U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
FORM 10-QSB/A
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the Quarter Ending March 31, 2000
Commission File No. 000-28684
BoysToys.com, Inc.
------------------
(Exact name of Registrant as specified in its Charter)
Incorporated under the Laws
of the State of Delaware 33-0824801
--------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
412 Broadway, San Francisco, California 94133
---------------------------------------------
(Address of principle executive office)
(415) 391-2800
--------------
(Registrant's telephone number, including area code)
7825 Fay Avenue, Suite 200, La Jolla, California 92037
------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Common Stock Outstanding at March 31, 2000
7,298,639 Shares at $0.001 Par Value Common
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 12 months (or for such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes NO X .
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BoysToys.com, Inc.
TABLE OF CONTENTS
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements & Letter of Independent Accountants
Consolidated Balance Sheets
March 31, 2000 (unaudited) and March 31, 1999 . . . . 3 & F-1
Consolidated Statements of Operations (unaudited)
Three Months Ended March 31, 2000 (unaudited)
and Three Months Ended March 31, 1999 (unaudited) . . . F-4
Statements of Changes in Shareholders' Equity (unaudited)
From December 6, 1993 (inception) through March 31, 2000 F-5
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31, 2000 and March 31, 1999 . . F-8
Notes to Consolidated Financial Statements (unaudited) . . . F-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . 4
Item 2A. Factors That May Affect Future Results . . . . . . . . . . 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 12
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . 12
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 12
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANTS
(A Professional Corporation)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accounts
The Board of Directors
BoysToys.com, Inc.
We have reviewed the accompanying consolidated balance sheet of BoysToys.com,
Inc. as of March 31, 2000 and March 31, 1999 and the related consolidated
statements of operations, shareholders' deficit and cash flows for the three
months then ended, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of BoysToys.com, Inc.
A review consists principally of inquiries of management and analytical
procedures applied to financial data. It is substantially less in scope than
an audit in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/S/ ARMANDO C. IBARRA
----------------------
ARMANDO C. IBARRA, CPA
Chula Vista, California
May 10, 2000
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<TABLE>
BoysToys.com, Inc.
Consolidated Balance Sheets
March 31, 2000 (unaudited) and December 31, 1999
<CAPTION>
ASSETS
------
2000 1999
---------- ----------
<S> <C> <C>
Current Assets:
Cash $ 24,821 $ 371,621
Inventory 57,341 -
Prepaid expenses 41,694 12,000
Employee advances 200 -
Deposits - 240,000
---------- ----------
Total Current Assets 124,056 623,621
Property and Equipment, Net 3,063,774 666,060
Other Assets:
Note Receivable - Officer 83,827 35,515
Investment in Fine Art 10,000 -
Deposits 56,726 37,000
---------- ----------
Total Other Assets 150,553 72,515
TOTAL ASSETS $3,338,383 $1,362,196
========== ==========
<FN>
See Accountants' Report and Notes to the Financial Statements.
</TABLE>
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<TABLE>
BoysToys.com, Inc.
Consolidated Balance Sheets
March 31, 2000 (unaudited) and December 31, 1999
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
2000 1999
---------- ----------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 70,026 $ 596,586
Equipment payable 33,325 -
Accrued Interest 76,555 294,248
Convertible Debt 1,925,095 1,294,209
---------- ----------
Total Current Liabilities 2,105,001 2,185,043
TOTAL LIABILITIES 2,105,001 2,185,043
Shareholders' (deficit) equity :
Preferred stock, $.01 par value ( 10,000,000
authorized; none issued and outstanding.) - -
Common Stock, $.01 par value ( 20,000,000
shares authorized; issued and outstanding:
7,298,639 and 3,999,400 as of March 31, 2000 72,986 39,994
and 1999, respectively)
Additional Paid-in-capital 9,436,068 2,628,594
Common stock subscribed (62,500) (62,500)
Deficit accumulated during the development stage
(to 12/31/99) (7,856,576) (3,428,935)
Deficit (356,596) -
---------- ----------
Total Shareholders' (Deficit) Equity 1,233,382 (822,847)
TOTAL LIABILITIES AND SHAREHOLDERS'
(DEFICIT) EQUITY $3,338,383 $1,362,196
========== ==========
<FN>
See Accountants' Report and Notes to the Financial Statements.
</TABLE>
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<TABLE>
BoysToys.com, Inc.
