U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-29836
BAD TOYS, INC.
(Name of small business issuer in its charter)
Nevada 33-0677545
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2344 Woodridge Avenue, Kingsport, TN 37664
------------------------------------------
(Address of principal executive offices)
423-247-9560
------------
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: None.
Name of each exchange on which registered: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
-----------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes[X] No[ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in
<PAGE>
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $85,231.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: $3,129,388 computed by
reference to the $1.0625 average of the bid and asked price of the Company's
Common Stock on April 11, 2000.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 7,827,006 shares of Common
Stock, $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (3) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The list documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990). None.
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
2
<PAGE>
TABLE OF CONTENTS
Page
----
Item 1. Description of Business ................................... 1
Business Development ...................................... 1
Business of the Company ................................... 1
The Manufacture for Sale of Motorcycles
from Component Parts ........................ 1
The Customizing and Motorcycle
Servicing Operation ......................... 2
Special Orders of Premium Accessories,
Parts, Customizing Items and Apparel
Related to Harley-Davidson Motorcycles ...... 2
Rebuilding Used Harleys for Resale ................. 3
Distribution Methods ............................... 3
Advertising ........................................ 4
Competition ........................................ 4
Supplies ........................................... 5
Dependence on Major Customers ...................... 5
Patents, Trademarks and Licenses ................... 5
Government Approval and Regulations ................ 5
Year 2000 Computer Problems ........................ 6
Research and Development ........................... 6
Cost of Compliance with Environmental Laws ......... 6
Employees .......................................... 6
Item 2. Properties ................................................ 6
Item 3. Legal Proceedings ......................................... 7
Item 4. Submission of Matters to a Vote of Security
Holders ............................................ 7
Item 5. Market for Common Equity and Related Stockholder
Matters ............................................ 7
Holders ................................................... 8
Dividends ................................................. 8
Recent Sales of Unregistered Securities ................... 8
Item 6. Management's Discussion and Analysis ...................... 11
Overview .................................................. 12
Results of Operations ..................................... 12
Sales ..................................................... 12
Cost of Sales ............................................. 13
Gross Margin .............................................. 13
Operating Expenses ........................................ 13
Net Income (Loss) ......................................... 13
Liquidity and Capital Resources ........................... 14
Item 7. Financial Statements ...................................... 14
Item 8. Changes in and Disagreements With Accountants On
Accounting and Financial Disclosure ................ 38
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with
Section 16(a) of the Exchange Act .................. 38
Section 16(a) Beneficial Ownership
Reporting Compliance ........................ 39
i
<PAGE>
Item 10. Executive Compensation .................................... 40
Item 11. Security Ownership of Certain Beneficial Owners
and Management ..................................... 40
Changes in Control ........................................ 41
Item 12. Certain Relationships and Related Transactions ............ 41
Item 13. Exhibits and Reports on Form 8-K .......................... 41
(a) Exhibits ........................................... 41
(b) Reports on Form 8-K ................................ 42
Signatures ............................................................... 43
ii
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
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 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 "VTwin," 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.
1
<PAGE>
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 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. It has been our plan 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, it has been
our plan to 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.
2
<PAGE>
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.
We believe we have the only customer self-service station that includes
all available catalogs and parts books. It has been our plan to 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.
This activity 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 reconditioning of used bikes is financially consistent 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.
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.
3
<PAGE>
Advertising. Subject to the availability of funds, we would 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 would 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 would initially consist of an annual mailing of
a high-quality brochure. The brochure would 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 would add an addressee to our
newsletter mailing list.
Subject to the availability of funds, our monthly advertising program
would be advertisements in high-circulation magazines for Harley-Davidson
riders, magazines such as American Iron, Hot Bike, etc.
Subject to the availability of funds, Bad Toys would 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 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,
4
<PAGE>
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.
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 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
5
<PAGE>
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 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.
Employees
---------
We employ five persons, four persons full time and one person part time.
ITEM 2. PROPERTIES
The Company leases a retail and manufacturing operation at a single
facility in a specially designed 3,000-square-foot retail
6
<PAGE>
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.
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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock trades on the OTC Bulletin Board, having been added to
the OTC Bulletin Board during the second quarter of 1999. The high and low bid
and asked prices, as reported by the OTC Bulletin Board, are as follows for
1999. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
7
<PAGE>
High Low
---- ---
1999:
2nd Quarter (no inside quotes reported)
3rd Quarter 0.75 0.125
4th Quarter 0.375 0.625
Holders
Based on information provided by our transfer agent, we had 71
shareholders of record of our common stock on March 31, 2000.
