In this capacity, he provides strategic and
technology leadership for the corporation's global communications, as well as
maintaining time and attendance, asset management and billing systems.
Allan holds a degree in Electronic Engineering from
Cincinnati State University.
Michael Sisk, Vice President, Technology Solutions Unit
Recently hired Mike Sisk contributes 22 years of sales, management, and
technical experience to his position as Vice President, Technology Solutions
Unit of the e-Business Division. The majority of his career has been focused on
management consulting issues affecting information technology in the financial
services and manufacturing industries. Management consulting roles have ranged
from corporate strategic planning to the management of application development
projects.
Mike's technical consulting organization focuses on Client/Server and
Internet technologies. His energetic leadership style and hands-on management
abilities are unique talents in the industry enabling the corporation to attract
and retain highly competent technology architects and developers. Mike also
manages
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<PAGE>
the core Mycom.com sales team that is focused on consultative selling.
Michael is a graduate of Wright State University with a Cum Laude,
Bachelor of Science degree in Marketing.
EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation during fiscal year 1999 of
the executive officers of Mycom.com:
Name Annual Salary
---- -------------
George W. Young $137,780
Joan Carroll $132,077
Patricia A. Massey $119,962
G. Allan Massey $102,750
INDEPENDENT AUDITORS
Todd Nims served as Bad Toys' independent certified public accountants
for the fiscal years ending December 31, 1999 and 1998. Barnes, Dennig & Co.,
Ltd. served as Mycom.com's independent certified public accountants for the
fiscal year ended December 31, 1999 and will serve as both Bad Toys and
Mycom.com's independent certified public accountants for the current fiscal
year. Representatives of neither Todd Nims nor Barnes, Dennig & Co. are expected
to be present at the Special Meeting but will be extended the opportunity to
attend and make a statement and respond to appropriate questions if they desire
to do so.
ANNUAL REPORT
Copies of the Company's annual Form 10-KSB recently filed with the
Securities and Exchange Commission may be obtained, without charge to
stockholders, by writing to Bad Toys, Inc., 2344 Woodridge Avenue, Kingsport, TN
37664, Attn: Susan Lunan, Secretary.
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<PAGE>
DEADLINE FOR SUBMITTING STOCKHOLDER PROPOSALS
S.E.C. Regulation 240.14a-8 provides the requirements for stockholders
to follow if they wish to submit certain proposals for consideration at a
company's next annual meeting or a special meeting of stockholders. The deadline
for stockholders to submit Reg. 240.14a-8 stockholder proposals for inclusion in
this Company's proxy statement and form of proxy for our next annual meeting is
a "reasonable time" before we begin to print and mail our proxy materials. The
date of our next annual meeting has not been set, but it should not be before
September 30, 2000. We would consider "untimely" the submittal of a proposal
after June 30, 2000.
OTHER MATTERS
The Bad Toys Board does not know of any other matters to be presented at
the Special Meeting for action by stockholders. If any other matters requiring a
vote of the stockholders arise at the Special Meeting or any adjournments
thereof, it is intended that votes will be cast pursuant to the proxies with
respect to such matters in accordance with the best judgment of the persons
acting as proxies.
A list of stockholders entitled to be present and vote at the Special
Meeting will be available during the Special Meeting for inspection by
stockholders who are present.
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO MARK, DATE,
SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. AN ENVELOPE HAS BEEN PROVIDED FOR
YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board of Directors,
/s/Susan Lunan
------------------------------------
Susan Lunan, Secretary
May 23, 2000
Kingsport, Tennessee
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Bad Toys, Inc.
Kingsport, Tennessee
We have audited the accompanying balance sheet of Bad Toys, Inc., (a development
stage company) as of December 31, 1999, and the related statement of income,
retained earnings, and cash flows for the year 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. The financial statements of Bad Toys, Inc. as of December 31, 1998
were audited by other auditors whose report dated February 7, 1999, on those
statements included an explanatory paragraph describing conditions that raised
substantial doubt about the Company's ability to continue as a going concern.
Our audit was conducted in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
a 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 audit provides a reasonable basis for our
opinion.
In our opinion, the 1999 financial statements referred to above present fairly
in all material respects, the financial position of Bad Toys, Inc. as of
December 31, 1999, and the results of operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency, which raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note 9. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Blackburn, Childers & Steagall, PLC
---------------------------------------
BLACKBURN, CHILDERS & STEAGALL, PLC
March 20, 2000
Johnson City, Tennessee
I-1
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
------
<TABLE>
<CAPTION>
1999 1998
---- ----
CURRENT ASSETS:
- --------------
<S> <C> <C>
Cash and Cash Equivalents $ 185 $ 1,757
Accounts Receivable - 1,097
Inventory 202,428 180,160
Prepaid Expenses 16,982 23,543
-------- --------
Total Current Assets 219,595 206,557
-------- --------
PROPERTY AND EQUIPMENT:
- ----------------------
Property and Equipment, Net of
Accumulated Depreciation 66,729 70,954
-------- --------
Total Property and Equipment 66,729 70,954
-------- --------
OTHER ASSETS:
- ------------
Organization Costs, Net of
Accumulated Amortization 10,658 27,146
Syndication Costs - 14,400
Utility Deposits 280 280
-------- --------
Total Other Assets 10,938 41,826
-------- --------
TOTAL ASSETS $297,262 319,337
======== ========
</TABLE>
I-2
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31, 1999 and 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
LIABILITIES & SHAREHOLDERS' EQUITY:
- ----------------------------------
<S> <C> <C>
Cash Overdraft $ 14,102 -
Accounts Payable and Accrued Liabilities 62,559 57,499
Notes Payable 26,245 8,459
Notes Payable -Shareholders 438,726 -
-------- -------
Total Current Liabilities 541,632 65,958
-------- -------
NONCURRENT LIABILITIES:
- ----------------------
Notes Payable -Long Term - 26,994
Notes Payable -Shareholders - 216,176
-------- --------
Total Long Term Liabilities 0 243,170
------- --------
Total Liabilities 541,632 309,128
------- --------
STOCKHOLDERS' EQUITY:
- --------------------
Common Stock, $.01 par value; 10,000,000
authorized; 7,827,006 and 5,355,000 shares
issued and outstanding at December 31, 1999
and December 31, 1998 respectively 78,270 53,550
Additional Paid In Capital 616,700 249,332
Deficit Accumulated During the Development
Stage (939,340) (292,673)
-------- --------
Total Shareholders' Equity (244,370) 10,209
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 297,262 319,337
========= ========
</TABLE>
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<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF INCOME
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
REVENUES:
- --------
<S> <C> <C>
Sales $ 85,231 77,451
Cost of Sales 219,913 80,885
---------- ---------
Gross Profit (Loss) (134,682) (3,434)
COSTS AND EXPENSES:
- ------------------
General and Administrative Expenses 471,283 158,371
-------- --------
Income (Loss) from operations before interest
expense (605,965) (161,805)
Interest Expense 40,702 20,259
-------- --------
Net (Loss) (646,667) (182,064)
RETAINED EARNINGS - BEGINNING (292,673) (110,609)
-------- --------
RETAINED EARNINGS - ENDING $(939,340) (292,673)
========= ========
NET EARNINGS/(LOSS) PER COMMON SHARE (.08) (.03)
</TABLE>
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<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
<S> <C> <C>
Net Income (Loss) $(646,667) (182,064)
--------- ---------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 50,834 23,032
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 1,097 (1,097)
(Increase) Decrease in Prepaid Expenses 6,561 6,307
(Increase) Decrease in Inventories (22,268) (100,210)
Increase (Decrease) in Accounts Payable and
Accrued Liabilities 178,959 47,854
(Increase) Decrease in Other Assets - (1,100)
-------- --------
Total Adjustments 215,183 (25,214)
-------- --------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (431,484) (207,278)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Cash Payments for the Purchase of Property (15,721) (50,539)
-------- --------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (15,721) (50,539)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Cash Flow from Financing Activities:
Payment on Equipment Loans (9,208) -
Proceeds from Issuance of Long-Term Debt - (59,886)
Proceeds from Equipment Loans - 17,126
Proceeds from Additional Paid in Capital 29,850 84,492
Proceeds from Shareholder Debt 410,739 216,176
Proceeds from Issuance of Common Stock 150 1,190
Proceeds from Cash Overdraft 14,102 -
-------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 445,633 259,098
-------- --------
</TABLE>
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<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998
1999 1998
-------- --------
NET CASH INCREASE (DECREASE) (1,572) 1,281
(Brought Forward)
CASH, BEGINNING 1,757 476
--------- --------
CASH, ENDING $ 185 1,757
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash Paid for Interest $ 31,240 873
========= ========
Non Cash Items:
Common Stock and Additional Paid in Capital
Issued for Payment of Accounts Payable
Totaled $362,088
I-6
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1. 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. On June 25, 1999 the Company became a publicly
traded stock company. The company operates a custom motorcycle manufacturing
and service facility in Kingsport, Tennessee The Company offers retail parts
and product sales as well as motorcycle service to its customers seven days
a week.
Cash Equivalents
----------------
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
-----------
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
-----
Leasehold Improvements 5 years
Machinery and Equipment 3 to 10 years
Furniture and Fixtures 3 to 10 years
Depreciation expense for the year ended December 31, 1999 is $19,945.
Organization Costs
------------------
Costs of organizing the Company are recorded as organization costs and
amortized over five years on a straight-line basis.
I-7
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
- ----------------------------------------------------
Concentrations of Credit Risk
-----------------------------
The Company is engaged in the manufacture and servicing 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 cases where
credit is granted and generally requires no collateral from its customers.
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 and disclosures.
Accordingly, actual results could differ from those estimates.
NOTE 2. INVENTORY:
- ------------------
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Work in Process $ 13,731 82,862
Finished Goods 188,697 97,298
---------- --------
$ 202,428 180,160
========== ========
</TABLE>
Inventories are stated at the lower of standard cost (which approximates
average cost) or market.
NOTE 3. PROPERTY AND EQUIPMENT:
- -------------------------------
Property and equipment are summarized by major classifications as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Equipment $ 24,856 10,042
Furniture and Fixtures 2,620 2,082
Leasehold Improvements 45,414 45,045
Vehicles 20,328 20,328
----------- ---------
93,218 77,497
Less: Accumulated Depreciation ( 26,489) (6,543)
----------- ---------
$ 66,729 70,954
=========== =========
</TABLE>
I-8
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
------- --------
Bank note payable $629.04 per month plus interest
accrued at 9.75% secured by vehicle. To be paid
<S> <C> <C> <C>
in full in 2000. $ 310 5,425
Bank note payable $285.60 per month plus interest
accrued at 9.5% secured by vehicle. To be paid in
full in 2000. 2,935 5,503
Unsecured Notes Payable to individuals, corporations,
and limited liability companies, with interest at
10-10.5%, due at renewal cycle, or at payoff dates
ranging from 6-18 months, convertible to common stock
under varying terms ranging from $1.25 to 1/2 of the
weighted average issuance price of all shares issued.
All were past due at December 31, 1999. 23,000 24,525
Unsecured Notes Payable to stockholders due September 30,
2000 or earlier with interest at 9.75% to 10.5%
convertible to common stock under varying terms ranging
from $1.25 to 1/2 of the weighted average issuance
price of all shares issued. 438,726 216,176
-------- -------
Total 464,971 251,629
-------- -------
Less: Current Portion (464,971) (8,459)
-------- --------
Long -Term Debt $ 0 243,170
========= ========
</TABLE>
NOTE 5. INCOME TAXES:
The Company has loss carryforwards totaling $144,154 through the 1998 tax year
that may be offset against future taxable income. The tax return for the 1999
year has not yet been completed, but operating losses for the 1999 year should
approximate the losses reflected in the financial statements. If not used, the
carryforwards will expire as follows:
<TABLE>
<CAPTION>
Operating Losses
----------------
<S> <C> <C>
Year 11 $ 849
Year 12 15,001
Year 13 43,093
Year 14 85,211
--------
$144,154
========
</TABLE>
Since the Company does not have any indication that these will be realized, no
deferred tax asset has been recorded.
I-9
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 6. RELATED PARTY TRANSACTIONS:
- -----------------------------------
The following transactions occurred between the Company and affiliated entities:
1. Notes payable to related parties as of December 31, 1999 and December 31,
1998, consisted of the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
Notes payable to Larry and Susan Lunan
due September 30, 2000 with interest
<S> <C> <C> <C>
at 10.5% $ 346,071 178,082
Notes payable to Barrick Properties with
interest at 10-10.5%, with annual
renewal options. 92,655 38,094
-------- --------
$ 438,726 216,176
========= ========
</TABLE>
2. The Company leases its facilities from a minority stockholder as described
in Note 8.