Consolidated Statements of Operations
For the Three Months Ended March 31, 2000 and 1999
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Revenues:
Sales * $ 499,976 $ 0
Cost of Sales 150,124 0
---------- ----------
Gross Profit 349,852 0
General and Administrative Expenses (632,520) (71,376)
---------- ----------
Total General & Administrative Expenses (632,520) (71,376)
Operating loss (282,668) (71,376)
Other Income (Expenses):
Interest Income 552 1,694
Interest Expense (73,680) (32,920)
---------- ----------
Total Other Income (Expenses) (73,128) (31,226)
Deficit Before Income Taxes (355,796) (102,602)
Provision for Income Taxes (800) (800)
---------- ----------
Net loss $ (356,596) $ (103,402)
========== ==========
Net loss per share $ (0.05) $ (0.04)
========== ==========
Weighted average shares used
for net loss per share 6,664,882 2,918,630
========== ==========
Net loss per diluted share $ (0.03) $ (0.05)
========== ==========
Weighted average shares used
for net loss per diluted share 10,413,735 2,530,927
========== ==========
<FN>
See Accountants' Report and Notes to the Financial Statements.
</TABLE>
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<TABLE>
BoysToys.com, Inc.
Statements of Changes in Shareholders' (Deficit) Equity (unaudited)
From December 6, 1993 (inception) through March 31, 2000
<CAPTION>
Deficit
Accumulated
Additional Common stock During
Common Stock Paid-in Subscribed Development
Shares Amount Capital Shares Amount Stage Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 6, 1993 - $ - $ - - $ - $ - $ -
Issuance of common stock 50,000 500 1,000 - - - 1,500
Sale of stock to common stock
susbcribers upon full payment of
subscription during December, 1993 11,817 118 237 - - - 355
Common stock subscribed, net
$50,871 of subscriptions receivable - - - 1,666,667 119 - 119
Net Loss - - - - - (564) (564)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 61,817 618 1,237 1,666,667 119 (564) 1,410
Sale of stock to common stock
susbcribers upon full payment of
subscription during June,1994 1,666,667 16,667 34,233 (1,666,667) (119) - 50,781
Issuance of common stock in
private placement offering, net
$ 10,067 of offering costs 71,442 714 203,546 - - - 204,260
Net Loss - - - - - (170,155) (170,155)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 1,799,926 17,999 239,016 - - (170,719) 86,296
Issuance of common stock in
private placement offering 56,761 568 169,717 - - - 170,285
Return and cancellation of
common stock (139,000) (1,390) 1,390 - - - -
Issuance of common stock for
services 139,000 1,390 415,610 - - - 417,000
Net Loss - - - - - (777,674) (777,674)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 1,856,687 18,567 825,733 - - (948,393) (104,093)
Net Loss - - - - - (899,983) (899,983)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 1,856,687 18,567 825,733 - - (1,848,376) (1,004,076)
Net Loss - - - - - (501,567) (501,567)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 1,856,687 $ 18,567 $ 825,733 - $ - $(2,349,943) $(1,505,643)
---------- ---------- ---------- ---------- ---------- ---------- ----------
<FN>
See Accountants' Report and Notes to the Financial Statements.
</TABLE>
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<TABLE>
BoysToys.com, Inc.
Statements of Changes in Shareholders' (Deficit) Equity (unaudited)
From December 6, 1993 (inception) through March 31, 2000
<CAPTION>
Deficit
Accumulated
Additional Common stock During
Common Stock Paid-in Subscribed Development
Shares Amount Capital Shares Amount Stage Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,856,687 $ 18,567 $ 825,733 - $ - $(2,349,943) $(1,505,643)
Issuance of common stock on
reverse merger 602,811 6,028 - - - - 6,028
Issuance of common stock on
conversion of notes payable and
accrued interest from September
1998, through December 1998, at
an average price of $1.37 per share 350,388 3,504 477,327 - - - 480,831
Issuance of common stock on
conversion of accounts payable,
January through October 1998, at
an average price of $0.87 per share 186,376 1,864 160,620 - - - 162,484
Issuance of common stock for
services, from January through
October 1998, at an average price
of $0.92 per share 185,500 1,855 168,916 - - - 170,771
Issuance of common stock for
construction escrow deposits in
October 1998, at a price of
$1.00 per share 240,000 2,400 237,600 - - - 240,000
Issuance of common stock for
prepaid rent in December 1998,
at a price of $1.20 per share 20,000 200 23,800 - - - 24,000
Issuance of stock options on
conversion of accounts payable
in October 1998, at a price of
$1.00 per share - - 90,000 - - - 90,000
Issuance of stock options to directors
for services in October 1998, at a
price of $1.00 per share - - 30,000 - - - 30,000
Net Loss - - - - - (976,390) (976,390)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 3,441,762 $ 34,418 $2,013,996 0 $ 0 $(3,326,333) $(1,277,919)
---------- ---------- ---------- ---------- ---------- ---------- ----------
<FN>
See Accountants' Report and Notes to the Financial Statements.