Dividends
We have paid no cash dividends since inception, and it is unlikely that
any cash dividend will be paid in the foreseeable future. There are no
restrictions that would or are likely to limit the ability of the company to pay
dividends on its common stock, but it has no plans to pay dividends in the
foreseeable future and intends to use earnings for the expansion of its
business. The declaration in the future of any cash or stock dividends will be
at the discretion of the board depending upon the earnings, capital requirements
and financial position of the company, general economic conditions and other
pertinent factors. There are no dividend restrictions held by any creditor or
other agreement to which the company is a party.
Recent Sales of Unregistered Securities
During the period from January 1, 1996 through March 13, 1998 the
company sold 310,400 shares of our common stock in an offering exempt from
registration pursuant to the provisions of Regulation D, Rule 506 of the
Securities and Exchange Commission. No underwriters were used to effect the
sales. All sales were made in exchange for services rendered to the company,
except that one sale was made in exchange for prepaid rent of the company's
leased facilities. The names of the persons who exchanged their services or
prepaid rent for shares of stock, the dates the shares were exchanged for
services or prepaid rent, the number of shares issued and the value of the
shares on the dates of the exchanges are set forth below:
<TABLE>
<CAPTION>
Price per
Share and
No. of Nature of
Shares Value of Consideration
Person Date Issued Shares Paid for Shares
------ ---- ------ -------- ---------------
<S> <C> <C> <C> <C>
Barrick Properties, LLC 05-31-96 37,500 $ 7,500 $0.20(1)
Wesley Culbertson 05-31-96 10,000 2,000 $0.20(2)
Stanley Carlson 12-31-96 1,000 200 $0.20(3)
Frank Eckles 12-31-96 1,000 200 $0.20(3)
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Donald M. Harper 12-31-96 20,000 4,000 $0.20(4)
Clinton L. and Sheila K.
Hubbard 12-31-96 4,000 800 $0.20(5)
Susan H. Lunan 12-31-96 1,500 300 $0.20(6)
Mario W. Mainero, Inc. 12-31-96 10,000 2,000 $0.20(5)
Gary C. and Andrea W.
Andes 12-31-97 62,400 31,200 $0.50(7)
Susan H. Lunan 12-31-97 90,000 45,000 $0.50(6)
Larry Lunan 03-13-98 10,000 5,000 $0.50(6)
Steve Snyder 03-13-98 54,000 27,000 $0.50(3)
</TABLE>
-------------------------
(1) Business consulting and additional compensation for lending money
to the company.
(2) Design and development work on the company's "Phoenix" prototype
motorcycle.
(3) Introductions to people in the motorcycle business as possible
business partners or joint venture partners.
(4) Investigated markets in the north-central U.S. for possible
locations of outlets.
(5) Legal work.
(6) Administrative work.
(7) Five years' prepaid rent on the company's facility in Tennessee.
All of the above persons had a preexisting relationship with the company
and our president, Larry N. Lunan. Some of the persons are employees of the
company. Susan H. Lunan is the spouse of Larry N. Lunan. The Andes are the
lessors of our facilities. Barrick Properties, LLC is under the ownership and
control of David Barrick, a director and a longtime friend of Larry N. Lunan and
the lender of some of the working capital of the company. Mr. Barrick's
outstanding loans to the company are convertible, at his option, into common
stock of the company at a conversion price of $.50 a share.
All of the above persons are sophisticated investors within the meaning
of the Commission's Rule 506(b)(2)(ii). Only Barrick Properties, LLC and Larry
Lunan, president of the company, are "accredited investors" within the meaning
of Rule 501 of Regulation D.
With regard to the above transactions, Bad Toys furnished to the
investors financial statements, a description of its business, a business plan,
information concerning the directors and officers of Bad Toys and other
information required by Rule 502(b) of Regulation D. In this regard, we had
intended to conduct a Regulation D Rule 504 public offering in 1996. An offering
circular was drafted at that time. It was not until
9
<PAGE>
September 1998 that the Rule 504 public offering was commenced. In the interval,
the Rule 506 offering was held, and the draft of the offering circular earlier
prepared for the proposed Rule 504 offering was shown to the investors to
supplement the financial statements.