3. In addition, a lawsuit has been 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.
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 $1,450, which includes monthly prepaid rent expensed of
$520.
The following is a schedule of future minimum rental payments required under the
above operating lease (excluding prepaid rent expensed) as of December 31, 1999:
Year Ending
December 31 Amount
----------- ------
2000 $ 10,800
2001 10,800
2002 8,100
---------
$ 29,700
=========
Rental expense for the years ended December 31, 1999 and December 31, 1998 were
$20,040 each year.
I-10
<PAGE>
BAD TOYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 8. STOCK:
- --------------
During 1999, an additional 2,472,006 shares of stock were issued. The initial
public offering resulted in a minimal amount of additional capital. The stock
increases during the year were primarily in exchange for services and were
valued at the current rate at the time of exchange. During the 1999 year, the
stock traded from 12.5 cents per share to $1.25 per share.
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
$939,340, and current liabilities, including the current portion of long term
debt, exceeds cash and current receivables by $322,037 at December 31, 1999. The
Company's initial public offering in June 1999 did not generate the anticipated
capital inflow. Management is anticipating additional changes to generate a
capital inflow in 2000. While the proposed capital injection as well as
potential conversions of 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.
NOTE 10. SUBSEQUENT EVENTS:
- ---------------------------
On March 21, 2000, Bad Toys, Inc. signed a letter of intent to sell control of
the company to MYCA Group, Inc. The consummation of the transaction is subject
to several conditions including the execution of a definitive agreement and 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.
I-11
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Balance Sheets (Unaudited)
March 31,2000 & March 31, 1999
<TABLE>
<CAPTION>
3/31/00 3/31/99
Unaudited Audited
--------- ---------
Assets
- ------
<S> <C> <C>
Cash & Cash Equivalents $ 17,320 4,405
Accounts Receivable 0 2,044
Inventory (Note B) 266,362 214,374
Prepaid Expenses 15,339 22,091
------- -------
Total Current Assets 299,021 242,914
------- -------
Property, Plant, & Equipment,
net of accumulated depreciation (Note C) 66,223 71,049
Organization Costs, net of accumulated
amortization 6,536 24,398
Syndication Costs 0 14,400
Utility Deposits 280 280
------- -------
Total Assets 372,060 353,041
-------- -------
Liabilities & Shareholders' Equity
- ----------------------------------
Accounts Payable & Accrued Liabilities 72,635 76,322
Current Portion of Long Term Debt 117,691 8,093
------- -------
Total Current Liabilities 190,326 84,415
------- -------
Notes Payable - Long Term 0 24,525
Notes Payable - Shareholders (Note F) 506,072 252,753
------- -------
Total Liabilities 696,398 361,693
------- -------
Common Stock, par value $.01;
10,000,000 shares 78,270 54,095
Authorized, 7,827,006 & 5,355,000
Shares issued and outstanding
respectively
Additional Paid in Capital 637,100 303,287
Deficit Accumulated During the
Development Stage (1,039,708) ( 366,034)
--------- --------
Total Liabilities &
Shareholders' Equity $ 372,060 353,041
--------- --------
</TABLE>
See notes to financial statement
I-12
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended
March 31
2000 1999
-------------------------
<S> <C> <C>
Sales $ 11,967 9,706
Cost of Sales 37,261 20,032
--------- ---------
Gross Profit (25,294) (10,326)
--------- ---------
General & Administrative
Expenses 60,667 55,613
Income (Loss) from operations
Before interest expense (85,961) ( 65,939)
Interest Expense 14,107 7,422
--------- ---------
Net Earnings (Loss) $ (100,068) ( 73,361)
--------- ---------
Net Earning (Loss)
Per Share $(0.013) (0.014)
--------- ---------
Weighted Average Shares 7,827,000 5,355,000
--------- ---------
</TABLE>
See notes to financial statements
I-13
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Cash Flows (Unaudited)
Three Months Ended
March 31, 2000 & March 31, 1999
<TABLE>
<CAPTION>
3/31/00 3/31/99
--------- ---------
Cash flow from operating activities:
<S> <C> <C>
Cash received from customers $ 11,967 8,759
Cash paid to suppliers and employees (108,998) ( 67,978)
Other operating disbursements ( 68,171) ( 33,541)
Depreciation & Amortization 4,299 7,166
------- -------
Net cash provided (used) by operating activities (160,903) ( 85,594)
------- -------
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 0
Debt reduction:
Long - Term 0 ( 2,469)
Short - Term ( 1,210) ( 366)
Proceeds from additional paid in capital 0 53,955
Proceeds from shareholder debt 179,248 36,577
Proceeds from issuance of common stock 0 545
------- -------
Net cash provided (used) by financing activities 178,038 88,242
------- -------
Net increase (decrease) in cash & equivalents 17,135
Cash & Equivalents, beginning of period 185 1,757
------- -------
Cash & Equivalents, end of period 17,320 4,405
------- -------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest Expense 8,152 6,172
</TABLE>
See notes to financial statements
I-14
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Three Months Ended
March 31, 2000 & March 31, 1999
(Unaudited)
3/31/00 3/31/99
--------- ---------
Reconciliation of net income to net cash
Provided by operating activities
Net Income/(Loss) $(100,068) ( 73,361)
Adjustments to reconcile net income to
net cash
Provided by operating activities:
Depreciation and amortization 4,299 7,166
(Increase) decrease in other assets 0 0
(Increase) decrease in accounts receivable 0 ( 947)
(Increase) decrease in prepaid expense 1,642 1,452
(Increase) decrease in inventories ( 63,933) ( 34,214)
(Increase) decrease in fixed assets ( 3,793) ( 4,513)
Increase (decrease) in accounts payable ( 9,765) 12,881
Increase (decrease) in accrued liabilities 7,978 4,692
Increase (decrease) in interest payable 2,737 1,250
------- -------
Total adjustments ( 60,835) ( 12,233)
------- -------
Net cash provided (used) by investing activities (160,903) ( 85,594)
------- -------
See notes to financial statements
I-15
<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:
Years
-----
Machinery and equipment 3-10
Furniture and fixtures 3-10
Leasehold Improvements 5
Depreciation expense for thethree months ended March 31, 2000 is $ 8,421
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.
I-16
<PAGE>
Bad Toys, Inc.
Notes to Financial Statements
NOTE B - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
Mar. 31, 2000 Mar. 31, 1999
------------- -------------
<S> <C> <C>
Work in Process $ 16,511 $ 90,488
Finished goods 249,850 123,886
------- --------
$ 266,361 $ 214,374
</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>
Mar. 31, 2000 Mar. 31, 1999
------------- -------------
<S> <C> <C>
Vehicles $ 20,328 $ 20,328
Equipment 28,649 13,101
Furniture and Fixtures 2,620 2,163
Leasehold Improvements 45,414 45,045
------- -------
97,012 80,637
Less accumulated depreciation (30,788) ( 9,588)
-------- --------
$ 66,223 $ 71,049
</TABLE>
I-17
Bad Toys, Inc.
Notes to Financial Statements
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Mar. 31, 2000 Mar. 31, 1999
------------- -------------
Bank note payable $ 629.04
per month plus
Interest accrued at 9.75%,
<S> <C> <C>
secured by vehicle. $ 0 $ 3,071
Bank note payable $285.60
per month plus
Interest accrued at 9.5%,
secured by vehicle. 2,035 4,774
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 23,000 24,525
Notes payable to stockholders due
Mar. 31, 2000 with interest at
10.5%, unsecured. 598,727 253,201
------- -------
623,762 285,571
------- -------
Less current portion (623,762) ( 8,093)
------- --------
Long term debt $ 0 $ 277,478
------- --------
</TABLE>
Maturities of long-term debt are as follows:
March 31,2000 Amount
------------- ------
2000 623,762
I-18
<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, 1999 that may be offset against future taxable income. If not used,
the carryforwards will expire as follows:
Operating
Losses
---------
Year 11 $ 849
Year 12 15,001
Year 13 43,093
Year 14 85,211
-------
$ 144,154
-------
NOTE F - RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and affiliated entities:
1. Notes payable to related parties as March 31, 2000 and March 31, 1999,
consisted of the following:
<TABLE>
<CAPTION>
Mar. 31, 2000 Mar. 31, 1999
------------- -------------
Notes payable to Larry & Susan
Lunan due December 31, 2000
<S> <C> <C>
with interest at 10.5 $ 506,072 $ 159,367
Notes payable to Barrick
Properties, LLC, with interest
at 10-10.5%, with annual renewal
options. 92,655 24,579
------- -------
$ 598,727 $ 183,946
------- -------
</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.
I-19
<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 March 31, 2000:
<TABLE>
<CAPTION>
Three Months Ending
Mar. 31 Amount
------- ------
<S> <C> <C>
2000 8,100
2001 10,800
2002 8,100
------
$29,700
------
</TABLE>
Rental expense for the three months ended March 31,2000 and the three months
ended March 31, 1999 were $5,010 and $ 5,010, 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
$1,039,708, and current payables, including the current portion of long term
debt, exceed cash and current receivables by $ 661,758 at March 31, 2000.
Management is anticipating completing a merger in the second quarter of 2000. On
March 21, 2000, Bad Toys, Inc. signed a letter of intent to sell control of the
company to MYCA Group, Inc. (now named Mycom.com, Inc.). The consummation of the
transaction is subject to several conditions including the execution of a
definitive agreement and the approval of the transaction by the Bad Toys, Inc.
stockholders. Upon consummation of the transaction, the Mycom.com principals
will be the majority shareholders.
I-20
<PAGE>
CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS
Report of Independent Certified Public Accountants
Board of Directors
MYCA Group, Inc.
We have reviewed the accompanying balance sheet of MYCA Group, Inc.,
as of December 31, 1999 and the related statements of operations and retained
earnings and cash flows for the year 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 MYCA Group,
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 review, we are not aware of any material modifications that
should be made to the accompanying 1999 financial statements in order for them
to be in conformity with generally accepted accounting principles.
The accompanying 1998 financial statements of MYCA Group, Inc. were
compiled by us. A compilation is limited to presenting in the form of
financial statements information that is the representation of management. We
have not audited or reviewed the 1998 financial statements and, accordingly,
do not express an opinion or any other form of assurance on them.
/s/Barnes, Dennig & Company, Ltd.
---------------------------------
April 26, 2000
Cincinnati, Ohio
441 Vine Street, Suite 2000 |X| Cincinnati, OH 45202 |X| Tel: (513)
241-8313 |X| Fax: (513) 241-8303
www.barnesdennig.com
MEMBER, POLARIS INTERNATIONAL
I-21
<PAGE>
MYCA GROUP, INC.
BALANCE SHEET
December 31, 1999
<TABLE>
Current assets:
<S> <C>
Cash and cash equivalents $ 9,528
Accounts receivable:
Trade 715,623
Unbilled work in process 190,422
Prepaid expenses 9,869
---------
Total current assets $ 925,442
---------
Property and equipment, at cost 335,015
Less accumulated depreciation and amortization (144,068)
---------
190,947
---------
Other assets:
Deposits 9,037
---------
$1,125,426
=========
Current liabilities:
Accounts payable $ 125,084
Accrued expenses 111,821
Deferred income taxes 240,800
Current maturities of note payable 69,457
Current maturities of obligations under
capital leases 32,428
---------
Total current liabilities 579,590
---------
Long-term liabilities:
Note payable 171,393
Obligations under capital leases 15,251
Deferred income taxes 11,450
---------
198,094
---------
Shareholder's equity:
Common stock, shares without par 750
100 issued and outstanding 100
Retained earnings 347,642
---------
347,742
---------
$1,125,426
=========
</TABLE>
See accompanying notes and accountants' report
I-22
<PAGE>
MYCA GROUP, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Three Months Ended December 31, 1999 and 1998
<TABLE>
1999 1998
---------- ----------
(Review) (Compiled)
<S> <C> <C>
Professonal service revenue $6,784,701 $6,894,251
Less cost of rebilled expenses 1,137,346 1,365,571
--------- ---------
5,647,355 5,528,680
Professional service costs and general and
administrative expenses:
Labor and benefits 4,586,937 4,145,095
Rent and utilities 288,932 244,382
Other 821,653 903,210
--------- ---------
5,697,522 5,292,687
--------- ---------
Loss from operations (50,167) 235,993
--------- ---------
Other income (expense):
Interest expense (53,541) (5,369)
Interest income 3 -
Loss on disposal of property and equipment (6,818) -
--------- ---------
(60,356) (5,269)
--------- ---------
Income (loss) before taxes (110,523) 230,724
Deferred income tax benefit 35,525 (105,000)
--------- ---------
Net income (loss) (74,998) 125,724
Retained earnings beginning of year 422,640 296,916
--------- ---------
Retained earnings, end of period $ 347,642 $ 422,640
========= =========
</TABLE>
See accompanying notes and accountant's report
I-23
<PAGE>
MYCA GROUP, INC.