</TABLE>
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<TABLE>
BoysToys.com, Inc.
Statements of Changes in Shareholders' (Deficit) Equity (unaudited)
From December 6, 1993 (inception) through March 31, 2000
<CAPTION>
Deficit
Accumulated
Additional Common stock During
Common Stock Paid-in Subscribed Development
Shares Amount Capital Shares Amount Stage Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 3,441,762 $ 34,418 $2,013,996 - $ - $(3,326,333) $(1,277,919)
Issuance of common stock on
exercise of option in September
1999, at an exercise price of $0.25 100,000 1,000 24,000 - - - 25,000
Issuance of common stock on
conversion of notes payable and
accrued interest, from February
1999 through June 1999, at an
average price of $1.22 per share 962,985 9,630 1,171,529 - - - 1,181,159
Issuance of common stock for
services, from April 1999 through
December 1999, at an average
price of $1.00 per share 562,377 5,624 556,753 - - - 562,377
Issuance of common stock in
private placement offering from
February 1999 through May 1999,
at a price of $1.00 per share 909,879 9,098 900,780 - - - 909,878
Issuance of stock options to
directors for services in February
1999 - - 3,042,000 - - - 3,042,000
Issuance of common stock for
cash and subscription receivable
in March 1999, at a price of $1.00
per share 125,000 1,250 123,750 (62,500) (62,500) - 62,500
Issuance of stock in lieu of
interest payment due in December
1999 150,000 1,500 46,827 - - - 48,327
Beneficial conversion feature of
convertible debt, from June 1999
through December 1999 - - 631,086 - - - 631,086
Net Loss - - - - - (4,530,243) (4,530,243)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 6,252,003 $ 62,520 $8,510,721 (62,500) $ (62,500) $(7,856,576) $ 654,165
========== ========== ========== ========== ========== ========== ==========
Issuance of stock in lieu of
interest payment due in March
2000 to Essex Capital 75,000 750 31,745 - - - 32,495
Issuance of stock for new short
term as prepaid interest at $.20
per share to Lewis Chin 50,000 500 9,500 - - - 10,000
Issuance of common stock on
conversion of note payable for
construction services from W.B.
Elmer at $2.00 per share. 335,000 3,350 596,650 - - - 600,000
Issuance of common stock on
conversion of notes payable and
accrued interest, from May and
December 1997 at an average
price of $0.50 per share 100,000 1,000 49,000 - - - 50,000
Issuance of common stock for
services, from January 1, through
March 31, 2000, at an average
price of $0.50 per share 486,636 4,866 238,452 - - - 243,318
Net Loss - - - - - (356,596) (356,596)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, March 31, 2000 7,298,639 $ 72,986 $9,436,068 (62,500) $ (62,500) $(8,213,172) $1,233,382
========== ========== ========== ========== ========== ========== ==========
<FN>
See Accountants' Report and Notes to the Financial Statements.
</TABLE>
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<TABLE>
BoysToys.com, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (301,659) $ (103,402)
Non-cash operating activities included in deficit
accumulated :
Amortization and Depreciation 81,394 -
(Increase) decrease in assets :
Inventory (57,341) -
Prepaid expenses (38,694) 12,000
Employee advances (200) -
Note receivable-officer (46,235) -
Increase (decrease) in liabilities :
Accounts payable (900) (24,318)
Equipment contract payable 33,323 -
Accrued interest 41,065 31,392
---------- ----------
Net cash used in operating activities (289,247) (84,328)
========== ==========
Cash Flows from Investing Activities
Purchase of equipment and improvements (69,252) (127,710)
Investment in fine art (10,000) -
---------- ----------
Net cash used in investing activities (79,252) (127,710)
========== ==========
Cash Flows from Financing Activities :
Increase (decrease) in convertible notes 150,000 38,541
Stock issuances 243,318 557,674
---------- ----------
Net cash provided by financing activities 393,318 596,215
========== ==========
Net increase in cash 24,819 384,177
Cash at Begining of Period 2 (12,556)
---------- ----------
Cash at End of Period $ 24,821 $ 371,621
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
Cash Paid During the Year for :
Interest ( Net of amount capitalized ) $ 2,125 $ 1,528
========== ==========
Income Taxes $ 800 $ -
========== ==========
<FN>
See Accountants' Report and Notes to the Financial Statements.