During 1997 and 1998 Larry and Susan H. Lunan loaned $178,082 to the
company and Barrick Properties, LLC loaned $38,094 to the company. The Lunan
loans mature on September 30, 2000 and accrue interest at 10.5 percent a year.
The Barrick Properties loans mature at various times during 1999 and 2000, bear
interest at rates from ten percent to 10.5 percent a year and are convertible
into common stock of the company at $0.50 a share.
These loans were made during 1997, prior to March 14 in 1998, and after
September 14 in 1998. Those made during 1997 and prior to March 14, 1998 were
made pursuant to the exemption from registration provided by Rule 506. Those
made after September 14 in 1998 were made pursuant to the exemption provided by
Rule 504. All of these loans were made by affiliates of Bad Toys. The Rule 504
loans are integrated with the 1998 Rule 504 stock offering, but the $1 million
maximum was not reached in the integrated offerings. A safe harbor period of six
months separates the Rule 506 offering and the Rule 504 offering. Sales under
the Rule 506 offering, including the stock sales listed on page 16, were made to
fewer than 35 non-accredited persons.
During the period from September 14, 1998 through April 6, 1999, the
company conducted a public offering of shares of its common stock at $1.00 a
share pursuant to the exemption from registration provided by Regulation D, Rule
504. Some 105,930 of the offered shares were sold. The offering was made only in
states where no state registration of the securities was required. An offering
circular with audited financial statements was delivered to each investor.
During the period from September 7, 1999 through December 31, 1999, the
company sold 1,833,876 shares of its common stock at a purchase price of $0.10 a
share to the following persons for the indicated consideration. All sales were
made pursuant to the exemption from registration provided by Regulation D, Rule
506. All purchasers were sophisticated investors who were friends of Larry
Lunan, president of the company. All but three of the purchasers were
"accredited investors." No public advertising or public solicitation was
employed in effecting the sales.
10
<PAGE>
<TABLE>
<CAPTION>
Number of Nature of
Shares Value of Consideration
Person Date Issued Shares Paid for Shares
------ ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Jerry A. Grant 11-12-99 10,000 $ 1,000 Shop labor services
Marc A. Hyatt 11-12-99 2,000 200 Shop labor services
Donald M. Harper 11-12-99 30,000 3,000 Consulting services
regarding expansion
of company's business
Thomas J. Kenan 11-12-99 100,000 10,000 Legal services
Roger A. Warren 11-12-99 40,000 4,000 Accounting services
Alex W. Andes 11-12-99 50,573 5,057 Rent on shop building
Clinton L. Hubbard 11-12-99 100,000 10,000 Legal services
Ashley J. Andes 11-12-99 50,573 5,057 Rent on shop building
Gary C. Andes 11-12-99 50,000 5,000 Rent on shop building
Donna M. Stearns 11-12-99 20,030 2,030 Cash
Leo J. Molek 11-12-99 50,000 5,000 Cash
Al Kau 11-12-99 100,000 10,000 Advertising services
Larry N. Lunan 11-12-99 610,700 61,070 Labor services
Jerry Wenger 11-12-99 35,000 3,500 Radio advertising
services
SB Stocks USA, Inc. 11-12-99 100,000 10,000 Advertising services
Charlotte B. Given 11-12-99 35,000 3,500 Radio advertising
services
CH Investments 11-12-99 60,000 6,000 Legal services
performed by
Carl Hubbard
Larry N. Lunan 12-30-99 186,000 18,600 Labor services
Clinton L. Hubbard 12-30-99 50,000 5,000 Cash
Gary C. Andes 12-30-99 50,000 5,000 Cash
Kiowa Oil Company 12-30-99 100,000 10,000 Promotional services
Stewart Bumgarner 12-30-99 3,000 300 Shop labor services
Mark A. Parsons 12-30-99 1,000 100 Cash
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with
the financial statements and the accompanying notes thereto. It is qualified in
its entirety by the foregoing and by more detailed financial information
appearing elsewhere.
11
<PAGE>
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.
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 Myca Group, Inc., a
Cincinnati, Ohio "high tech" company, with regard to the management of our
company buying the company's motorcycle business and selling to Myca Group the
"shell corporation" produced by this withdrawal of assets from the company. On
March 29, 2000, our company and Myca Group signed a definitive merger agreement
which we will soon present to our shareholders for their approval or rejection.