STATEMENT OF CASH FLOWS
Three Months Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Review) (Compiled)
<S> <C> <C>
Net income (loss) $ (74,998) $ 125,724
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 76,148 46,885
Loss on disposal of property and equipment 6,818
Deferred income tax (35,525) 105,000
Decrease (increase) in:
Accounts receivable (76,840) (456,070)
Advances and prepaid expenses 10,193 (19,330)
Deposits - (3,711)
Increase (decrease) in:
Accounts payable (73,265) 152,533
Accrued expenses 11,146 (122,379)
--------- ---------
Net cash used in operating activities (2,643) (171,348)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment 27,570 (117,089)
--------- ---------
Net cash used in investing activities 27,570 (117,089)
--------- ---------
Cash flows from financing activities:
Advances on long-term financing 288,105 200,000
Payments on long-term financing (76,729) (30,679)
Payments to line of credit (200,000) -
---------- ---------
Net cash provided by financing
activities 11,376 169,321
---------- ---------
Net decrease in cash (18,837) (119,116)
Cash and cash equivalents:
Beginning of year 28,365 147,481
---------- ----------
End of year $ 9,528 $ 28,365
========== ==========
</TABLE>
See accompanying notes and accountants' report
I-24
<PAGE>
MYCA GROUP, INC.
STATEMENT OF CASH FLOWS
Three Months Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Review) (Compiled)
Supplemental cash flow information:
<S> <C> <C>
Cash paid for interest $ 53,541 $ 5,269
========= ==========
Cash paid for income taxes $ - $ 16,371
========= ==========
</TABLE>
Supplemental schedule of noncash investing
and financial activities:
A capital lease obligation of $77,153 was incurred
in 1999 when the Company entered into a lease
for new equipment
See accompanying notes and accountant's report
I-25
<PAGE>
MYCA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1 - Summary of Significant Accounting Policies
Description of Business
MYCA Group, Inc. ("the Company") is an enterprise communications
and information management
company providing such services as multimedia design and marketing, web
design and web applications for clients around the country. The
Company's principal office is located in Cincinnati, Ohio.
Property and Equipment
Property and equipment are stated at historical cost.
Depreciation is computed using straight-line and accelerated methods
over the estimated useful lives of the assets.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents. The
Company maintains its cash in bank deposit accounts which, at times,
exceed federally insured limits. The Company has not experienced any
losses in such accounts, and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent liabilities and assets
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.
Product Development
The Company currently has various products under development as
part of its E business. During 1999 and 1998, the Company incurred
approximately $400,000 and $600,000, respectively in labor and other
costs related to development. These costs have been expensed as
incurred. Once all research and development costs are completed and
technological feasibility of the software product has been established,
production costs will be capitalized and amortized on a product-by-
product basis.
Advertising
Advertising costs are charged to operations when incurred.
Advertising and promotional costs were $1,900 and $4,067 for the years
ended December 31, 1999 and 1998, respectively.
I-26
<PAGE>
MYCA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
2 - Line of Credit and Note Payable
The Company has available $500,000 under a revolving credit
agreement that expires June 30, 2000. At December 31, 1999, the Company
had no amount outstanding. The line of credit bears interest at the
bank's prime rate plus 1%. The line of credit is secured by
substantially all assets of the Company, as well as the personal
guarantees of the four shareholders.
Note payable consisted of the following as of December 31, 1999:
1999
----
Note payable to bank collateralized by
substantially all assets of the company, payable
in monthly installments of $7,447 including
interest at the bank's prime rate plus 1%,
final payment due January 21, 2003. $240,850
Less amounts due within one year 69,457
-------
$171,393
=======
Maturities of the installment note payable as of December 31, are
as follows:
2000 $69,457
2001 $76,350
2002 $83,928
2003 $11,115
3 - Retirement Plans
The Company sponsors, for all employees, a salary deferral plan,
whereby employees can elect to have a portion of their salary deferred.
The Company contributes a match based on a percentage which is
determined before the end of each plan year. Matching contributions
totaled $25,018 and $13,402 for the years ended December 31, 1999 and
1998, respectively. All such elective deferrals are sheltered from
current income tax, and are held by a third-party trustee.
The Company also sponsors a profit sharing plan, which covers
eligible employees. Discretionary contributions are determined by the
principle shareholders. Management did not make a contribution for the
years ended December 31, 1999 and 1998.
I-27
<PAGE>
MYCA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
4 - Income Taxes
The Company has adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("FAS 109"). Under the
provisions of FAS 109, an entity recognizes deferred tax assets and
liabilities for future tax consequences of events that have been
previously recognized in the Company's financial statements or tax
returns. The measurement of deferred tax assets and liabilities is based
on the provision of enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. Under FAS 109, measurement is
computed using applicable current tax rates. Management has used a 40%
combined federal and state rate for purposes of calculating deferred
taxes.
The Company filed its income tax returns on the cash basis.
Temporary differences consist primarily of the timing of revenue and
expense recognition between the accrual basis and cash basis as well as
differences in depreciation methods and vacation accruals.
Components of the net deferred tax liability are:
1999
----------
Deferred tax assets $ 121,625
Deferred tax liabilities 373,875
--------
Net deferred tax liability $ 252,250
========
At December 31, 1999, the Company has net operating loss
carryforwards totaling approximately $38,000 that may be offset against
future taxable income through 2019.
5 - Leases
The Company rents its office facilities and various equipment
under leases classified as operating leases. Future minimum lease
payments are as follows:
2000 $261,471
2001 242,032
2002 217,957
2003 73,894
Rent expense on all operating leases incurred during the years
ended December 31, 1999 and 1998 was $228,723 and $214,639,
respectively.
I-28
<PAGE>
MYCA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
5 - Leases (Continued)
The Company is a lessee unde capital leases of various computer
equipment and furniture expiring at various times between December 10,
2000 and January 1, 2003. Future minimum lease payments required under
these six capital leases are as follows:
2000 $28,267
2001 16,419
2002 11,113
2003 643
------
56,442
Less amount representing interest 8,763
------
Net present value of minimum
lease obligations 47,679
Less current portion 32,428
------
Long-term portion $15,251
======
Property and equipment includes $77,153 cost and $11,763
accumulated depreciation related to these leased assets. Depreciation expense in
1999, includes $11,763 attributable to these same assets.
6 - Property & Equipment
Property and equipment at December 31, 1999 consisted of the
following:
Furniture and fixtures $ 59,611
Equipment 269,950
Leasehold improvements 5,454
-------
$335,015
=======
7 - Customer Concentrations
For the years ended December 31, 1999 and 1998, the Company had
two customers that accounted for approximately 75% and 81% of its revenues.
8 - Subsequent Event
On April 3, 2000 Bad Toys, Inc., a publicly traded company,
signed an agreement to transfer control of its manufacturing entity to Myca
Group, Inc. Completion of the transaction is subject to the satisfaction of
certain conditions, including the approval of the transaction by the Bad Toys
shareholders.
As part of the transaction, certain non-core segments of Myca
Group, Inc. were spun off into another privately owned corporation on April 3,
2000.
I-29
<PAGE>
CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS
Report of Independent Certified Public Accountants
Board of Directors
MYCA Group, Inc.
We have reviewed the accompanying balance sheet of MYCA Group, Inc., as
of March 31, 2000 and the related statements of operations and retained earnings
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 MYCA Group, 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 review, 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.
/s/Barnes, Dennig & Company, Ltd.
---------------------------------
April 26, 2000
Cincinnati, Ohio
441 Vine Street, Suite 2000
Cincinnati, OH 45202
Tel: (513) 241-8313, Fax: (513) 241-8303
www.barnesdennig.com
MEMBER, POLARIS INTERNATIONAL
I-30
<PAGE>
MYCA GROUP, INC.
BALANCE SHEET
March 31, 2000
<TABLE>
Current assets:
<S> <C>
Cash and cash equivalents $ 77,879
Accounts receivable:
Trade 430,622
Unbilled work in process 506,144
Advances and prepaid expenses 15,220
---------
Total current assets $1,029,865
---------
Property and equipment, at cost 347,012
Less accumulated depreciation and amortization (160,367)
---------
186,645
---------
Other assets:
Deposits 7,234
---------
$1,223,744
=========
Current liabilities:
Line of Credit $ 215,000
Accounts payable 161,232
Accrued other expenses 35,602
Accrued vacation 116,971
Deferred income taxes 174,150
Current maturities of note payable 71,217
Current maturities of obligations under
capital leases 21,853
---------
Total current liabilities 796,025
---------
Long-term liabilities:
Note payable 153,023
Obligations under capital leases 20,495
Deferred income taxes 10,225
---------
183,743
---------
Shareholder's equity:
Common stock, $1 stated value shares
without par 750 authorized; 100 issued
and outstanding 100
Retained earnings 243,876
---------
243,976
---------
$1,223,744
=========
</TABLE>
See accompanying notes and accountants' report
I-31
<PAGE>
MYCA GROUP, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Three Months Ended March 31, 2000
<TABLE>
<S> <C>
Professonal service revenue $1,376,802
Less cost of rebilled expenses 202,806
---------
1,173,996
Professional service costs and general and
administrative expenses:
Labor and benefits 1,046,296
Rent and utilities 75,891
Other 168,594
---------
1,290,781
---------
Loss from operations (116,785)
---------
Other income (expense):
Interest expense (8,738)
Professional fees related to reorganization (46,118)
---------
(54,856)
---------
Loss before taxes (171,641)
Deferred income tax benefit 67,875
---------
Net loss (103,766)
Retained earnings beginning of period 347,642
---------
Retained earnings, end of period $ 243,876
=========
</TABLE>
See accompanying notes and accountant's report
I-32
<PAGE>
MYCA GROUP, INC.
STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2000
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (103,766)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 16,299
Deferred tax benefit (67,875)
Decrease (increase) in:
Accounts receivable (30,721)
Advances and prepaid expenses (5,351)
Deposits 1,803
Increase (decrease) in:
Accounts payable 36,148
Accrued expenses 40,752
---------
Net cash used in operating activities (112,711)
---------
Cash flows from investing activities:
Purchases of property and equipment (11,997)
---------
Net cash used in investing activities (11,997)
---------
Cash flows from financing activities:
Payments on capital leases (5,331)
Payments on long-term financing (16,610)
Additions to line of credit 215,000
----------
Net cash provided by financing activities 193,059
----------
Net increase in cash 68,351
Cash and cash equivalents:
Beginning of year 9,528
----------
End of year $ 77,879
==========
Supplemental cash flow information:
Cash paid for interest $ 8,738
==========
</TABLE>
See accompanying notes and accountants' report
I-33
<PAGE>
MYCA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1 - Summary of Significant Accounting Policies
------------------------------------------
Description of Business
-----------------------
MYCA Group, Inc. ("the Company") is an enterprise communications
and information management company providing such services as multimedia
design and marketing, web design and web applications for clients around
the country. The Company's principal office is located in Cincinnati,
Ohio.
Property and Equipment
----------------------
Property and equipment are stated at historical cost.
Depreciation is computed using straight-line and accelerated methods
over the estimated useful lives of the assets.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents. The
Company maintains its cash in bank deposit accounts which, at times,
exceed federally insured limits. The Company has not experienced any
losses in such accounts, and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities and assets 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.
Product Development
-------------------
The Company currently has various products under development as
part of its E business. For the three months ended March 31, 2000, the
Company incurred approximately $50,000 in labor and other costs related
to development. These costs have been expensed as incurred. Once all
research and development costs are completed and technological
feasibility of the software product has been established, production
costs will be capitalized and amortized on a product-by-product basis.
Advertising
-----------
Advertising costs are charged to operations when incurred.
Advertising and promotional costs were $1,371 for the three months ended
March 31, 2000.