</TABLE>
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BoysToys.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 1 - ORGANIZATION AND BUSINESS
BoysToys.com., Inc. (formerly Alternative Entertainment, Inc.) was incorporated
in the state of Delaware on April 21, 1997, under the name Wagg Corp. ("Wagg").
BoyToys.com, Inc. engages in the business of developing, owning and operating
nightclubs providing exotic dance entertainment combined with a full service
restaurant, lounge, and business meeting facilities.
On December 6, 1993 Alternative Entertainment, Inc. a Nevada corporation ("AEI
Nevada") was formed. On June 11, 1999, a wholly owned subsidiary was formed,
RMA of San Francisco, Inc., a California Corporation, which will be the
operating entity for the first such nightclub facility in San Francisco,
California.
On January 15, 1998, AEI Nevada acquired 80% of the outstanding common stock of
Wagg. On January 25, 1998, the shareholders of AEI Nevada voted to execute a
one-for-three reverse split of its common stock. On January 26, 1998, the
shareholders of Wagg voted to execute a one-for-two reverse split of its common
stock. Number of shares and per share amounts have been restated as though the
transaction occurred on December 6, 1993 (Inception).
Following these actions and on January 28, 1998, the Wagg Board of Directors
voted to approve a plan and agreement of reorganization between Wagg and AEI
Nevada. Under the terms of the reorganization, each outstanding share of
Wagg's common stock was exchanged for one share of AEI Nevada common stock and
all of the assets of AEI Nevada were transferred to Wagg. This resulted in AEI
Nevada becoming a wholly-owned subsidiary of Wagg. In conjunction with these
actions, the shareholders of Wagg approved an amendment of Wagg's Certificate
of Incorporation to change its name to Alternative Entertainment, Inc., a
Delaware Corporation ("AEI"). The reorganization has been accounted for as a
reverse acquisition with a public shell. Accordingly, the accompanying
consolidated financial statements have been presented as if AEI Nevada had
always been a part of Wagg.
During 1998 Wagg changed its name to AEI. On December 29, 1998, AEI changed
its name to BoysToys.com, Inc. (the "Company").
Activity during the past two years consisted primarily of efforts devoted to
identifying suitable properties for acquisition, performing administrative
functions, and the initial construction of the Company's first establishment
located in San Francisco, California. On January 26, 2000 operations commenced
at the Company's first location in San Francisco.
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BoysToys.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Company's policy is to use the accrual method of accounting and to prepare
and present financial statements in accordance with generally accepted
accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, RMA of San Francisco, Inc. and AEI Nevada. All
significant intercompany transactions and balances have been eliminated.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, accounts payable
and accrued expenses approximate fair value due to the immediate short-term
maturity of these financial instruments.
The fair value of the Company's notes payable and convertible debt approximates
the carrying amount based on the current rates offered to the Company for debt
of the same remaining maturities with similar collateral requirements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The company is currently
capitalizing all leasehold improvements, equipment and fixtures associated with
the development of its first establishment located in San Francisco,
California. No depreciation or amortization was recorded in 1998 because the
Company was in the development stage and the assets had not yet been placed
into service. Equipment and fixtures are being depreciated using the straight-
line method over the estimated asset lives ranging from 3 to 7 years.
Leasehold improvements will be amortized using the straight-line method over
the shorter of the life of the improvements or the length of the lease.
The company started recording depreciation and amortization expense in 1999
consistent with generally accepted accounting principles.
Leasehold improvements are primarily architectural, planning and construction
costs associated with construction of the facility. Equipment and fixtures are
primarily computer systems, furniture, lighting, sound and video equipment.
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BoysToys.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company applies the provisions of Statement of Financial Accounting
Standards (SFAS) No. 34. Consequently, interest cost related to the
construction of the Company's first establishment is capitalized and will be
amortized consistent with the leasehold improvements.
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." This statement allows entities to measure
compensation costs related to awards of stock-based compensation, using either
the fair value method or the intrinsic value method. The Company has elected
to account for stock-based compensation programs using the intrinsic value
method.
Companies that do not choose to adopt the expense recognition rules of SFAS No.
123 will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion (APB) No. 25, but are required to provide
proforma disclosures of the compensation expense determined under the fair-
value provisions of SFAS No. 123. APB No. 25 requires no recognition of
compensation expense for most of the stock-based compensation arrangements
provided by the Company, namely, broad-based employee stock purchase plans and
option grants where the exercise price is equal to the market price at the date
of the grant.