Results of Operations
The following table presents certain selected data for each of the two
years in the period ended December 31, 1999:
<TABLE>
<CAPTION>
Year Ended December 31, 1998 1999
------------------------------------------------------------------------
<S> <C> <C>
Sales $ 77,451 $ 85,231
Cost of Sales 80,885 219,913
--------- ---------
Gross Margin (Loss) (3,434) (134,682)
Operating Expenses 158,371 471,283
Other Income and Expenses, Net 20,259 40,702
--------- ---------
Net (Loss) $(182,064) $(646,667)
</TABLE>
Sales
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,
12
<PAGE>
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 concentrate on prototype development, namely
our Phoenix model, and to participate in a West Coast show.
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.
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.
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.
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
13
<PAGE>
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.
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 Myca Group, Inc. to offer our company's corporate shell to Myca
Group (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 exceeds $400,000. The company's business will become what is the
present, quite successful business of Myca Group, and the stockholders will have
much better prospects for the future.
ITEM 7. FINANCIAL STATEMENTS
14
Todd Nims
Certified Public Accountant
7900 East Greenway, Suite 102
Scottsdale, Arizona 85260
(602) 922-9293
To the Board of Directors
Bad Toys, Inc.
Kingsport, Tennessee
I have audited the accompanying balance sheets of Bad Toys, Inc., (a development
stage company) as of December 31,1998 and December 31, 1997, and the related
statements of income, retained earnings, and cash flows for the year then ended.
These financial statements are the responsibility of the company's management.
My responsibility is to express an opinion on these financial statements based
on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Bad Toys, Inc. as of December 31,
1998 and December 31, 1997, and the results of operations and its cash flows for
the years 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 H 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 H. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Todd Nims, C.P.A.
February 7, 1999
15
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Balance Sheets
December 31, 1998 & December 31, 1997
<TABLE>
<CAPTION>
Assets 12/31/98 12/31/97
- ------ -------- --------
<S> <C> <C>
Cash & Cash Equivalents $ 1,757 476
Accounts Receivable 1,097 0
Inventory (Note B) 180,160 79,950
Prepaid Expenses 23,543 29,850
-------- ---------
Total Current Assets 206,557 110,276
-------- ---------
Property, Plant & Equipment,
net of accumulated
depreciation (Note C) 70,954 26,958
Organization Costs, net of
accumulated amortization 27,146 43,634
Syndication Costs 14,400 13,300
Utility Deposits 280 280
---------- -----------
Total Assets 319,337 194,448
======== =========
Liabilities & Shareholders' Equity
- ----------------------------------
Accounts Payable & Accrued Liabilities 57,499 9,644
Current Portion of Long Term Debt 8,459 0
--------- ---------
Total Current Liabilities 65,958 9,644
-------- ---------
Notes Payable - Long Term 26,994 0
Notes Payable - Shareholders (Note F) 216,176 78,213
--------- ---------
Total Liabilities 309,128 87,857
--------- ---------
Common Stock 53,550 52,360
Additional Paid in Capital 249,332 164,840
Deficit Accumulated During the
Development Stage (292,673) (110,609)
--------- ---------
Total Liabilities & Shareholders' Equity 319,337 194,448
========= =========
</TABLE>
See accountant's report and notes to financial statements
16
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Income & Retained Earnings
December 31, 1998 & December 31, 1997
<TABLE>
<CAPTION>
12/31/98 12/31/97
-------- --------
<S> <C> <C>
Sales 77,451 -
Cost of Sales 80,885 -
-------- --------
Gross Profit (3,434) -
-------- --------
General & Administrative Expenses 158,371 42,681