I-34
<PAGE>
MYCA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
2 - Line of Credit and Note Payable
-------------------------------
The Company has available $500,000 under a revolving credit
agreement that expires June 30, 2000. At March 31, 2000, the Company had
$215,000 outstanding. The line of credit bears interest at the bank's
prime rate plus 1%. The line of credit is secured by substantially all
assets of the Company, as well as the personal guarantees of the four
shareholders.
Note payable consisted of the following as of March 31, 2000:
Note payable to bank collateralized by
substantially all assets of the company,
payable in monthly installments of $7,447
including interest at the bank's prime
rate plus 1%, final payment due January 21, 2003. $224,240
Less amounts due within one year 71,217
-------
$153,023
Maturities of the installment note payable as of March 31, 2000 are as
follows:
Remainder of 2000 $52,904
2001 $75,996
2002 $83,745
2003 $11,595
3 - Retirement Plans
----------------
The Company sponsors, for all employees, a salary deferral plan,
whereby employees can elect to have a portion of their salary deferred.
The Company contributes a match based on a percentage which is
determined before the end of each plan year. Matching contributions
totaled $5,362 for the three months ended March 31, 2000. All such
elective deferrals are sheltered from current income tax, and are held
by a third-party trustee.
The Company also sponsors a profit sharing plan, which covers
eligible employees. Discretionary contributions are determined by the
principle shareholders. The amount of contribution, if any, has yet to
be determined for the year ended December 31, 2000.
I-35
<PAGE>
MYCA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
4 - Income Taxes
------------
The Company has adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("FAS 109"). Under the
provisions of FAS 109, an entity recognizes deferred tax assets and
liabilities for future tax consequences of events that have been
previously recognized in the Company's financial statements or tax
returns. The measurement of deferred tax assets and liabilities is based
on the provision of enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. Under FAS 109, measurement is
computed using applicable current tax rates. Management has used a 40%
combined federal and state rate for purposes of calculating deferred
taxes.
The Company filed its income tax returns on the cash basis
through 1999. Temporary differences consist primarily of the timing of
revenue and expense recognition between the accrual basis and cash basis
as well as differences in depreciation methods and vacation accruals.
Components of the net deferred tax liability are:
Deferred tax assets $ 165,625
Deferred tax liabilities 350,000
---------
Net deferred tax liability $ (184,375)
=========
At March 31, 2000, the Company has net operating loss
carryforwards totaling approximately $40,000 that may be offset against
future taxable income through 2019.
Management feels that no valuation allowance is necessary at
March 31, 2000 as the Company will have adequate taxable income in the
future from the Company's adoption of accrual accounting for income tax
purposes in the year 2000 and future operations.
5 - Leases
------
The Company rents its office facilities and various equipment
under leases classified as operating leases. The Company is responsible
for all executory costs.
Future minimum lease payments are as follows:
2000 $195,285
2001 $242,032
2002 $217,957
2003 $73,894
Rent expense on all operating leases incurred during the three
months ended March 31, 2000 was $71,659.
I-36
<PAGE>
MYCA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
5 - Leases (Continued)
------------------
The Company is a lessee under capital leases of various computer
equipment and furniture expiring at various times between December 10,
2000 and January 1, 2003. These leases carry bargain purchase options
and imputed interest between 10% and 25%. The Company is required to pay
all executory costs related to the equipment. Future minimum lease
payments required under these six capital leases are as follows:
2000 $21,200
2001 16,419
2002 11,113
2003 643
----------
49,375
Less amount representing interest 7,027
----------
Net present value of minimum lease obligations 42,348
Less current portion 21,853
----------
Long-term portion $20,495
==========
Property and equipment includes $77,153 cost and $14,993
accumulated amortization related to these leased assets. Depreciation
expense includes $3,230 attributable to these same assets.
6 - Property & Equipment
--------------------
Property and equipment at March 31, 2000 consisted of the
following:
Furniture and fixtures $ 59,611
Equipment 281,947
Leasehold improvements 5,454
-------
$347,012
=======
7 - Customer Concentrations
For the three months ended March 31, 2000, the Company had two
customers that accounted for 81% of its revenues and approximately
$650,000 of accounts receivable at March 31, 2000. The Company grants
unsecured credit to substantially all customers.
I-37
<PAGE>
MYCA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
8 - Subsequent Event
----------------
On April 3, 2000 Bad Toys, Inc., a publicly traded company,
signed an agreement to transfer control of its manufacturing entity to
Myca Group, Inc. Completion of the transaction is subject to the
satisfaction of certain conditions, including the approval of the
transaction by the Bad Toys shareholders.
As part of the transaction, certain non-core segments of Myca
Group, Inc. were spun off into another privately owned corporation on
April 3, 2000.
Professional fees related to this transaction have been charged
to expense pending completion of the transaction.
I-38
<PAGE>
ANNEX II
CERTIFICATE OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
BAD TOYS, INC.
BAD TOYS, INC., a corporation organized and existing under the General
Corporation Law of the State of Nevada (the "Corporation"), does hereby certify
as follows:
1. The Articles of Incorporation of the Corporation are hereby amended
by deleting Article First in its entirety and substituting the following in lieu
thereof:
FIRST: The name of the Corporation is:
Mycom.com, Inc.
2. The Articles of Incorporation of the Corporation are hereby amended
by deleting Article Third in its entirety and substituting the following in lieu
thereof.
THIRD: The total number of shares of stock which the Corporation
shall have authority to issue is 100,000,000 of which stock 10,000,000
shares of the par value of $0.01 per share shall be designated Preferred
Stock ("Preferred Stock") and of which 90,000,000 shares of the par
value of $0.01 per share shall be designated Common Stock ("Common
Stock"). The Board of Directors of the Corporation is authorized to fix
and determine any class or series of Preferred Stock and the number of
shares of each class or series and to prescribe the powers,
designations, preferences, limitations, restrictions and relative rights
of any class or series all as established by resolution of the Board of
Directors and in accordance with the Nevada Revised Statutes, as the
same may be amended and supplemented.
3. This amendment to the Articles of Incorporation was duly adopted in
accordance with the provisions of Section ____ of the General Corporation Law of
the State of Nevada.
II-1
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed and attested by its duly authorized officers, this ______ day of
______________, 2000.
BAD TOYS, INC.
By_________________________________
President
ATTEST:
- ------------------------------
Susan Lunan, Secretary
[CORPORATE SEAL]
II-2
<PAGE>
ANNEX III
CERTIFICATE OF AMENDMENT
TO THE
BYLAWS
OF
BAD TOYS, INC.
BAD TOYS, INC., a corporation organized and existing under the General
Corporation Law of the State of Nevada (the "Corporation"), does hereby certify
as follows:
1. The Bylaws of the Corporation are hereby amended by deleting Sections
1 and 5 of Article III in their entirety and substituting the following in lieu
thereof:
SECTION 1. NUMBER, ELECTION AND TERM. The number of directors
which shall constitute the whole Board shall be not less than four and
no more than nine. Such number of directors shall from time to time be
determined by either a majority vote of the stockholders or by the vote
of a majority of the directors then in office and shall be set forth in
the notice of any meeting of stockholders for the purpose of electing
directors. Each director elected shall hold office until his successor
shall be elected and shall be duly qualified. All vacancies, including
those caused by an increase in the number of directors, may be filled by
a majority of the remaining directors, though less than a quorum. Under
no circumstances shall any change in the number of directors
constituting the whole Board, effected by the vote of a majority of
directors then in office, result in the removal or resignation of a
director that has been duly elected by the stockholders, prior to the
expiration of any such director's term in office. Directors need not be
residents of Nevada or stockholders of the Corporation. Any amendment of
this Section 1 of the Bylaws must be approved by the requisite vote of
the stockholders.
2. This amendment to the Bylaws was duly adopted in accordance with the
provisions of Section __ of the General Corporation Law of the State of Nevada.
III-1
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed and attested by its duly authorized officers, this ______ day of
____________, 2000.
BAD TOYS, INC.
By_________________________________
President
ATTEST:
- ------------------------------
Susan Lunan, Secretary
[CORPORATE SEAL]
III-2
<PAGE>
ANNEX IV
PLAN AND AGREEMENT OF MERGER
BETWEEN
BAD TOYS, INC. AND MYCA GROUP, INC.
THIS PLAN AND AGREEMENT OF MERGER (the "Agreement") is made and entered
into this 31st day of March, 2000 by and between Bad Toys, Inc. ("Bad Toys"), a
Nevada corporation, and Myca Group, Inc.
("Myca Group"), an Ohio corporation.
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Bad Toys and of Myca Group deem it
advisable for the general welfare and advantage of Bad Toys and Myca Group and
their respective shareholders that Myca Group merge with and into Bad Toys
pursuant to this Agreement and pursuant to the applicable provisions of the laws
of the State of Nevada and State of Ohio; and
WHEREAS, the parties intend that the transaction shall constitute a
tax-free reorganization for federal income tax purposes.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements herein contained and other good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged by the parties, the
parties hereby agree as follows:
1. The Merger; Tax Effect. Upon the terms and subject to the conditions
set forth in this Agreement, at the Effective Time (as defined in Section 3), in
accordance with the applicable statutory provisions of the State of Nevada and
State of Ohio, Myca Group will be merged with and into Bad Toys and the separate
IV-1
<PAGE>
corporate existence of Myca Group shall thereupon cease (the "Merger"). Bad Toys
will be the surviving corporation in the Merger (hereafter being sometimes
called the "Surviving Corporation"), and the separate corporate existence of Bad
Toys with all of its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger. The parties intend for the Merger to qualify
as a tax-free reorganization within the meaning of Section 368(a)(1)(A) and
related provisions of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Closing. The delivery of the certificates, documents and other
instruments called for by this Agreement shall take place at the office of Frost
& Jacobs, 2500 PNC Center, 201 E. Fifth Street, Cincinnati, Ohio 45202, at a
closing (the "Closing") on a date fixed by agreement of Bad Toys and Myca Group
(the "Closing Date") as promptly as practicable within ten business days after
the latest to occur: the approval of the Merger by the Bad Toys shareholders and
the satisfaction of all conditions precedent (or the waiver thereof) to the
Merger.
3. Effective Time. As soon as practicable following the Closing, Bad
Toys will cause (i) the Articles of Merger (the "Nevada Articles of Merger") to
be filed with the Secretary of State of the State of Nevada (the "Nevada
Secretary of State") and (ii) the Articles of Merger (the "Ohio Articles of
Merger") to be filed with the Secretary of State of the State of Ohio (the "Ohio
Secretary of State"). The Merger will become effective (the "Effective Time") on
the date on which the latest of the following actions will have been completed:
(i) at the time when the Nevada Certificate of Merger is accepted for filing by
the Nevada Secretary of State, (ii) at the time when the Ohio Articles of Merger
are accepted for filing by the Ohio Secretary of State or (iii) such later time
agreed to by Bad Toys and Myca Group and established under the Nevada and Ohio
Articles of Merger but not later than 30 days after the Closing Date.
IV-2
<PAGE>
4. Governing Law; Articles of Incorporation. The laws which are to
govern the Surviving Corporation are the laws of the State of Nevada. The
Articles of Incorporation of the Surviving Corporation, at the Effective Time,
will be the Articles of Incorporation of the Surviving Corporation until the
same will be further amended or altered in accordance with the provisions
thereof.
5. Regulations. The Bylaws of Bad Toys at the Effective Time will be the
Bylaws of the Surviving Corporation until the same will be altered or amended in
accordance with the provisions thereof.
6. Directors and Officers. The persons serving as Directors of Myca
Group at the Effective Time will be the Directors of the Surviving Corporation
until their respective successors are duly elected and qualified. Subject to the
authority of the Board of Directors as provided by law and the Bylaws of the
Surviving Corporation, the officers of Myca Group at the Effective Time will be
the officers of the Surviving Corporation.
7. Conversion of Shares in the Merger. The mode of carrying into effect
the Merger provided in this Agreement and the manner and basis of converting the
shares of the constituent corporation into shares of the Surviving Corporation
are as follows:
(a) Bad Toy's Common Shares. None of the shares of Bad Toys'
common stock issued at the Effective Time will be converted as a result of the
Merger, but all of such shares will remain issued shares of Bad Toys. Authorized
but unissued shares of Bad Toys stock and treasury shares of Bad Toys will not
be converted in the Merger but will remain authorized but unissued shares and
treasury shares of Bad Toys.