LONG-LIVED ASSETS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of the impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. SFAS No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of . No impairment of long-lived assets has been
recognized.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
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BoysToys.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BASIC LOSS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which
specifies the computation, presentation and disclosure requirements for
earnings (loss) per share for entities with publicly held common stock. SFAS
No. 128 supersedes the provisions of APB No. 15, and requires the presentation
of basic earnings (loss) per share and diluted earnings (loss) per share. The
Company has adopted the provisions of SFAS No. 128 effective December 6, 1993
(inception).
Basic net loss per share excludes dilution and is computed by dividing net loss
by the weighted average number of common shares outstanding during the reported
periods. Diluted net loss per share reflects the potential dilution that could
occur if a stock option and other commitments to issue common stock were
exercised. During the years ended December 31, 1997, 1998 and for the three
months ended March 31, 2000 options to purchase zero and 120,000 common shares,
respectively, were anti-dilutive and have been excluded from the weighted
average share computation. Furthermore, the stock options issued to an officer
of the Company in 1999 have also been excluded from the weighted average share
computation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 3 - NOTE RECEIVABLE - OFFICER
A note receivable in the amount of $83,827 is due from an officer of the
Company as of March 31, 2000. This note bears interest at 5.85% and is due
upon demand.
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BoysToys.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 4 - BARTER CREDIT
On February 18, 1998, the Company purchased $530,000 of Barter Credits via the
future issuance of 100,000 shares of common stock of the Company. The Barter
Credits entitle the Company to receive goods and services with a fair value
estimated at $530,000 in excess of cash payments made. Management has values
the Barter Credits at $100,000, which is management's estimate of the fair
value of the Company's common stock at the time the transaction was entered
into. As the Company utilizes the Barter Credits, it will record a stock
issuance for par value and additional paid-in capital for the excess of the
fair value of the goods and/or services received over cash payments made plus
the pro-rata portion of the available Barter Credits utilized to the fair value
of the Barter Credits estimated ($100,000) by the Company. The shares to be
issued are subject to restrictions on their transferability of up to two years.
The Barter Credits expire sixty months from February 18, 1998, unless the
Company has used at least $100,000 of the Barter Credits during this period,
which will extend the remaining Barter Credits through February 18, 2008.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 2000 consists of the following:
Equipment and fixtures 299,782
Leasehold improvements:
Capitalized construction costs 2,930,864
Capitalized interest 284,496
Less: accumulated depreciation (451,368)
------------
$ 3,063,774
============
Depreciation expense for the period was $81,394.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
March 31, 2000
------------
Accounts payable $ 70,926
Accrued expenses -0-
------------
$ 70,926
============
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<PAGE>
BoysToys.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 7 - NOTES PAYABLE
Notes payable as of March 31, 2000 consist of the following:
Secured promissory notes with issuance dates
ranging from September 1995 to February 1999,
with interest rates ranging from 8% to 12% per
annum. The notes are due at the earlier of one
year after the date of the note or 60 days after
the Company's common stock is traded on any
securities exchange or in any over-the-counter
market. The notes and accrued interest thereon
are secured by Company common stock and
note holders have the option to convert their
debt into Company common stock. These notes
were not paid at their maturity dated and are due
upon demand. 441,940
Unsecured convertible promissory note which is
not to exceed $1,500,000. Interest accrues at 12%
per year, payable quarterly. Principal, and any
accrued interest, is payable on or before
January 23, 2001. 1,083,154
Unsecured short-term note issued on January
23, 2000 with an interest rate at 10%per annum.
Interest was prepaid with 50,000 shares. Principal
is payable on or before January 31, 2001. 100,000
Unsecured convertible promissory of $490,000
dated December 3, 1999 with a maturity date of
December 1, 2000, and accrues interest at 12%
per annum. 300,000
----------
$1,925,094
==========
Accrued interest related to notes payable totaled $ 76,816 as of
March 31, 2000.
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<PAGE>
BoysToys.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 8 - SHAREHOLDERS' EQUITY
STOCK OPTIONS ISSUED ON CONVERSION OF ACCOUNTS PAYABLE
During the year ended December 31, 1998, the Company issued options to purchase
60,000 shares of common stock at an exercise price of $1 per share, on the
conversion of $90,000 of accounts payable. None of the options have been
exercised and expire on December 31, 2000.