-------- --------
Income (Loss) from operations before -------- --------
interest expense (161,805) (42,681)
-------- --------
Interest Expense 20,259 551
-------- --------
Net (Loss) (182,064) (43,232)
-------- --------
Beginning Retained Earnings\
(Accumulated Deficit) (110,609) (67,377)
-------- --------
Ending Retained Earnings\
(Accumulated Deficit) (292,673) (110,609)
======== ========
Net Earnings/(Loss) Per Common Share (.03) (.01)
-------- --------
</TABLE>
See accountant's report and notes to financial statements
17
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Cash Flows
December 31, 1998 & December 31, 1997
<TABLE>
<CAPTION>
12/31/98 12/31/97
-------- --------
Cash flow from operating activities:
<S> <C> <C>
Cash received from customers $ 76,354 0
Cash paid to suppliers and employees (220,835) (20,673)
Interest paid (18,851) (551)
Other Operating Disbursements (50,489) 0
Depreciation & Amortization 6,543 0
-------- -------
Net cash provided (used)
by operating activities (207,278) (20,122)
Cash flow from investing activities:
Cash payments for the purchase
of property (50,539) 0
-------- -------
Net cash provided (used)
by investing activities (50,539) 0
Cash flow from financing activities:
Proceeds from issuance of
long-term debt 59,886 3,789
Proceeds from equipment loans 17,126 0
Proceeds From Additional Paid
in Capital 84,492 16,700
Proceeds From Shareholder Debt 216,176 0
Proceeds From Issuance of Common Stock 1,190 0
-------- -------
Net cash provided (used) by financing
activities 259,098 20,489
-------- -------
Net increase (decrease) in cash
and equivalents 1,281 367
Cash and equivalents, beginning of year 476 109
-------- -------
Cash and equivalents, end of year $ 1,757 $ 476
======== =======
Supplemental disclosures of cash
flow information:
Cash paid during year for:
Interest expense 873 0
</TABLE>
See accountant's report and notes to financial statements
18
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Cash Flows
December 31, 1998 & December 31, 1997
<TABLE>
<CAPTION>
12/31/98 12/31/97
-------- --------
Reconciliation of net income to net cash
provided by operating activities
<S> <C> <C>
Net Income\(Loss) $(182,065) $ (43,232)
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 23,032 16,488
(Increase) decrease in accounts
receivable (1,097) 0
(Increase) decrease in subscriptions
receivable 0 41,000
(Increase) decrease in prepaid expenses 6,307 (29,850)
(Increase) decrease in inventories (100,210) (28,987)
(Increase) decrease in fixed assets 0 25,502
(Increase) decrease in syndication costs 0 (800)
Increase (decrease) in accounts payable 27,801 (263)
Increase (decrease) in accrued liabilities 18,646 0
Increase (decrease) in interest payable 1,408 20
(Increase) decrease in other assets (1,100) 0
-------- --------
Total Adjustments (25,213) 23,110
-------- --------
Net cash provided (used) by
operating activities $(207,278) $(20,122)
========== =========
</TABLE>
See accountant's report and notes to financial statements
19
<PAGE>
Bad Toys, Inc.
Statement of Changes in Stockholders' Equity
For the Years Ending December 31, 1998 & 1997
<TABLE>
<CAPTION>
Additional
Common Paid In Retained
Stock Capital Earnings
------ ---------- --------
<S> <C> <C> <C>
Balance, December 31, 1996 50,836 90,164 (67,377)
Issuance of 152,400 shares
of Common Stock 1,524 74,676
Net Loss (43,232)
------- ------- -------
Balance, December 31, 1997 52,360 164,840 (110,609)
Issuance of 119,000 shares
of Common Stock 1,190 84,492
Net Loss (182,064)
------ ------- -------
Balance, December 31, 1998 53,550 249,332 (292,673)
====== ======= =======
</TABLE>
20
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 & December 31, 1997
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 20 - 30
Depreciation expense for the year ended December 31, 1998 is $6,544.
21
<PAGE>
Bad Toys, Inc.(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 & December 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 servicing of highly custom
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.