(b) Myca Group's Common Shares. At the Effective Time, each Myca
Group Common Share outstanding immediately prior to the Effective Time will by
virtue of the Merger be converted into
IV-3
<PAGE>
shares of Bad Toys common stock as determined pursuant to Section 7(c) below,
and each Myca Group Common Share held in Treasury immediately prior to the
Effective Time will be cancelled.
(c) Consideration; Exchange Ratio.
(i) Each Myca Group Common Share issued and outstanding
immediately prior to the Effective Time shall be
converted into, and become exchangeable for,
400,000 shares of Bad Toys common stock. In the
event that prior to the Effective Time the
outstanding Bad Toys common stock has been
increased, decreased or changed into or exchanged
for a different number or kind of shares or
securities by reorganization, recapitalization,
reclassification, stock dividend, stock split or
other like changes in Bad Toy's capitalization, all
without Bad Toys receiving consideration therefor,
then an appropriate and proportionate adjustment
shall be made in the number of shares of Bad Toys
common stock to be received for each Myca Group
Common Share. In addition, as part of the
consideration for the Merger, each Myca Group
shareholder shall receive $200,000 or all of the
Myca Group shareholders shall receive $800,000 in
the aggregate.
(ii) Each holder of outstanding Myca Group Common Shares
after the Effective Time, upon surrender of their
stock certificates to Bad Toys, will be entitled to
receive one or more stock certificates of Bad Toys
into which the Myca Group Common Shares so
surrendered will have been converted as determined
pursuant to
IV-4
<PAGE>
Section 7(c)(i) and the cash described therein. In
the event that any holder of Myca Group's Common
Shares is entitled to a fractional interest in a
share of Bad Toys common stock, such holder shall
receive in lieu thereof one share of common stock
of Bad Toys.
8. Effect of the Merger. At the Effective Time, the Surviving
Corporation will succeed to, without other transfer, and will possess and enjoy,
all the rights, privileges, immunities, powers and franchises both of a public
and a private nature, and be subject to all restrictions, disabilities and
duties, of each of Bad Toys and Myca Group, and all the rights, privileges,
immunities, powers and franchises of each of Bad Toys and Myca Group and all
property, real, personal and mixed, and all debts due to either of such
constituent corporations on whatever account, for stock subscriptions as well as
for all other things in action or belonging to each of such corporations, will
be vested in the Surviving Corporation; and all property, rights, privileges,
immunities, powers and franchises, and all and every other interest will be
thereafter as effectually the property of the Surviving Corporation as they were
of Bad Toys and Myca Group, respectively, and the title to any real estate
vested by deed or otherwise in either of Bad Toys and Myca Group will not revert
or be in any way impaired by reason of the Merger; provided, however, that all
rights of creditors and all liens upon any property of either of Bad Toys or
Myca Group will be preserved unimpaired, limited in lien to the property
affected by such liens at the Effective Time, and all debts, liabilities and
duties of such constituent corporations, respectively, will thenceforth attach
to the Surviving Corporation and may be enforced against it to the same extent
as if such debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
IV-5
<PAGE>
9. Approval of Shareholders. This Agreement will be submitted to the
shareholders of Bad Toys for adoption and approval on or before May 31, 2000 or
such later date as the Boards of Directors of Bad Toys and Myca Group mutually
approve.
10. Representations by Bad Toys. Bad Toys represents as follows:
(a) Bad Toys is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada and is authorized to
transact its business and is in good standing in each state in which its
ownership of assets or conduct of business requires such qualifications.
(b) Subject to shareholder approval of the transactions
contemplated by this Agreement, Bad Toys has the right, power, legal capacity
and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement and the documents, instruments and certificates
to be executed and delivered by it pursuant to this Agreement. The execution and
delivery of and performance of the obligations contained in this Agreement by
Bad Toys and all documents, instruments and certificates made or delivered by
Bad Toys pursuant to this Agreement, and the transactions contemplated hereby,
have been or as of the Closing will be duly authorized by all necessary action
on the part of Bad Toys.
(c) Subject to shareholder approval of the transactions
contemplated by this Agreement, the terms and provisions of this Agreement and
all documents, instruments and certificates made or delivered from time to time
by Bad Toys hereunder and thereunder shall constitute valid and legally binding
obligations of Bad Toys, enforceable against Bad Toys in accordance with the
terms hereof and thereof.
(d) The execution and delivery of this Agreement by Bad Toys do
not require any consent of, notice to or action by any
IV-6
<PAGE>
person or governmental authority, other than as provided in Exhibit 10(d)
hereto. The performance of this Agreement by Bad Toys and the consummation by
Bad Toys of the transactions contemplated hereby will not require any consent
of, notice to or action by any person or governmental authority, other than as
provided in Exhibit 10(d) hereto.
(e) The making and performance of this Agreement by Bad Toys and
the consummation of the transactions contemplated hereby will not result in a
breach or violation by Bad Toys of any of the terms or provisions of, or
constitute a default under, its Articles of Incorporation, its Bylaws, any
indenture, mortgage, deed of trust (constructive or other), loan agreement,
lease, franchise, license or other agreement or instrument to which Bad Toys is
bound, any statute, or any judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to Bad Toys or any of the
properties of Bad Toys.
(f) Attached hereto as Exhibit 10(f) are financial statements of
Bad Toys for the annual period ended December 31, 1999 and as of December 31,
1999, which have been audited in accordance with GAAP. These financial
statements present fairly the financial condition and results of operations of
its business, in accordance with generally accepted accounting principles as of
the dates thereof and the periods covered thereby.
(g) As of the date hereof, the executive officers and directors
of Bad Toys are Larry Lunan and Susan Lunan (the "Lunans") and Roger Warren.
(h) Bad Toys has authorized capital of ten million shares of
Common Stock. Of these shares, 7,827,006 are issued and outstanding. Except as
described in Exhibit 10(h) hereto, there are no existing agreements, options,
warrants, rights, calls or commitments of any kind providing for the issuance of
any shares, or for the repurchase or redemption of shares, of Bad Toys' capital
stock, and there are no outstanding securities or other instruments
IV-7
<PAGE>
convertible into or exchangeable for shares of such capital stock and no
commitments to issue such securities or instruments. Each person that has such a
right shall surrender it to Bad Toys for no consideration other than that of
promoting the Closing of the transaction described in this Agreement. All of the
outstanding shares of Bad Toys common stock have been duly authorized and
validly issued and are fully paid and nonassessable. None of the outstanding
shares of Bad Toys common stock were issued in violation of the federal or any
state securities laws.
(i) Attached hereto as Exhibit 10(i) is a true and correct list
of all known material liabilities of Bad Toys, contingent or matured, as of
February 29, 2000, which are not reflected on the balance sheet dated as of
February 29, 2000 and which arose in the ordinary course of business.
(j) There is no claim for personal injury, products liability,
property or other damages, grievance, action, proceeding or governmental
investigation pending or, to Bad Toys' knowledge, threatened against Bad Toys or
affecting its assets or business, other than as listed on Exhibit 10(j) hereto.
(k) Bad Toys has filed, or will have filed prior to Closing, all
income, franchise, real property, personal property, sales, employment and other
tax returns required to be filed by any taxing authority and has paid or accrued
all taxes required to be paid by it in respect to the periods covered by such
returns, whether or not shown on such returns, and Bad Toys has no liability for
such taxes in excess of the amounts so paid. A true and complete copy of all
federal income tax returns for the tax year ended December 31, 1999 as filed
with the Internal Revenue Service has been delivered to the MYCA Group, together
with all supporting schedules thereto. Bad Toys is not delinquent in the payment
of any tax, assessment or governmental charge, has not requested any extension
of time within which to file any tax returns which have not since been filed,
and no deficiencies for any tax, assessment
IV-8
<PAGE>
or governmental charge have been claimed, proposed or assessed by any taxing
authority. Bad Toys' federal income tax return has not been audited. As used
herein, the term "tax" includes all governmental taxes and related governmental
charges imposed by the laws and regulations of any governmental jurisdiction.
(l) Bad Toys' business, properties, plant and offices do not
exist or operate in violation of any federal, state or local code, law,
regulation or ordinance regulating zoning, city planning, fire safety,
environmental protection or similar matters. All permits, licenses, franchises,
consents and other authorizations necessary for the conduct of Bad Toys'
business have been timely obtained and are currently in effect. Bad Toys is not
in violation of any term or provision of any such permit, license, franchise,
consent or other authorization.
(m) Except as described on Schedule 10(m), Bad Toys is not a
party as of the date hereof to any written or oral (i) bonus, pension, insurance
or other plan providing employee benefits, (ii) contract, or series of related
contracts with any one vendor or customer, for purchase, sale or exchange made
in the ordinary course of business and in an amount in excess of $1,000, (iii)
contract not made in the ordinary course of business, (iv) franchise, licensing
or manufacturer's representative agreement, (v) contract with any shareholder of
Bad Toys or an affiliate of any shareholder of Bad Toys within the meaning of
the federal securities laws, or (vi) any contract for borrowed money either as
borrower or lender. All agreements listed on Schedule 10(m), to the extent that
the same give rights to Bad Toys, are enforceable by Bad Toys, and Bad Toys has
not received notice of any claim to the contrary. Complete and correct copies of
all items listed in Schedule 10(m) have been delivered to the MYCA Group prior
to the execution of this Agreement.
Except as listed in Schedule 10(m), to the knowledge of
Bad Toys, all parties other than Bad Toys obligated under the
IV-9
<PAGE>
agreements listed on Schedule 10(m) are in compliance in all material respects
with the terms thereof and there has been no notice of default or termination
with respect to any such agreement that has not been cured or waived in writing.
(n) No employee pension benefit plan within the meaning of
Section 3(a) of the Employment Retirement Income Security Act of 1994, as
amended ("ERISA"), has been maintained or sponsored by Bad Toys or exists to
which Bad Toys has contributed since its formation or is obligated to contribute
for the benefit of its employees. Neither Bad Toys nor any corporation or other
entity affiliated with Bad Toys contributes to, is obligated to contribute to,
or has during the last five years contributed to or been obligated to contribute
to, and none of Bad Toys' employees are participants in, any multi-employer plan
within the meaning of Section 4001(a) of ERISA
(o) Since its formation, Bad Toys has not infringed any patents,
trademarks, service marks or trade names registered to or used by it in its
business, nor has Bad Toys claimed any such infringement.
(p) Bad Toys is not a party to or bound by any collective
bargaining agreement or any other agreement with a labor union.
(q) The number of shares of Bad Toys that the Lunans own
of record, beneficially or otherwise, is as follows (collectively
referred to herein as the "Lunans Shares"):
Unrestricted 4,045,000
Restricted -
Total: 796,700
---------
4,841,700
(r) All of the unrestricted Lunans Shares were issued to them
pursuant to the exemption from registration provided by Regulation D, Rule 504.
No legend or other reference to any purported lien or encumbrance appears upon
any certificate
IV-10
<PAGE>
representing the unrestricted Lunans Shares. The Lunans are the record and
beneficial owners of all the Lunans Shares, free and clear of all liens,
encumbrances, restrictions, claims and equities whatsoever, other than those
imposed by federal securities laws.
(s) Except as disclosed in Exhibit 10(s) to Bad Toys' knowledge,
Bad Toys is not in violation of any Environmental Laws; (B) no Lien has been
attached to any of its assets or properties pursuant to any Environmental Laws;
(C) Bad Toys has utilized only haulers and transporters who are in possession of
all applicable Permits to dispose of any Hazardous Substance; (D) there has been
no treatment, storage, disposal or release of any Hazardous Substance by Bad
Toys or, to Bad Toys' knowledge, any other person on any property on which its
business is or has been conducted at any time in any manner that could
reasonably be expected to lead to a material liability; (E) Bad Toys is not
currently undertaking, or has completed, any remedial or response action
relating to any such disposal or release at or from any property on which its
business is or has been conducted, as required by Environmental Laws; (F) no
Permits are required by applicable Environmental Laws ("Environmental Permits")
with respect to the business of Bad Toys; (G) Bad Toys has not received formal
or informal written or oral notice of any civil, criminal or administrative
claims pending or threatened with respect to its business that is based on or
related to any Environmental Laws; and (H) to Bad Toys' knowledge, there is no
friable asbestos at, on, about, under or within any property on which its
business is or has been conducted.
