U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Bad Toys, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 0-29836 33-0677545
- -------------- ------------------------ -------------
(state of (Commission File Number) (IRS Employer
incorporation) I.D. Number)
2344 Woodridge Avenue
Kingsport, TN 37664
423-247-9560
-------------------------------------------------------
(Address and telephone number of registrant's principal
executive offices and principal place of business)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
As of March 31, 2000, there were 7,827,006 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes ___
No X
---
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
2
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Balance Sheets (Unaudited)
March 31,2000 & March 31, 1999
<TABLE>
<CAPTION>
3/31/00 3/31/99
Unaudited Audited
--------- ---------
Assets
- ------
<S> <C> <C>
Cash & Cash Equivalents $ 17,320 4,405
Accounts Receivable 0 2,044
Inventory (Note B) 266,362 214,374
Prepaid Expenses 15,339 22,091
------- -------
Total Current Assets 299,021 242,914
------- -------
Property, Plant, & Equipment,
net of accumulated depreciation (Note C) 66,223 71,049
Organization Costs, net of accumulated
amortization 6,536 24,398
Syndication Costs 0 14,400
Utility Deposits 280 280
------- -------
Total Assets 372,060 353,041
-------- -------
Liabilities & Shareholders' Equity
- ----------------------------------
Accounts Payable & Accrued Liabilities 72,635 76,322
Current Portion of Long Term Debt 117,691 8,093
------- -------
Total Current Liabilities 190,326 84,415
------- -------
Notes Payable - Long Term 0 24,525
Notes Payable - Shareholders (Note F) 506,072 252,753
------- -------
Total Liabilities 696,398 361,693
------- -------
Common Stock, par value $.01;
10,000,000 shares 78,270 54,095
Authorized, 7,827,006 & 5,355,000
Shares issued and outstanding
respectively
Additional Paid in Capital 637,100 303,287
Deficit Accumulated During the
Development Stage (1,039,708) ( 366,034)
--------- --------
Total Liabilities &
Shareholders' Equity $ 372,060 353,041
--------- --------
</TABLE>
See notes to financial statement
3
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended
March 31
2000 1999
-------------------------
<S> <C> <C>
Sales $ 11,967 9,706
Cost of Sales 37,261 20,032
--------- ---------
Gross Profit (25,294) (10,326)
--------- ---------
General & Administrative
Expenses 60,667 55,613
Income (Loss) from operations
Before interest expense (85,961) ( 65,939)
Interest Expense 14,107 7,422
--------- ---------
Net Earnings (Loss) $ (100,068) ( 73,361)
--------- ---------
Net Earning (Loss)
Per Share $(0.013) (0.014)
--------- ---------
Weighted Average Shares 7,827,000 5,355,000
--------- ---------
</TABLE>
See notes to financial statements
4
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Cash Flows (Unaudited)
Three Months Ended
March 31, 2000 & March 31, 1999
<TABLE>
<CAPTION>
3/31/00 3/31/99
--------- ---------
Cash flow from operating activities:
<S> <C> <C>
Cash received from customers $ 11,967 8,759
Cash paid to suppliers and employees (108,998) ( 67,978)
Other operating disbursements ( 68,171) ( 33,541)
Depreciation & Amortization 4,299 7,166
------- -------
Net cash provided (used) by operating activities (160,903) ( 85,594)
------- -------
Cash flows from investing activities:
Cash payments for the purchase of property 0 0
------- -------
Net cash provided (used) by investing activities 0 0
------- -------
Cash flow from financing activities:
New borrowings
Proceeds from equipment and other loans 0 0
Debt reduction:
Long - Term 0 ( 2,469)
Short - Term ( 1,210) ( 366)
Proceeds from additional paid in capital 0 53,955
Proceeds from shareholder debt 179,248 36,577
Proceeds from issuance of common stock 0 545
------- -------
Net cash provided (used) by financing activities 178,038 88,242
------- -------
Net increase (decrease) in cash & equivalents 17,135
Cash & Equivalents, beginning of period 185 1,757
------- -------
Cash & Equivalents, end of period 17,320 4,405
------- -------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest Expense 8,152 6,172
</TABLE>
See notes to financial statements
5
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Three Months Ended
March 31, 2000 & March 31, 1999
(Unaudited)
3/31/00 3/31/99
--------- ---------
Reconciliation of net income to net cash
Provided by operating activities
Net Income/(Loss) $(100,068) ( 73,361)
Adjustments to reconcile net income to
net cash
Provided by operating activities:
Depreciation and amortization 4,299 7,166
(Increase) decrease in other assets 0 0
(Increase) decrease in accounts receivable 0 ( 947)
(Increase) decrease in prepaid expense 1,642 1,452
(Increase) decrease in inventories ( 63,933) ( 34,214)
(Increase) decrease in fixed assets ( 3,793) ( 4,513)
Increase (decrease) in accounts payable ( 9,765) 12,881
Increase (decrease) in accrued liabilities 7,978 4,692
Increase (decrease) in interest payable 2,737 1,250
------- -------
Total adjustments ( 60,835) ( 12,233)
------- -------
Net cash provided (used) by investing activities (160,903) ( 85,594)
------- -------
See notes to financial statements
6
<PAGE>
Bad Toys, Inc.