22
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 & December 31, 1997
NOTE B - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
Work in Process $ 82,862 $63,731
Finished goods 97,298 16,219
-------- -------
$180,160 $79,950
</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 of sales in the period incurred. Work in process
consists of partially manufactured motorcycle models. Finished goods consist of
completed motorcycle models and saleable motorcycle parts, suitable for a
variety of Harley- Davidson-type motorcycles. Parts 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>
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
Vehicles $20,328 $ -
Equipment 10,042 2,140
Furniture and Fixtures 2,082 1,203
Leasehold Improvements 45,045 23,615
77,497 26,958
Less accumulated depreciation (6,543) (-)
------- ------
$70,954 $26,958
</TABLE>
23
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 & December 31, 1997
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
Bank note payable $629.04 per month plus
interest accrued at 9.75%,
<S> <C> <C>
secured by vehicle. $ 5,425 -
Bank note payable $285.60 per month plus
interest accrued at 9.5%,
secured by vehicle. 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. 24,525 -
Unsecured Notes payable to stockholders due
Sept. 30, 2000 with interest at 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. 216,176 78,213
------- -------
251,629 78,213
Less current portion (8,459) (-)
------- -------
Long-term Debt $243,170 $78,213
======== =======
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ --------
<S> <C> <C>
1999 $ 8,459
2000 243,170
--------
$251,629
========
</TABLE>
24
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 & December 31, 1997
NOTE E - INCOME TAXES
Operating Loss Carry-forwards
-----------------------------
The Company has loss carry-forwards totaling $144,154 that may be offset against
future taxable income. If not used, the carry-forwards will expire as follows:
<TABLE>
<CAPTION>
Operating
Losses
---------
<S> <C>
Year 11 $ 849
Year 12 15,001
Year 13 43,093
Year 14 85,211
--------
$144,154
========
</TABLE>
NOTE F - RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and affiliated entities:
1. Notes payable to related parties as of December 31, 1998 and December 31,
1997, consisted of the following:
<TABLE>
<CAPTION>
12-31-98 12-31-97
-------- --------
Notes payable to Larry and Susan Lunan
due September 30, 2000 with interest
<S> <C> <C>
at 10.5%. $178,082 $ 70,213
Notes payable to Barrick Properties, LLC
with interest at 10 to 10.5%, with
annual renewal options. 38,094 8,000
-------- --------
$216,176 $ 78,213
======== ========
</TABLE>
2. The Company leases its facilities from a minority stockholder as
described in Note G below.
25
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31,1998 & December 31, 1997
NOTE G - LEASING ARRANGEMENTS
The Company conducts its operations from facilities that are leased under a
five-year non-cancelable operating lease expiring in September, 2002. There is
no option to renew the lease. The lessor of the facility is a stockholder of the
Company. Lessor has received shares of stock as prepaid rent for the term of the
lease. Monthly rent is $1,420, which includes monthly-prepaid rent expensed of
$520.
The following is a schedule of future minimum rental payments required under the
above operating lease (excluding prepaid rent expensed) as of December 31, 1998:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ -------
<S> <C>
1999 $10,800
2000 10,800
2001 10,800
2002 8,100
-------
$40,500
</TABLE>
Rental expense for the nine months ended December 31, 1998 and the year ended
December 31, 1997 were $ 20,040 and $ 8,680, 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
$290,192, and current liabilities, including the current portion of long term
debt, exceeds cash and current receivables by $71,551 at December 31, 1998.
Management is anticipating a large capital inflow from a planned initial public
offering scheduled for April 1999. While the proposed capital injection as well
as potential conversions of long term debt to common stock, do project to
improve the Company's working capital position, there can be no assurance that
the Company will be successful in accomplishing its objectives.
26
<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
27
<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>
28
<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>
29
<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>
30
<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>
31
<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
32
<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.
33
<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>
34
<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.
35
<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.
36
<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.
37
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 30, 1999, the company's principal independent accountant,
Todd Nims of Scottsdale, Arizona, resigned. His reports on the company's
financial statements from inception onward contained no adverse opinions or
disclaimers of opinions and were not modified as to uncertainty, audit scope or
accounting principles. There were no disagreements with Todd Nims, whether or
not resolved, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
Todd Nims' satisfaction, would have caused him to make reference to the subject
matter of the disagreements in connection with his reports.
On January 7, 2000, the company engaged new principal independent
accounts, Blackburn, Childers & Steagall, PLC of Johnson City, TN, to audit the
company's financial statements.
The change in the company's certifying accountants was made solely
because Todd Nims did not practice before the SEC. The engagement of the new
accounting firm was made by the officers of the company with the prior approval
of the board of directors.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The company's directors, officers and significant employees occupying
executive officer positions, their ages as of January 10, 2000, the directors'
terms of office and the period each director has served are set forth in the
following table:
<TABLE>
<CAPTION>
Director's
Director Term
Person Positions and Offices Since Expires
------ --------------------- -------- ----------
<S> <C> <C> <C>
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
</TABLE>
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
38
<PAGE>
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
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.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Set forth below is each person who, at any time during the 1999 fiscal
year, was a director, officer or beneficial owner of more than ten percent of
our common stock, and who failed to file on a timely basis reports required by
Section 16(a) of the 1934 Exchange Act during fiscal year 1999, as disclosed on
Forms 3 and 4 and amendments thereto furnished to our company under the SEC's
Rule 16a-3(c) during fiscal year 1999 and Forms 5 and amendments thereto
furnished to our company with respect to fiscal year 1999 and any written
representations furnished to our company:
39
<PAGE>
<TABLE>
<CAPTION>
Number of
Number Transactions
of Late Not Reported On Known Failures to
Person Reports a Timely Basis File a Required Form
- ------ ------- --------------- --------------------
<S> <C> <C> <C>
Larry N. Lunan 0 0 2
Susan H. Lunan 0 7 9
Roger A. Warren 0 1 2
</TABLE>
ITEM 10.EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation during fiscal years 1997,
1998 and 1999 of the chief executive officer of the company. During the period,
no executive officer of the company received compensation that exceeded
$100,000.