STOCK OPTION PLANS
The Company has approved two stock option plans that become effective
January 1, 1994, an Incentive Stock Option Plan and a Non-qualified Stock
Option Plan. Both plans are available to officers, directors and key employees
of the Company. Each plan allows for the purchase of up to 500,000 shares of
common stock of the Company.
During the year ended December 31, 1998, the Company issued 60,000 options to a
director under the non-qualified stock option plan. During the year ended
December 31, 1999, 1,950,000 options were granted to officers of the Company as
a compensation award. The options were immediately exercisable for $0.25 per
share and were granted at less than the quoted market price of the stock on the
date of grant. The Company has elected to account for incentive grants and
grants under its Plan following APB No. 25 and related interpretations.
Accordingly, the Company recorded $30,000 and $3,042,000 as compensation
expense for the year ended December 31, 1998 and the year ended December 31,
1999 respectively, with a corresponding credit to additional paid in capital.
No issuances have occured in the current year.
A summary of the activity of the stock options for the three months ended
March 31, 2000 is as follows:
Weighted Average
Share Exercise Price
---------- ----------
Outstanding at beginning of period 1,970,000 0.75
Granted -0- 0.25
Forfeited -0-
Exercised -0- 0.25
---------- ----------
Exercisable at end of period $1,970,000 0.35
========== ==========
Weighted-average remaining contractual life 10 years
==========
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<PAGE>
BoysToys.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 9 - INCOME TAXES
Provision for income taxes is summarized as follows:
Year ended December 31, 2000
----------------------------
Current income taxes $ (800)
Deferred income taxes -
---------
Provision for income taxes $ (800)
=========
Deferred income taxes reflect the next tax effects of temporary differences
between the carrying amount of assets and liabilities for reporting and the
amounts used for income tax purposes. The tax effects of items comprising the
Company's net deferred tax assets are as follows:
December 31,
1999 1998
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $2,248,725 $1,008,000
Other -0- 12,000
Gross deferred tax assets 2,248,725 1,020,000
Valuation allowance (2,248,725) (1,020,000)
---------- ----------
Net deferred tax assets $ -0- $ -0-
========== ==========
Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that deductible temporary differences and carryforward
are expected to be available to reduce taxable income. As the achievement of
required future taxable income is uncertain, the Company recorded a valuation
allowance.
As of December 31, 1999, the Company has net operating loss carryforwards for
both federal and state income tax purposes of approximately $4,800,000, which
expire through 2019. Under federal and state laws, the availability of the
Company's net operating loss carryforward may be limited if a cumulative change
in ownership of more than 50% occurs within any three year period. There was
no deferred income tax computed or accumulated for the first three months of
year 2000.
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<PAGE>
BoysToys.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NOTE 10 - COMMITMENTS AND CONTINGENCIES
In February 1995, the Company began leasing real property in San Francisco,
California, which will be used to open its first night club facility. The
operating lease is for a period of ten years with two renewal options, each for
an additional five years. At March 31, 2000, minimum annual rental commitments
under this non-cancelable lease were as follows:
Year Ending
-----------
2000 146,700
2001 201,600
2002 201,600
2003 201,600
Thereafter 128,400
---------
$ 879,900
Rent expense for the three months ended March 31, 2000 was $39,403.
NOTE 11 - DEVELOPMENT STAGE
In subsequent years the Company was classified as a development stage company
based on accounting guidelines. However, the Company commenced operations in
January 2000 and thus is no longer classified as a development state company.
NOTE 12 - GOING CONCERN
As shown in the accompanying financial statements the Company has incurred a
deficit of $501,567 and $976,390 for the years ended December 31, 1997 and
1998, respectively, and incurred a deficit totaling $7,856,756 to
December 31, 1999, and for the three months ended March 31, 2000 has incurred
an operating loss of $301,659. The ability of the Company to continue as a
going concern is dependent on the significant generation of revenue from the
Company's facility in San Francisco, California. The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 13 - SUBSEQUENT EVENTS
CONVERTIBLE DEBT
Management expects that the other outstanding convertible debt of 1,259,674
will be fully converted by March 2001.
LITIGATION
Two subcontractors involved in the construction of the facility in
San Francisco, Superior Heating and Sheet Metal, Inc. and Tucknott Electric
Company, filed mechanics liens against the Company and the general contractor.
Superior Heating and Sheet Metal, Inc. seeks $119,822 in damages. Tucknott
Electric Company seeks $52,666.49 in damages. The Company believes that it is
not responsible for payment of these monies and that the general contractor, is
responsible for payment of all such amounts. Therefore, no accrual or loss
contingency has been reflected in the financial statements.