Notes to Financial Statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Bad Toys, Inc. (the Company)
is presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management
who is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Nature of Operations
- --------------------
The Company was organized and incorporated on April 21, 1995 and began business
on April 1, 1998. The company operates a custom motorcycle manufacturing and
service facility in Kingsport, TN. The Company offers retail parts and product
sales as well as motorcycle service to its customers seven days a week. Although
principally located in Kingsport, TN, the Company's customers are located
primarily throughout the United States.
Inventories
- -----------
The Company's inventories are stated at the lower of standard cost (which
approximates average cost) or market.
Property and Equipment
- ----------------------
Property and equipment are carried at cost. For financial statement and federal
income tax purposes, depreciation is computed using the modified accelerated
cost recovery system. Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. Depreciation of
property and equipment is provided using rates based on the following useful
lives:
Years
-----
Machinery and equipment 3-10
Furniture and fixtures 3-10
Leasehold Improvements 5
Depreciation expense for thethree months ended March 31, 2000 is $ 8,421
Organization Costs
- ------------------
Costs of organizing the Company are recorded as organization costs and amortized
over five years on a straight-line basis.
Concentrations of Credit Risk
- -----------------------------
The Company is engaged in the manufacture and service of highly customized
motorcycles. The sales revenues are primarily derived from an area encompassing
a two hundred mile radius of Kingsport, Tennessee. The Company performs credit
evaluations of customers in the rare case where credit is granted, and generally
requires no collateral from its customers.
7
<PAGE>
Bad Toys, Inc.
Notes to Financial Statements
NOTE B - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
Mar. 31, 2000 Mar. 31, 1999
------------- -------------
<S> <C> <C>
Work in Process $ 16,511 $ 90,488
Finished goods 249,850 123,886
------- --------
$ 266,361 $ 214,374
</TABLE>
Inventories are stated at the lower of standard cost (which approximates average
cost) or market. The Company's current inventory levels are an accumulation of
motorcycle parts surrounding the production models. Inventory obsolescence and
pilferage is adjusted to cost sales in the period incurred. Work in process
consists of partially manufactured motorcycle models. Finished goods consist of
completed motorcycle models and saleable motorcycle parts, suitable for a
variety of Harley-Davidson-type motorcycles. Parts within finished goods are
either directly saleable to the public or used in the manufacturing of the
Company's production units.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications as follows:
<TABLE>
<CAPTION>
Mar. 31, 2000 Mar. 31, 1999
------------- -------------
<S> <C> <C>
Vehicles $ 20,328 $ 20,328
Equipment 28,649 13,101
Furniture and Fixtures 2,620 2,163
Leasehold Improvements 45,414 45,045
------- -------
97,012 80,637
Less accumulated depreciation (30,788) ( 9,588)
-------- --------
$ 66,223 $ 71,049
</TABLE>
8
Bad Toys, Inc.
Notes to Financial Statements
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Mar. 31, 2000 Mar. 31, 1999
------------- -------------
Bank note payable $ 629.04
per month plus
Interest accrued at 9.75%,
<S> <C> <C>
secured by vehicle. $ 0 $ 3,071
Bank note payable $285.60
per month plus
Interest accrued at 9.5%,
secured by vehicle. 2,035 4,774
Notes payable to individuals,
corporations,
And limited liability companies,
with interest At 10-15%, due at
renewal cycle, or at payoff Dates
ranging from 6-18 months, secured
by Equity securities 23,000 24,525
Notes payable to stockholders due
Mar. 31, 2000 with interest at
10.5%, unsecured. 598,727 253,201
------- -------
623,762 285,571
------- -------
Less current portion (623,762) ( 8,093)
------- --------
Long term debt $ 0 $ 277,478
------- --------
</TABLE>
Maturities of long-term debt are as follows:
March 31,2000 Amount
------------- ------
2000 623,762
9
<PAGE>
Bad Toys, Inc.