For the purposes of this Section 10(s), the term "Environmental
Laws" means any Federal, state, local or municipal Law, Permit or Order,
including but not limited to the requirement to register underground storage
tanks, relating to:
emissions, discharges, releases or threatened releases of
Hazardous Substances into the natural environment, including,
without limitation, into ambient
IV-11
<PAGE>
air, soil, sediments, land surface or subsurface, buildings or
facilities, surface water, groundwater, publicly-owned treatment
works, septic systems or land;
the generation, treatment, storage, disposal, use,
handling, manufacturing, transportation or shipment of
Hazardous Substances; or
otherwise relating to pollution or the protection of
health or safety or the environment, or solid waste handling,
treatment or disposal or operation.
The term "Hazardous Substances" means hazardous materials, contaminants,
pollutants, oils, constituents, hazardous wastes and hazardous substances as
those terms are defined in the following statutes and their implementing
regulations: the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. ss. 9601
et seq., the Clean Water Act, 33 U.S.C. ss. 1251 et seq., the Toxic Substances
Control Act, 15 U.S.C. ss. 2601 et seq., the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5, and any other
hazardous, toxic or noxious substance, materials, pollutant or solid or liquid
waste that is regulated by, or forms the basis of liability under, any
Environmental Law.
(t) Bad Toys (including its officers and employees) has not
employed any broker, agent or finder or incurred any liability for any brokerage
fees, agent's commissions or finder's fees or other similar obligations in
connection with the transactions contemplated hereby.
(u) Bad Toys has not made any material misstatement of fact or
omitted to state any material fact necessary or desirable
IV-12
<PAGE>
to make complete, accurate and not misleading every representation and warranty
set forth herein.
11. Representations of Myca Group. Myca Group represents as follows:
(a) Myca Group is a corporation duly organized, validly existing
and in good standing under the laws of the State of Ohio and is authorized to
transact its business and, except as set forth on Exhibit 11(a), is in good
standing in each state in which its ownership of assets or conduct of business
requires such qualifications. Myca Group is engaged in the business of computer
software development and application.
(b) The authorized capital stock of Myca Group consists of 750
shares of common stock, without par value, of which 100 shares are issued and
outstanding (the "Myca Group Shares"). Each Myca Group Shareholder is the record
and beneficial owner of the Myca Group Shares owned by him or her, free and
clear of all liens and encumbrances. Except as provided in Exhibit 11(b) hereto,
no legend or other reference to any purported lien or encumbrance appears upon
any certificate representing the Myca Group Shares. All of the Myca Group Shares
have been duly authorized and are validly issued, fully paid and non-assessable.
Except for the Share Purchase Agreement dated October 3, 1991, as amended on
October 27, 1998, there are no existing agreements, options, warrants, rights,
calls or commitments of any kind to which Myca Group or any Myca Group
Shareholder is a party or by which any of such persons or entities is bound
providing for the issuance of any shares, or for the repurchase or redemption of
shares, of Myca Group's capital stock, and there are no outstanding securities
or other instruments convertible into or exchangeable for shares of such capital
stock and no commitments to issue such securities or instruments. None of the
Myca Group Shares were issued in violation of the federal or any state
securities laws.
IV-13
<PAGE>
(c) The Myca Group has the right, power, legal capacity and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement and the documents, instruments and certificates to be
executed and delivered by the Myca Group pursuant to this Agreement. The
execution and delivery of and performance of the obligations contained in this
Agreement by the Myca Group and all documents, instruments and certificates made
or delivered by the Myca Group pursuant to this Agreement, and the transactions
contemplated hereby, have been or as of the Closing Date will be duly authorized
by all necessary action on the part of the Myca Group.
(d) The terms and provisions of this Agreement and all documents,
instruments and certificates made or delivered from time to time by the Myca
Group hereunder and thereunder constitute valid and legally binding obligations
of the Myca Group, enforceable against the Myca Group in accordance with the
terms hereof and thereof.
(e) The execution and delivery of this Agreement by the Myca
Group does not require any consent of, notice to or action by any person or
governmental authority, which consent, notice or action has not been made, given
or otherwise accomplished, and satisfactory evidence thereof has been delivered
to Bad Toys. The performance of this Agreement by the Myca Group and the
consummation by the Myca Group of the transactions contemplated hereby will not
require any consent of, notice to or action by any person or governmental
authority.
(f) The making and performance of this Agreement by the Myca
Group and the consummation of the transactions contemplated hereby will not
result in a breach or violation by the Myca Group of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust (constructive or other), loan agreement, lease, franchise, license or
other agreement or instrument to which the Myca Group is bound, any
IV-14
<PAGE>
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to the Myca Group or any of the
properties of Myca Group.
(g) Attached hereto as Exhibit 11(g) are unaudited financial
statements of Myca Group for the periods ended December 31, 1997 and 1998 and
unaudited financial statements of Myca Group for the period from January 1, 1999
through December 31, 1999. These financial statements present fairly the
financial condition and results of operations of its business, in accordance
with generally accepted accounting principles, except for those adjustments that
would be required for audited financial statements.
(h) As of the date hereof, the executive officers and directors
of Myca Group are Patricia Massey, Joan Carroll, George Young, G. Allan Massey
and Sharon Pinder (director only).
(i) Attached as Exhibit 11(i) is a true and correct list of all
material liabilities of Myca Group, contingent or matured, which are not
reflected on the balance sheet dated as of February 29, 2000 and which arose in
the ordinary course of business.
(j) There is no claim for personal injury, products liability,
property or other damages, grievance, action, proceeding or governmental
investigation pending, or to Myca Group's knowledge, threatened against Myca
Group or affecting its assets or business, other than as listed on Exhibit 11(j)
hereto.
(k) Myca Group has filed, or will have filed prior to Closing,
all income, franchise, real property, personal property, sales, employment and
other tax returns required to be filed by any taxing authority and has paid or
accrued all taxes required to be paid by it in respect to the periods covered by
such returns, whether or not shown on such returns, and Myca Group has no
liability for such taxes in excess of the amounts so paid. A true and complete
copy of all federal income tax returns for the tax
IV-15
<PAGE>
year ended December 31, 1998 as filed with the Internal Revenue Service has been
delivered to Bad Toys, together with all supporting schedules thereto. Myca
Group in not delinquent in the payment of any tax, assessment or governmental
charge, has not requested any extension of time within which to file any tax
returns which have not since been filed, and no deficiencies for any tax,
assessment or governmental charge have been claimed, proposed or assessed by any
taxing authority. Myca Group's federal income tax return has not been audited.
As used herein, the term "tax" includes all governmental taxes and related
governmental charges imposed by the laws and regulations of any governmental
jurisdiction.
(l) Myca Group's business, properties, plant and offices do not
exist or operate in violation of any federal, state or local code, law,
regulation or ordinance regulating zoning, city planning, fire safety,
environmental protection or similar matters. All permits, licenses, franchises,
consents and other authorizations necessary for the conduct of Myca Group's
business have been timely obtained and are currently in effect. Myca Group is
not in violation of any term or provision of any such permit, license,
franchise, consent or other authorization.
(m) Except as described on Schedule 11(m), Myca Group is not a
party as of the date hereof to any written or oral (i) bonus, pension, insurance
or other plan providing employee benefits, (ii) contract, or series of related
contracts with any one vendor or customer, for purchase, sale or exchange made
in the ordinary course of business and in an amount in excess of $1,000, (iii)
contract not made in the ordinary course of business, (iv) franchise, licensing
or manufacturer's representative agreement, (v) contract with any shareholder of
Myca Group or an affiliate of any shareholder of Myca Group within the meaning
of the federal securities laws, or (vi) any contract for borrowed money either
as borrower or lender. All agreements listed on Schedule 11(n), to the extent
that the same give rights to Myca Group, are enforceable
IV-16
<PAGE>
by Myca Group, and Myca Group has not received notice of any claim to the
contrary. Complete and correct copies of all items listed in Schedule 11(m) have
been delivered to Bad Toys prior to the execution of this Agreement.
Except as listed in Schedule 11(m), to the knowledge
of Myca Group, all parties other than Myca Group obligated under the agreements
listed on Schedule 11(n) are in compliance in all material respects with the
terms thereof and there has been no notice of default or termination with
respect to any such agreement that has not been cured or waived in writing.
(n) Except as set forth on Exhibit 11(n), no employee pension
benefit plan within the meaning of Section 3(a) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), has been maintained or
sponsored by Myca Group or exists to which Myca Group has contributed since its
formation or is obligated to contribute for the benefit of its employees.
Neither Myca Group nor any corporation or other entity affiliated with Myca
Group contributes to, is obligated to contribute to, or has during the last five
years contributed to or been obligated to contribute to, and none of Myca
Group's employees are participants in, any multi-employer plan within the
meaning of Section 4001(a) of ERISA.
(o) Since its formation, Myca Group has not infringed any
patents, trademarks, service marks or trade names registered to or used by it in
its business, nor has Myca Group claimed any such infringement.
(p) Myca Group is not a party to or bound by any collective
bargaining agreement or any other agreement with a labor union.
(q) Except as disclosed in Exhibit 11(q), (A) to Myca Group's
knowledge, Myca Group is not in violation of any Environmental Laws; (B) no Lien
has been attached to any of its assets or properties pursuant to any
Environmental Laws; (C) Myca
IV-17
<PAGE>
Group has utilized only haulers and transporters who are in possession of all
applicable Permits to dispose of any Hazardous Substance; (D) there has been no
treatment, storage, disposal or release of any Hazardous Substance by Myca Group
or, to Myca Group's knowledge, any other person on any property on which its
business is or has been conducted at any time in any manner that could
reasonably be expected to lead to a material liability; (E) Myca Group is not
currently undertaking, or has completed, any remedial or response action
relating to any such disposal or release at or from any property on which its
business is or has been conducted, as required by Environmental Laws; (F) no
Permits are required by applicable Environmental Laws ("Environmental Permits")
with respect to the business of Myca Group; (G) Myca Group has not received
formal or informal written or oral notice of any civil, criminal or
administrative claims pending or threatened with respect to its business that is
based on or related to any Environmental Laws; and (H) to Myca Group's
knowledge, there is no friable asbestos at, on, about, under or within any
property on which its business is or has been conducted.
For the purposes of this Section 11(q), the term "Environmental
Laws" means any Federal, state, local or municipal Law, Permit or Order,
including but not limited to the requirement to register underground storage
tanks, relating to:
(A) emissions, discharges, releases or threatened releases
of Hazardous Substances into the natural environment, including,
without limitation, into ambient air, soil, sediments, land
surface or subsurface, buildings or facilities, surface water,
groundwater, publicly-owned treatment works, septic systems or
land;
(B) the generation, treatment, storage, disposal, use,
handling, manufacturing, transportation or shipment of Hazardous
Substances; or
IV-18
<PAGE>
(C) otherwise relating to pollution or the protection of
health or safety or the environment, or solid waste handling,
treatment or disposal or operation.
The term "Hazardous Substances" means hazardous materials, contaminants,
pollutants, oils, constituents, hazardous wastes and hazardous substances as
those terms are defined in the following statutes and their implementing
regulations: the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. ss. 9601
et seq., the Clean Water Act, 33 U.S.C. ss. 1251 et seq., the Toxic Substances
Control Act, 15 U.S.C. ss. 2601 et seq., the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5, and any other
hazardous, toxic or noxious substance, materials, pollutant or solid or liquid
waste that is regulated by, or forms the basis of liability under, any
Environmental Law.
(r) Myca Group (including its officers and employees) has not
employed any broker, agent or finder or incurred any liability for any brokerage
fees, agent's commissions or finder's fees or other similar obligations in
connection with the transactions contemplated hereby.
(s) Myca Group has not made any material misstatement of fact or
omitted to state any material fact necessary or desirable to make complete,
accurate and not misleading every representation, warranty and agreement set
forth herein.
12. Covenants of the Parties.
(a) Reorganization of Bad Toys. Promptly after the execution
of this Agreement, Bad Toys shall cause all corporate actions to occur,
including without limitation the holding of a
IV-19
<PAGE>
special meeting of the shareholders of Bad Toys, that are required
to approve:
(i) An amendment to Bad Toys' Articles of Incorporation
to increase Bad Toys' authorized capital stock to
90 million shares of common stock and 10 million
shares of preferred stock;
(ii) The formation of a new wholly owned subsidiary
("Bad Toys Sub") of Bad Toys, the transfer to Bad
Toys Sub by Bad Toys of (a) all of the assets of
the custom motorcycle manufacturing business plus
(b) $150,000 received from the Private Placement
(as defined herein) in exchange for (y) one million
shares of common stock of Bad Toys Sub and (z) Bad
Toys Sub assuming all liabilities of Bad Toys
except its liability to the Lunans, subsequent to
which Bad Toys shall transfer to the Lunans all of
the Bad Toys Sub outstanding stock and $150,000 in
exchange for the Lunans' cancellation of all Bad
Toys' indebtedness to them.