The Company was also served with a copy of a summons and a complaint filed by
Ken Marc, a holder of a promissory note with a principal amount of $10,000.
The Plaintiff seeks repayment of the note plus accrued interest. The principal
amount owed and accrued interest are part of the liabilities of the Company.
No additional accrual is necessary.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
This report has been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information normally included in
annual reports has been condensed or omitted pursuant to such rules and
regulations. This report should be read in conjunction with the Company's
latest Annual Report on Form 10-K for the year ended December 31, 1999, a copy
of which may be obtained by writing BoysToys.com, Inc., 412 Broadway,
San Francisco, California 94133.
RESULTS OF OPERATIONS
FIRST QUARTER 2000
During the three months ending March 31, 2000 ("First Quarter 2000"), the
Company recorded sales revenues of $499,976 from the operations of its upscale
gentlemen's club at 412 Broadway, San Francisco, California 94133 (the "Club").
These revenues reflected operations only for two months and four days during
the First Quarter 2000 since the Club opened on January 26, 2000. This
compares to the three months ending March 31, 1999 ("First Quarter 1999"),
where the Company did not record any revenues since the Club was not in
operation and the Company had no other operations as well.
The Company did not derive any revenues from its six Developmental Web Sites
during the First Quarter 2000 and all of the Company's revenues were derived
solely from the Club.
These revenues were primarily derived from: (1) food and beverage sales;
(2) Boardroom VIP membership sales; (3) nightclub admission (door) fees;
(4) fees charged by the Company in connection with the use of credit cards by
patrons to obtain cash equivalent items (i.e., the Company sells "Diamond
Dollars" certificates (in multiples of $10 and $20 amounts) to patrons of the
Club such that each "Diamond Dollars" certificate may be used in lieu of cash
or credit cards at the Club for a patron's payment of a "dance fee" to an
entertainer) ("Cash Equivalent Fees"); (5) sales of certain merchandise on
display at the Club and salable on a consignment basis; and (6) entertainers'
lease fees paid by entertainers (dancers) for the privilege of performing at
the Club. (Currently, the Company charges each entertainer a lease fee equal
to $20 to $50 for the right to perform at the Club during any shift.)
Cost of Sales during First Quarter 2000 totaled $150,124 or 30.03% of Sales
revenues during this period. Cost of Sales is primarily made up of food and
beverage costs, labor costs, supply costs, and other costs incurred in
operating the Club.
After deducting Cost of Sales, the Company's Gross Profit was $349,852 during
the First Quarter 2000 reflecting a margin of 69.97% on Sales revenues for the
period.
General and Administrative Expenses for the period were $632,520 or 127% of
Sales revenues during the First Quarter 2000. This compares to $71,376 that was
incurred as General and Administrative Expenses during the First Quarter 1999.
These costs included administrative expenses for the operation of the Company
and the Club such as accounting, advertising, depreciation, office
administration, marketing/promotion, rent, insurance, janitorial, and other
expenses. And the increase of over 786% from the $71,376 amount incurred in
First Quarter 1999 to $632,520 primarily reflected the effect of the operation
of the Club, including a high level of expenses incurred in Club opening
expenses, expenses incurred in hiring and training Club personnel, marketing
and promotion expenses, and other related expenses.
- 4 -
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<PAGE>
As a result, the Company incurred an operating loss of $282,668 during the
First Quarter 2000 which compares to an Operating Loss of $71,376 during the
First Quarter of 1999. In addition, the Company recorded Other Income and
Expenses as follows: $552 in Interest Income, $73,680 in Interest Expense,
during First Quarter 2000. This compares to $1,694 in Interest Income and
$32,920 in Interest Expense during First Quarter 1999.
As a result, Total Other Income and Expenses increased from $31,226 in First
Quarter 1999 to $73,128 in the First Quarter 2000. The increase of about 134%
was primarily due to the Company recording 124% increase in Interest Expense
from $32,920 in First Quarter 1999 to $73,680 in the First Quarter 2000.
This resulted in a Deficit Before Income Taxes of $355,796 for the First
Quarter 2000 compared to a Deficit Before Income Taxes of $31,226 for the
First Quarter 1999.
After adding $800 as a Provision for Income Taxes (i.e., California Franchise
Taxes), the Company recorded a Net Loss of $356,596 for the First Quarter 2000
compared to $103,402 as a Net Loss in First Quarter 1999.