<TABLE>
<CAPTION>
Fiscal Annual Compensation
Name Year Salary Bonus
---- ------ ------ -------------
<S> <C> <C> <C>
Larry N. Lunan, 1999 $72,000 $ -
President
1998 $50,000 $35,000
1997 $27,000 $ -
</TABLE>
During the last three fiscal years, no executive officer of the company
has been granted stock options or stock appreciation rights and no executive
officer, other than its president, Larry N. Lunan, has been granted stock in
exchange for services. The company has no long-term incentive plan intended to
serve as incentive for performance to occur over a period longer than one fiscal
year.
Directors of the company receive no compensation for their services as
directors.
ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of March 31, 2000, the number of shares
of common stock of the company beneficially owned by each officer and director
of the company, individually and as a group, and by each person known to the
company to be the beneficial owner of more than five percent of the common
stock.
40
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of
Name and Address Common Stock Percent
---------------- ------------ -------
<S> <C> <C>
Larry N. Lunan 4,841,700(1) 61.9
2344 Woodridge Avenue
Kingsport, TN 37664
Susan H. Lunan 3,258,775(2) 44.6
2344 Woodridge Avenue
Kingsport, TN 37664
Roger A. Warren 40,000 0.5
17130 Redhill Avenue
Irvine, CA 92714
Officers and Directors 4,881,700 62.4
as a group (3 persons)
</TABLE>
-------------------------
(1) Includes 3,258,775 shares owned of record by Susan H. Lunan, Mr.
Lunan's spouse.
(2) These shares are also attributed to Mrs. Lunan's spouse, Larry N.
Lunan, but Mr. Lunan disavows any beneficial interest in the
shares.
Changes in Control
There are no arrangements which may result in a change in control of the
company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during the last two fiscal years, and there
are no proposed transactions, that involve amounts in excess of $60,000 to which
the company was or is to be a party in which any director, executive officer,
beneficial owner of more than five percent of the company's common stock, or
members of their immediate families had, or is to have, a direct or indirect
material interest.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this Form 10-KSB:
Exhibit No. Description
2 - Plan and Agreement of Merger Between Bad
Toys, Inc. and Myca Group, Inc.
41
<PAGE>
3 - Articles of Incorporation of Bad Toys, Inc.*
3.1 - Bylaws of Bad Toys, Inc.*
4 - Convertible promissory note dated January 5,
1999 issued by the Company to Barrick
Properties, LLC, which note is representative
of other convertible promissory notes issued
by the Company.*
10 - Kingsport, Tennessee facility lease between
the Company and Gary C. and Andrea W. Andes*
10.1 - Stock Option Plan*
27 - Financial Data Schedule
*Previously filed with Form 10-SB; Commission File No. 0-29836,
incorporated herein.
(b) Reports on Form 8-K
None
42
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this to be signed on its behalf by the undersigned,
thereunto duly authorized.
BAD TOYS, INC.
Date: April 12, 2000 By /s/ Larry N. Lunan
---------------------------------
Larry N. Lunan, President
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: April 12, 2000 /s/ Roger A. Warren
-----------------------------------
Roger A. Warren, Chief Financial
Officer, Vice President and
Director
Date: April 12, 2000 /s/ Larry N. Lunan
-----------------------------------
Larry N. Lunan, President and
Director
Date: April 12, 2000 /s/ Susan H. Lunan
-----------------------------------
Susan H. Lunan, Secretary and
Director
43
Bad Toys, Inc.
Exhibits to Form 10-KSB
For the Fiscal Year Ended December 31, 1999
Exhibit No. Description
2 - Plan and Agreement of Merger Between Bad
Toys, Inc. and Myca Group, Inc.