Notes to Financial Statements
NOTE E - INCOME TAXES
Operating Loss Carryforwards
The Company has loss carryforwards totaling $144,154 as of the tax year ended
December 31, 1999 that may be offset against future taxable income. If not used,
the carryforwards will expire as follows:
Operating
Losses
---------
Year 11 $ 849
Year 12 15,001
Year 13 43,093
Year 14 85,211
-------
$ 144,154
-------
NOTE F - RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and affiliated entities:
1. Notes payable to related parties as March 31, 2000 and March 31, 1999,
consisted of the following:
<TABLE>
<CAPTION>
Mar. 31, 2000 Mar. 31, 1999
------------- -------------
Notes payable to Larry & Susan
Lunan due December 31, 2000
<S> <C> <C>
with interest at 10.5 $ 506,072 $ 159,367
Notes payable to Barrick
Properties, LLC, with interest
at 10-10.5%, with annual renewal
options. 92,655 24,579
------- -------
$ 598,727 $ 183,946
------- -------
</TABLE>
2. The Company leases its facilities from a minority stockholder as described in
Note G below.
NOTE G - LEASING ARRANGEMENTS
The Company conducts its operations from facilities that are leased under a
five-year noncancelable operating lease expiring in September, 2002. There is no
option to renew the lease. The lessor of the facility is a stockholder of the
Company. Lessor has received shares of stock as prepaid rent for the term lease.
Monthly rent is $1,420, which includes monthly-prepaid rent expensed of $520.
10
<PAGE>
Bad Toys, Inc.
Notes to Financial Statements
NOTE G - LEASING ARRANGEMENTS (continued)
The following is a schedule of future minimum rental payments required under the
above operating lease (excluding prepaid rent expense) as of March 31, 2000:
<TABLE>
<CAPTION>
Three Months Ending
Mar. 31 Amount
------- ------
<S> <C> <C>
2000 8,100
2001 10,800
2002 8,100
------
$29,700
------
</TABLE>
Rental expense for the three months ended March 31,2000 and the three months
ended March 31, 1999 were $5,010 and $ 5,010, respectively.
NOTE H - OPERATING AND CASH FLOW DEFICITS
The Company has experienced significant adversity during the development stage
of its existence. As a result, the Company has a cumulative operating deficit of
$1,039,708, and current payables, including the current portion of long term
debt, exceed cash and current receivables by $ 661,758 at March 31, 2000.
Management is anticipating completing a merger in the second quarter of 2000. On
March 21, 2000, Bad Toys, Inc. signed a letter of intent to sell control of the
company to MYCA Group, Inc. (now named Mycom.com, Inc.). The consummation of the
transaction is subject to several conditions including the execution of a
definitive agreement and the approval of the transaction by the Bad Toys, Inc.
stockholders. Upon consummation of the transaction, the Mycom.com principals
will be the majority shareholders.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the financial statements and the accompanying notes thereto and is qualified in
its entirety by the foregoing and by more detailed financial information
appearing elsewhere. See "Item 1. Financial Statements."
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 Mycom.com, Inc., a Cincinnati,
Ohio "high tech" company, with regard to the management of our company buying
the company's motorcycle business and selling to Mycom.com the "shell
corporation" produced by this withdrawal of assets from the company. On March
31, 2000, our company and Mycom.com signed the Agreement of Merger.
Results of Operations
The following table presents certain selected data for each of the two
years in the period ended December 31, 1999 and the interim, three-month periods
ended March 31, 1999 and March 31, 2000:
<TABLE>
<CAPTION>
Year Ended Three Months Ended 3-31
---------------------- -----------------------
1998 1999 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 77,451 $ 85,231 $ 9,706 $ 11,967
Cost of Sales 80,885 219,913 20,032 37,261
--------- --------- --------- ---------
Gross Margin (Loss) (3,434) (134,682) (10,326) (25,294)
Operating Expenses 158,371 471,283 55,613 60,667
Other Income and
Expenses, Net 20,259 40,702 7,422 14,107
--------- --------- --------- ---------
Net (Loss) $(182,064) $(646,667) $ (73,361) $(100,068)
</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
12
<PAGE>
resources to our retail merchandise line but, instead, of increasing our
inventory of hard parts, such as engine components, transmission components,
frames, etc. to be used in our motorcycle prototype construction. During the
first half of 1999 we entirely suspended our retail operations to concentrate on
prototype development, namely our Phoenix model, and to participate in a West
Coast show.