(b) Proxy Statement. In connection with the foregoing matters,
Bad Toys shall prepare a proxy statement seeking approval by Bad Toys'
shareholders of the above and within described reorganization of Bad Toys and of
this Agreement and the Merger, which proxy statement shall be prepared in
compliance with Regulation 14A under the Securities Exchange Act of 1934, as
amended. The proxy statement shall be subject to review and approval by the Myca
Group and shall be mailed to Bad Toys' shareholders at least ten days prior to a
special shareholders' meeting called to approve the reorganization and this
Agreement.
IV-20
<PAGE>
The Lunans shall vote their shares in accordance with the majority vote of the
other shareholders.
(c) Private Placement. Promptly after the execution of this
Agreement, Bad Toys shall initiate a private placement pursuant to Rule 506 of
Regulation D of its shares of common stock exclusively to persons who qualify as
"accredited investors" within the meaning of Rule 501(a) of Regulation D (the
"Private Placement") with the goal of realizing net proceeds of at least
$2,000,000. The number of shares of common stock to be offered and the offering
price per share shall be agreed upon by Bad Toys and the Myca Group. The net
proceeds of the offering shall be used by Bad Toys as follows: (i) $800,000
shall be the cash portion of the consideration paid to the Myca Group
shareholders in connection with the Merger as described in paragraph 7(c)(i),
(ii) $150,000 shall be paid to Bad Toys Sub to pay existing Bad Toys debt, (iii)
$150,000 shall be paid to the Lunans (together with all the Bad Toys Sub
outstanding common stock) to extinguish all remaining debts of Bad Toys owed to
the Lunans, and (iv) $900,000 shall be retained by Bad Toys for product and
service development subsequent to the Effective Time.
(d) Access and Information. Bad Toys and Myca Group hereby agree
that each will give to the other and to the other's accountants, counsel and
other representatives full access during normal business hours throughout the
period prior to the Merger to all of its properties, books, contracts,
commitments and records, and that each will furnish the other during such period
with all such information concerning its affairs as such other party may
reasonably request. In the event of the termination of this Agreement, each
party will, upon the request of the other, destroy or deliver to the other all
documents, work papers and other material obtained from the other relating to
the transactions contemplated hereby, whether so obtained before or after the
execution hereof, and will use its best efforts to have any
IV-21
<PAGE>
information so obtained and not heretofore made public kept confidential.
(e) Further Assurances. If at any time the Surviving Corporation
will consider or be advised that any further assignment or assurance in law or
other action is necessary or desirable to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, the title to any property or rights of
Myca Group acquired or to be acquired by or as a result of the Merger, the
proper officers and directors of the Myca Group and the Surviving Corporation,
respectively, will be and they hereby are severally and fully authorized to
execute and deliver such proper deeds, assignment and assurances in law and take
such other action as may be necessary or proper in the name of the Myca Group or
the Surviving Corporation to vest, perfect or confirm title to such property or
rights in the Surviving Corporation and otherwise carry out the purposes of this
Agreement.
(f) Press Releases. The parties will consult with each other as
to the form and substance of any press release, written communication with their
shareholders or other public disclosure of matters related to this Agreement,
and a party will not issue any such press release, written communication or
public disclosure without the prior written consent of the other party, which
consent will not be unreasonably withheld or delayed; provided, however, that
nothing contained herein will prohibit any party, following notification to the
other party, from making any disclosures which its counsel deems necessary to
conform with the requirements of law.
(g) Confidentiality. From the date of this Agreement and for a
period of five years thereafter, each of the parties hereto covenants that it
will not use for the benefit of any of them or disclose to another any
Confidential Information (as hereafter defined) except as such disclosure or use
may be consented to in advance by the party which had supplied the
IV-22
<PAGE>
information in a writing which specifically refers to this covenant.
Confidential Information as used herein means information of commercial value to
the supplying party and that is not normally made public by the supplying party,
including but not limited to the whole or any part of any scientific or
technical information, design, process, procedure, formula, or improvement,
trade secret, data, invention, discovery, technique, marketing plan, strategy,
forecast, customer or supplier lists, business plan or financial information.
(h) Legends.
THE PARTIES ACKNOWLEDGE THE SALES OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONERS
OF CORPORATIONS OF THE STATES OF OHIO, TENNESSEE OR NEVADA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFORE PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS
THE SALE OF SUCH SECURITIES IS EXEMPT FROM QUALIFICATION UNDER THE LAWS
OF THOSE STATES. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE
SALE IS SO EXEMPT.
(i) Additional Financial Statements. On or before May 5, 2000,
Myca Group shall provide to Bad Toys Myca Group's unaudited interim financial
statements for the first calendar or quarter of 2000, compared with the first
calendar quarter of 1999, in the form required in Item 310 of Regulation S-B of
the Securities and Exchange Commission.
13. Conditions Precedent to Bad Toys' Obligations.
(a) Conditions Precedent. The obligations of Bad Toys
to consummate the transactions contemplated herein are subject to the
satisfaction (unless waived in writing), on or before the Closing Date, of the
following conditions:
(i) Myca Group shall have materially performed and
complied with all covenants, conditions and
obligations required by this Agreement to be
IV-23
<PAGE>
performed or complied with by Myca Group on or
before the Closing Date.
(ii) All representations and warranties of Myca Group
contained in this Agreement, the Exhibits, and in
any document, instrument or certificate that shall
be delivered by Myca Group under this Agreement
shall be materially true, correct and complete on
and as though made on the Closing Date.
(iii) During the period from the date of this Agreement
through and including the Closing Date: (i) there
shall not have occurred any material adverse change
affecting Myca Group; (ii) Myca Group shall not
have sustained any loss or damage that materially
affects its ability to conduct its business; (iii)
the performance by Myca Group shall not have been
rendered, by a change in circumstances or actions
by third parties (including, without limitation, a
change in any law or actions by a governmental
authority), impossible, illegal, commercially
impracticable or capable of accomplishment only on
terms and conditions which require BAD TOYS to
incur substantially greater costs or burdens than
BAD TOYS reasonably anticipated on the date of this
Agreement.
(iv) As of the Closing Date, no action or proceeding
against any of the parties hereto shall be before
any court or governmental agency seeking to
restrain or prohibit or to obtain damages or other
relief in connection with this Agreement or the
transactions
IV-24
<PAGE>
contemplated hereby and which, in the judgment of
Bad Toys, makes the consummation of the
transactions contemplated by this Agreement
inadvisable.
(v) Myca Group shall have tendered to BAD TOYS all
documents, certificates, payments and other items
required by this Agreement hereof to be
delivered to BAD TOYS.
(vi) A majority of the BAD TOYS Shareholders shall have
approved of the Merger and the transactions
contemplated by this Agreement.
(vii) Bad Toys and/or Myca Group shall have received any
consents necessary to perform their respective
obligations under this
Agreement.
(viii) BAD TOYS shall have received any and all permits,
authorizations, approvals and orders under federal
and state securities laws for the issuance of BAD
TOYS' Common Stock, without the imposition of any
conditions
adverse to BAD TOYS.
(ix) Each person identified in the Myca Group Share
Purchase Agreement dated October 3, 1991, as
amended on October 27, 1998, shall have
surrendered, for no consideration other than
advancing the closing of the transaction described
in this Agreement, any right set forth in such
agreement to acquire any shares of capital stock or
other security of Myca Group.
IV-25
<PAGE>
(x) The Lunans and the Myca Group shareholders shall
have agreed on limitations on their respective
ability to trade their common shares of Bad Toys
for the period ending on the first anniversary of
this Agreement.
14. Conditions Precedent to Myca Group's Obligations.
(a) Conditions Precedent. The obligation of Myca Group to
consummate the transactions contemplated herein are subject to the
satisfaction (unless waived in writing), on or before the Closing Date, of the
following conditions:
(i) Bad Toys shall have materially performed and
complied with all covenants, conditions and
obligations required by this Agreement to be
performed or complied with by Bad Toys on or before
the Closing Date.
(ii) All representations and warranties of Bad Toys
contained in this Agreement, the Exhibits, and in
any document, instrument or certificate that shall
be delivered by Bad Toys under this Agreement shall
be materially true, correct and complete on and as
though made on the Closing Date.
(iii) During the period from the date of this Agreement
through and including the Closing Date: (i) there
shall not have occurred any material adverse change
affecting BAD TOYS; (ii) BAD TOYS shall not have
sustained any loss or damage that materially
affects its ability to conduct its business; (iii)
the performance by BAD TOYS shall not have been
rendered, by a change in circumstances or actions
by third parties (including, without
IV-26
<PAGE>
limitation, a change in any law or actions by a
governmental authority), impossible, illegal,
commercially impracticable or capable of
accomplishment on terms and conditions which
require Myca Group to incur substantially greater
costs or burdens than Myca Group reasonably
anticipated on the date of this Agreement.
(iv) As of the Closing Date, no action or proceeding
against any of the parties hereto shall be before
any court or governmental agency seeking to
restrain or prohibit or to obtain damages or other
relief in connection with this Agreement or the
transactions contemplated hereby and which, in the
judgment of Myca Group, makes the consummation of
the transactions contemplated by this Agreement
inadvisable.
(v) Bad Toys shall have tendered to Myca Group all
documents, certificates, and other items required
by this Agreement hereof to be delivered to Myca
Group.
(vi) Bad Toys shall have entered into an Employment
Agreement with each of George Young, Joan Carroll,
Patricia Massey and G. Allan Massey, in substance
and form satisfactory to each of
them, respectively.
(vii) The Private Placement shall have been successfully
completed and consummated on or prior to the
Closing Date.
IV-27
<PAGE>
(viii) The Bad Toys shareholders shall have approved the
transactions contemplated by this Agreement.
(ix) Each person identified in Exhibit 3.8 that has an
option or a right to acquire any of the unissued
shares of BAD TOYS capital stock shall have
surrendered such option or right to BAD TOYS for no
consideration other than that of promoting the
Closing of the transaction described in this
Agreement.
(x) The percentage of the outstanding shares of common
stock of Bad Toys owned by shareholders who perfect
their dissenters' rights under the Nevada statutes
exceeds 0.5%.
(xi) Bad Toys and/or Myca Group shall have received any
consents necessary to perform their respective
obligations under this Agreement.
(xii) The Lunans and the Myca Group shareholders shall
have agreed on limitations on their respective
ability to trade their common shares of Bad Toys
for the period ending on the first anniversary of
this Agreement.
15. Closing.
(a) The Closing shall be effected in accordance with the
following:
(i) Myca Group shall deliver to Bad Toys good standing
certificates from the secretaries of state of the
State of Ohio and any other state where the
ownership of its assets or the conduct of its
business would require such
IV-28
<PAGE>
qualification, attesting to the good standing of
Myca Group in each such state.
(ii) All other previously rendered documents,
instruments and other writings required to be
delivered by Bad Toys to Myca Group at or prior to
the Closing pursuant to this Agreement or otherwise
legally required or reasonably necessary in
connection herewith shall be delivered.
(iii) Bad Toys shall deliver to the Myca Group
Shareholders stock certificates, registered in
their respective names and for the number of common
shares set forth in Exhibit 15(a)(iii) attached
hereto, bearing the appropriate legends,
representing an aggregate of 40,000,000 shares of
Bad Toys Common Stock, and the Myca Group
Shareholders shall deliver to Bad Toys stock
certificates representing 100 issued and
outstanding shares of capital stock of Myca Group,
together with executed stock powers transferring to
Bad Toys 100 issued and outstanding shares of
capital stock of Myca Group.
(iv) Each of the Lunans and any other person serving as
an officer or director of Bad Toys shall deliver to
Bad Toys his and her executed resignation as an
officer and director of Bad Toys, addressed to the
Secretary of Bad Toys, Inc. and dated the Closing
Date.
(v) Bad Toys shall deliver to Myca Group executed
documents representing (a) the incorporation of a
Bad Toys Sub; and (b) appropriate minutes of the
incorporator and the initial board of
IV-29
<PAGE>
directors of Bad Toys Sub authorizing the sale of
one million shares of its common stock to Bad Toys
in exchange for all of the assets of Bad Toys
(including the $150,000 described in Section 12(a)
(ii) of the Agreement) and the assumption by Bad
Toys Sub of the liabilities, known or unknown, of
Bad Toys related to Bad Toys' motorcycle business,
but specifically excluding any liabilities owed to
the Lunans and any liabilities arising in
connection with or related to the Reorganization
and (c) Amended Articles of Incorporation of Bad
Toys certified by the Secretary of State of Nevada
evidencing Bad Toys' increased capitalization.