3 - Articles of Incorporation of Bad Toys, Inc.*
3.1 - Bylaws of Bad Toys, Inc.*
4 - Convertible promissory note dated January 5, 1999
issued by the Company to Barrick Properties, LLC,
which note is representative of other convertible
promissory notes issued by the Company.*
10 - Kingsport, Tennessee facility lease between the
Company and Gary C. and Andrea W. Andes*
10.1 - Stock Option Plan*
27 - Financial Data Schedule
*Previously filed with Form 10-SB; Commission File No. 0- 29836,
incorporated herein.
<PAGE>
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 ___ 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
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").
Exhibit 2
Page 1 of 30 Pages
<PAGE>
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.
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
Exhibit 2
Page 2 of 30 Pages
<PAGE>
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 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,
Exhibit 2
Page 3 of 30 Pages
<PAGE>
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 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.
Exhibit 2
Page 4 of 30 Pages
<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 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.
Exhibit 2
Page 5 of 30 Pages
<PAGE>
(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 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
Exhibit 2
Page 6 of 30 Pages
<PAGE>
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 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
Exhibit 2
Page 7 of 30 Pages
<PAGE>
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 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"):
Exhibit 2
Page 8 of 30 Pages
<PAGE>
Unrestricted 4,045,000
Restricted 796,700
Total: 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 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
Exhibit 2
Page 9 of 30 Pages
<PAGE>
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;
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 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
Exhibit 2
Page 10 of 30 Pages
<PAGE>
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.
(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
Exhibit 2
Page 11 of 30 Pages
<PAGE>
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 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
Exhibit 2
Page 12 of 30 Pages
<PAGE>
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 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
Exhibit 2
Page 13 of 30 Pages
<PAGE>
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 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 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
Exhibit 2
Page 14 of 30 Pages
<PAGE>
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
(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
Exhibit 2
Page 15 of 30 Pages
<PAGE>
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 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'
Exhibit 2
Page 16 of 30 Pages
<PAGE>
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. 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
Exhibit 2
Page 17 of 30 Pages
<PAGE>
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
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 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,
Exhibit 2
Page 18 of 30 Pages
<PAGE>
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
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.
Exhibit 2
Page 19 of 30 Pages
<PAGE>
(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 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,
Exhibit 2
Page 20 of 30 Pages
<PAGE>
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.
(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
Exhibit 2
Page 21 of 30 Pages
<PAGE>
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 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.
(viii) The Bad Toys shareholders shall have approved the
transactions
Exhibit 2
Page 22 of 30 Pages
<PAGE>
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 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
Exhibit 2
Page 23 of 30 Pages
<PAGE>
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 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 th e Reorganization and (c)
Amended Articles of Incorporation of Bad Toys
certified by the Secretary of State of Nevada
evidencing Bad Toys' increased capitalization.
Exhibit 2
Page 24 of 30 Pages
<PAGE>
(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.
(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;
Exhibit 2
Page 25 of 30 Pages
<PAGE>
(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.
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
Exhibit 2
Page 26 of 30 Pages
<PAGE>
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 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 it in connection with the
negotiation, preparation or execution of this Agreement.
Exhibit 2
Page 27 of 30 Pages
<PAGE>
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
Exhibit 2
Page 28 of 30 Pages
<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 or any consistent additional terms. The Exhibits
attached to this Agreement are made a part of this Agreement.
Exhibit 2
Page 29 of 30 Pages
<PAGE>
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
Exhibit 2
Page 30 of 30 Pages
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 185
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 202,428
<CURRENT-ASSETS> 219,595
<PP&E> 66,729
<DEPRECIATION> 0
<TOTAL-ASSETS> 297,262
<CURRENT-LIABILITIES> 541,632
<BONDS> 0
0
0
<COMMON> 694,970
<OTHER-SE> (939,340)
<TOTAL-LIABILITY-AND-EQUITY> 297,262
<SALES> 85,231
<TOTAL-REVENUES> 85,231
<CGS> 219,913
<TOTAL-COSTS> 471,283
<OTHER-EXPENSES> 40,702
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (646,667)
<INCOME-TAX> 0
<INCOME-CONTINUING> (646,667)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (646,667)
<EPS-BASIC> (0.008)
<EPS-DILUTED> 0.008
</TABLE>