Interim results. Sales for the first fiscal quarter (Q1) of 2000
increased $2,261 (23 percent) over Q1 of 1999 sales. This nominal increase over
Q1 1999 is a direct result of not increasing our retail merchandise to include
soft goods such as hats, shirts, clothing, boots, and various other motorcycle
accessories. Instead, the company concentrated on inventory of hard parts such
as engine components, transmission components, frames, etc. to be used in its
motorcycle prototype construction.
Cost of Sales
Our cost of sales increased $139,029 (175 percent) over 1998, while our
sales increased only ten percent. This large increase in the cost of sales is
due to our writing off the cost of certain work in process associated with the
development of the Phoenix model motorcycle in the amount of $85,000 and
charging to the current period all costs associated with the development of the
new models.
Interim results. The cost of sales in Q1 2000 increased $17,229 (86
percent) over Q1 1999, while sales increased only 23 percent. This large
increase in the cost of sales is due to an increase in company payroll and other
related costs associated with the development of the company's new models. In
the second quarter (June) the company will debut its three new models to the
public. These development costs account for the increase when compared to the
1999 cost of sales.
Gross Margin
The company's gross margin (loss) increased $131,248 when compared to
1998 and is attributable to the write-off of work in process inventory and the
charging of model development to the current period, as noted above.
Interim results. Gross margin (loss) increased $14,968 in Q1 2000 over
Q1 1999 and is attributable to an increase in development activity and the
charging of model development to the current period as noted above.
Operating Expenses
Operating expenses for 1999 increased $312,912 (198 percent) over 1998.
This dramatic increase in general and administrative expenses is attributable
to:
o advertising costs related to our participation in the Laughlin,
Nevada River Run motorcycle show;
o the costs of our company's spokesman for his attendance and
representation of the company at the River Run motorcycle show;
13
<PAGE>
o radio and television advertising expenses incurred to promote the
company and its product;
o promotional fees paid with regard to our Phoenix model motorcycle
being featured in a planned television airing on the Discovery or
Learning Channels; and
o consulting fees paid with regard to a planned expansion and
general business consulting.
Interim results. Operating expenses for Q1 2000 increased $20,022
(thirty percent) over Q1 1999. The increase in general and administrative
expenses is attributed to increased professional fees and costs related to the
proposed merger.
Net Income (Loss)
We had a net loss of $646,667 as compared with a net loss of $182,064 in
1998. This increase in loss of $464,603 is attributed to the factors discussed
above under "cost of sales" and "operating expenses." In July 1999, our primary
source of capital withdrew its commitment to provide funds through December
1999. This lack of working capital prevented us from expanding our retail
operation as planned and severely limited our ability to market and display our
flagship model, the Phoenix.
Interim results. The company had a net loss of $100,068 in Q1 2000 as
compared with a net loss of $73,361 in Q1 1999. The increase in loss of $26,707
is discussed in the previous sections.
Liquidity and Capital Resources
We have exhausted our cash resources, which have largely been
contributions to the company's capital by management since June 1999. Management
has concluded that it is in the best interests of our stockholders to accept the
proposal of Mycom.com, Inc. to offer our company's corporate shell to Mycom.com
(1) in exchange for sufficient cash to pay all debt of the company except debt
owed to management and (2) to exchange the motorcycle business and its attendant
assets for the extinguishment of the company's debt to management - which debt
was $506,072 on March 31, 2000. The company's business will become what is the
present business of Mycom.com, and the stockholders should have much better
prospects for the future.
Interim results. The company had negative cash flow from operations of
$160,902 in Q1 2000 as compared to a negative cash flow from operations of
$85,594 in Q1 1999. The two major contributors to the negative cash flow from
operations were the operating loss of $100,068 and the increase in inventories
of $63,933 to facilitate our expanded model development.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
14
<PAGE>
(b) Forms 8-K
None
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: May 11, 2000 Bad Toys, Inc.
By/s/Larry N. Lunan
-------------------------------------
Larry N. Lunan, President and
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,320
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 266,362
<CURRENT-ASSETS> 299,021
<PP&E> 97,012
<DEPRECIATION> (30,788)
<TOTAL-ASSETS> 372,060
<CURRENT-LIABILITIES> 190,326
<BONDS> 0
0
0
<COMMON> 78,270
<OTHER-SE> (402,608)
<TOTAL-LIABILITY-AND-EQUITY> 372,060
<SALES> 11,967
<TOTAL-REVENUES> 11,967
<CGS> 37,261
<TOTAL-COSTS> 37,261
<OTHER-EXPENSES> 60,667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,107
<INCOME-PRETAX> (100,068)
<INCOME-TAX> 0
<INCOME-CONTINUING> (100,068)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,068)
<EPS-BASIC> (0.013)
<EPS-DILUTED> 0.000
</TABLE>