(vi) Bad Toys shall deliver to the Lunans an executed
"Assignment and Bill of Sale," assigning to Bad
Toys Sub all of the pre- closing assets of Bad
Toys, whether real, personal or intangible, and
including the cash amount described in paragraph
12(a)(ii) above.
(vii) Bad Toys Sub shall deliver to Bad Toys a
certificate representing one million shares of Bad
Toys Sub common stock and registered in the name of
"Bad Toys, Inc." and an Assumption of Liabilities
Agreement assuming the liabilities described in
Section 12(a)(ii), which Assumption of Liabilities
Agreement the Lunans shall also have executed.
(viii) Bad Toys shall deliver to the Lunans an executed
and undated stock power, transferring to the Lunans
the one million shares of Bad Toys Sub common
stock.
IV-30
<PAGE>
(ix) Bad Toys shall deliver to Myca Group good standing
certificates from the secretaries of state of the
States of Tennessee and Nevada, attesting to the
good standing of Bad Toys in
each such state.
(x) The Lunans shall deliver to Bad Toys a written
release of all liability of Bad Toys to them, as
described in Section 12(a)(ii) of the Agreement.
(xi) All other previously rendered documents,
instruments and writings required to be delivered
by Bad Toys or the Lunans to another party hereto
at or prior to the Closing pursuant to this
Agreement or otherwise legally required or
reasonably necessary in connection herewith.
16. Termination. This Agreement may be terminated prior to the
Closing by delivery of notice in writing to that effect as follows:
(a) By Myca Group if any one or more of the conditions to the
obligations of Myca Group to close has not been fulfilled as of the Closing
Date;
(b) By Bad Toys if any one or more of the conditions to its
obligations to close have not been fulfilled as of the Closing Date;
(c) At any time on or prior to the Closing Date by mutual written
consent of all of the parties hereto. If this Agreement so terminates, it shall
become null and void and have no further force or effect except as provided in
the paragraphs immediately below.
IV-31
<PAGE>
If this Agreement is terminated in accordance with the immediately
preceding paragraph and the transactions contemplated hereby are not
consummated, this Agreement shall be void and of no further force and effect,
provided, however, that none of the parties shall have any liability in respect
of a termination of this Agreement except to the extent that failure to satisfy
the conditions of Sections 13 or 14, as the case may be, results from the
violation of such party of any provisions contained in this Agreement or any
schedules and exhibits delivered pursuant to this Agreement.
17. Indemnification.
(a) Indemnification by Bad Toys. Bad Toys shall defend, indemnify
and hold Myca Group harmless against and in respect of any damage, loss,
liability, cost or expense, including reasonable attorney's fees, resulting or
arising from or incurred in connection with (i) any misrepresentation, breach of
warranty or non-fulfillment or non-performance of any agreement on the part of
Bad Toys under this Agreement or any exhibit, schedule or other instrument
furnished or to be furnished by it under this Agreement, and (ii) any actions,
suits, proceedings, damages, assessments, judgments, costs or expenses incident
to any of the foregoing.
(b) Indemnification by Myca Group. Myca Group shall defend,
indemnify and hold Bad Toys harmless against and in respect of any damage, loss,
liability, cost or expense, including reasonable attorney's fees, resulting or
arising from or incurred in connection with (i) any misrepresentation, breach of
warranty or non-fulfillment or non-performance of any agreement on the part of
Myca Group under this Agreement or any exhibit, schedule or other instrument
furnished or to be furnished by it under this Agreement, and (ii) any actions,
suits, proceedings, damages, assessments, judgments, costs or expenses incident
to any of the foregoing.
(c) Procedure. Upon the assertion by a third party
against one of the parties to this Agreement of a claim to which
IV-32
<PAGE>
the indemnification provisions of this Section apply, the party against whom the
claim has been asserted shall promptly notify the other party or parties to this
Agreement against whom a claim for indemnification is expected to be made of
such claim (and such notice shall be a condition precedent to the liability of
the parties or party so notified with respect to such claim). Any party so
notified shall have the right, at its own expense and with counsel of its
choice, to control the defense of any such claim and all actions and proceedings
in connection therewith, provided that any party seeking indemnification shall
have the right to participate in such defense with counsel of its choice at its
own expense. No such claim shall be compromised or settled by any party to this
Agreement without the prior written consent of the other party or parties. Each
other party shall cooperate in every reasonable way with the party assuming
responsibility for the defense and disposition of such claim.
18. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Ohio without application of Ohio's
conflicts of laws provision.
19. Execution in Counterparts. This Agreement and any of the documents
described herein that are necessary for the Closing may be executed in
counterparts, each of which shall be deemed an original and together which shall
constitute one and the same instrument.
20. Further Assurances. If, at any time before, on or after Closing
Date, any further action by any of the parties to this Agreement is necessary or
desirable to carry out the purposes of this Agreement, such party shall take all
such necessary or desirable action or use such party's best efforts to cause
such action to be taken.
21. Expenses. Myca Group shall bear all expenses incurred by them in
connection with the negotiation, preparation or execution of this Agreement, and
Bad Toys shall bear all expenses incurred by
IV-33
<PAGE>
it in connection with the negotiation, preparation or execution of this
Agreement.
22. Judicial Proceedings. Each party hereto consents to the exclusive
jurisdiction over it of the courts of the State of Ohio in the County of
Hamilton and of the courts of the United States in the Southern District of Ohio
and agrees that personal service of all process may be made by registered or
certified mail pursuant to the provisions of Section 23. All actions arising out
of or relating in any way to any of the provisions of this Agreement or the
transactions contemplated hereby shall be brought or maintained only in one of
such courts. The parties hereby irrevocably waive any objection that they may
now have or hereafter acquire to the laying of venue of any such action or
proceeding brought in such courts and any claim that any action or proceeding
brought in any such court has been brought in an inconvenient forum. The parties
further agree that a final judgment in any such action or proceeding brought in
any such court, after all appeals or all rights of appeal have expired, shall be
conclusive and binding upon them and may be enforced in any competent court
located elsewhere.
23. Notices. Any notice or demand desired or required to be given
hereunder shall be in writing and deemed given when personally delivered, sent
by overnight courier or deposited in the mail (postage prepaid, certified or
registered, return receipt requested) and addressed as set forth below or to
such other address as any party shall have previously designated by such a
notice. Any notice delivered personally shall be deemed to be received on the
date of personal delivery; any notice sent by overnight courier shall be deemed
to be received upon confirmation one business day after the date sent; and any
notice mailed shall be deemed to be received on the date stamped on the receipt.
If to Myca Group: Myca Group, Inc.
602 Main Street
Cincinnati, Ohio 45202
Attention: Patti Massey
IV-34
<PAGE>
Copy to: Neil Ganulin, Esq.
Frost & Jacobs LLC
2500 PNC Center
Cincinnati, Ohio 45202
If to Bad Toys or
Bad Toys Sub: Larry Lunan
2344 Woodridge Avenue
Kingsport, TN 37664
Copy to: Thomas J. Kenan
Fuller, Tubb, Pomeroy & Stokes
201 Robert S. Kerr Avenue, Suite 1000
Oklahoma City, OK 73102
24. Parties in Interest. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether herein
so expressed or not.
25. Severability. Any provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining provisions of this Agreement or affecting the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
26. Amendment. Except as otherwise provided herein, the parties hereto
may modify or supplement this Agreement at any time, but only in writing duly
executed by each of the parties hereto.
27. Headings. The headings preceding the text of sections of
this Agreement are for convenience only and shall not be deemed a
part hereof.
28. Entire Understanding. The terms set forth in this Agreement
including its Exhibits are intended by the parties as the final, complete and
exclusive expression of the terms of their agreement and may not be
contradicted, explained or supplemented by evidence of any prior agreement, any
contemporaneous oral agreement
IV-35
<PAGE>
or any consistent additional terms. The Exhibits attached to this Agreement are
made a part of this Agreement.
29. Acknowledgment of Kenan's Conflicts of Interest. All parties to this
Agreement acknowledge their understanding and acceptance of the fact that Kenan,
an attorney, has represented Bad Toys in this and other matters, that he owns
220,000 shares of Bad Toys common stock, and that he has a personal interest in
the transactions described herein.
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.
BAD TOYS, INC. MYCA GROUP, INC.
By:/s/Larry Lunan By:/s/Joan Carroll
---------------------- -----------------------
Larry Lunan, President Joan Carroll, President
IV-36
<PAGE>
PROXY
Bad Toys, Inc.
2344 Woodridge Avenue
Kingsport, Tennessee 37664
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BAD TOYS,
INC. EACH MATTER TO BE ACTED UPON IS PROPOSED BY THE COMPANY.
The undersigned hereby appoints Larry N. Lunan and Susan H. Lunan, or
any one of them, each with the power to appoint his substitute, as proxies, and
hereby appoints and authorizes them to represent and vote as designated below,
all the shares of Common Stock, held of record by the undersigned on April 26,
2000, at the Special Meeting of Shareholders of Bad Toys, Inc. (the "Company")
to be held at 2344 Woodridge Avenue, Kingsport, Tennessee on Monday, June 12,
2000, at 2 P.M., local time, and at any adjournment thereof.
1. APPROVE AN AGREEMENT OF MERGER BETWEEN BAD TOYS, INC. AND MYCA
GROUP, INC. (PRESENTLY NAMED MYCOM.COM, INC.)
[ ] APPROVE [ ] DISAPPROVE [ ] ABSTAIN
2. APPROVE THE ISSUANCE OF 40 MILLION SHARES OF COMMON STOCK IN
CONNECTION WITH THE AGREEMENT OF MERGER
[ ] APPROVE [ ] DISAPPROVE [ ] ABSTAIN
3. AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK THE COMPANY IS AUTHORIZED TO ISSUE FROM 10
MILLION TO 90 MILLION SHARES
[ ] APPROVE [ ] DISAPPROVE [ ] ABSTAIN
4. AMEND THE ARTICLES OF INCORPORATION TO AUTHORIZE THE ISSUANCE OF
10 MILLION SHARES OF PREFERRED STOCK
[ ] APPROVE [ ] DISAPPROVE [ ] ABSTAIN
5. AMEND THE ARTICLES OF INCORPORATION TO CHANGE THE NAME OF THE
COMPANY FROM "BAD TOYS, INC." TO "MYCOM.COM, INC."
[ ] APPROVE [ ] DISAPPROVE [ ] ABSTAIN
Proxy
Page 1 of 2 Pages
<PAGE>
6. APPROVE THE SALE BY THE COMPANY TO LARRY AND SUSAN LUNAN OF THE
COMPANY'S CUSTOM MOTORCYCLE BUSINESS, ALL THE ASSETS ASSOCIATED
WITH SUCH BUSINESS, AND $300,000 IN CASH IN EXCHANGE FOR THEIR
CANCELLATION OF ALL COMPANY DEBT OWED TO THEM AND THEIR
ASSUMPTION OF ALL OTHER DEBTS OF THE COMPANY
[ ] APPROVE [ ] DISAPPROVE [ ] ABSTAIN
7. AMEND THE COMPANY'S BYLAWS TO PROVIDE THAT THE COMPANY'S BOARD
OF DIRECTORS SHALL HAVE NO LESS THAN FOUR AND NO MORE THAN NINE
MEMBERS AS DETERMINED FROM TIME TO TIME BY EITHER THE
STOCKHOLDERS OR A MAJORITY OF THE DIRECTORS
[ ] APPROVE [ ] DISAPPROVE [ ] ABSTAIN
8. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting or any
adjournment thereof.
[ ] APPROVE [ ] DISAPPROVE [ ] ABSTAIN
IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, THIS PROXY SHALL BE
VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS. THIS
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
TO APPROVE EACH OF THE PROPOSALS SET FORTH ABOVE.
Please sign exactly as your name appears below. When shares are held as
joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee, or guardian, please give full titles as such. If a
corporation, please sign full corporate name by President or other authorized
officer. If a partnership, please sign partnership name by authorized person. If
a limited liability company, please sign name by authorized person.
DATE: , 2000 ----------------------------------------
Signature
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Proxy
Page 2 of 2 Pages