On a per share basis, the Net Loss of $356,596 represents a Net Loss Per Common
Share of ($0.05) on a weighted average of 6,664,882 common shares outstanding
during First Quarter 2000 compared to a Net Loss Per Common Share of ($0.04)
per share during the First Quarter 1999 on a weighted average of 2,918,630
common shares outstanding during that period.
On a diluted share basis, the Net Loss per diluted share was ($0.03) per share
using 10,413,735 weighted average shares outstanding during First Quarter 2000
compared to ($0.05) in Net Loss per diluted share using 2,530,927 weighted
average shares outstanding during First Quarter 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the First Quarter 2000, the Company recorded Net Cash Used in Operating
Activities of ($289,247). This compares to the First Quarter 1999, where the
Company recorded Net Cash Used in Operating Activities of ($84,328).
The Company also purchased equipment and made improvements in its leasehold at
the Club during First Quarter 2000 which had negatively impacted its cash flow
in the amount of ($69,252) and also purchased fine art which negatively
impacted its cash in the amount of ($10,000). In the aggregate, these
expenditures negatively impacted the Company's cash flow by ($79,252) during
First Quarter 2000 which, when added to the ($289,247) in Net Cash Used in
Operating Activities resulted in ($368,499) in negative cash flow during First
Quarter 2000.
This was off-set by the Company's financing activities during the First Quarter
2000. The Company's financing activities resulted in a net increase in
convertible notes of $150,000 and an increase in Common Stock of $243,318
during the First Quarter 2000. By comparison, the Company increased its
convertible notes by $38,541 and increased $557,674 in Common Stock during
First Quarter 1999.
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<PAGE>
Therefore, after including the effect of the Company's financing activities,
the Company had a Net Increase in Cash of $24,819 during the First Quarter 2000
compared to a $384,177 in Net Increase in Cash during First Quarter 1999.
However, the Company's liquidity was extremely low. As of March 31, 2000, the
Company had $124,056 in Total Current Assets. This compares to $2,105,001 in
Total Current Liabilities as of the same date. Thus, the Company had less than
six cents in Total Current Assets for each one dollar in Total Current
Liabilities as of March 31, 2000 ($124,056/$2,105,001).
In comparison, as of March 31, 1999, the Company had $623,621 in Total Current
Assets and $2,185,043 in Total Current Liabilities or 29 cents in Total
Current Assets for each one dollar in Total Current Liabilities
($623,621/$2,185,043).
Thus while the Company's liquidity was reduced in relative terms from First
Quarter 1999 to First Quarter 2000, the composition of the Company's Current
Liabilities on March 31, 2000 was quite different from that found on
March 31, 1999. In particular, the Company reduced its Accounts Payable from
$596,586 on March 31, 1999 to $70,026 on March 31, 2000. Similarly, Accrued
Interest declined from $294,248 on March 31, 1999 to $76,555 on March 31, 2000.
However, Convertible Debt (which represented 91% of Total Current Liabilities
as of March 31, 2000 versus 59% of Total Current Liabilities as of March 31,
1999) increased by $630,886 and Equipment Payable increased by $33,325 from
March 31, 1999 to March 31, 2000.
The Company's management recognizes the difficulties and challenges it faces,
particularly as it works to establish the Club within the intensely competitive
San Francisco, California market. As a result, the Company has worked to
conserve its cash expenditures and to the extent that the Company can, where
appropriate, the Company has sought to acquire goods or services through the
issuance of its common stock or notes on a private placement basis and in lieu
of cash. The Company continues to face significant operating and financial
challenges and the ability of the Company to meet its financial obligations
(particularly the obligations to either refinance or convert its convertible
debt into the Company's Common Stock) will likely continue.
ITEM 1A. FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's business organization and existing debt and obligations on its
balance sheet all involve elements of substantial risk. In many instances,
these risks arise from factors over which the Company will have little or no
control. Some adverse events may be more likely than others and the
consequence of some adverse events may be greater than others. No attempt has
been made to rank risks in the order of their likelihood or potential harm. In
addition to those general risks enumerated elsewhere, any purchaser of the
Company's Common Stock should also consider the following factors.
1. CONTINUED OPERATING LOSSES & LACK OF OPERATING HISTORY. The Company
incurred $4,530,243 in losses during the twelve months ending December 31, 1999
and $356,596 in losses during the three months ending March 31, 2000. The
Company anticipates that it may well incur significant additional losses in the
future as well. The Company lacks a substantial operating history on which to
base its anticipated expense and revenues. There is no assurance that the
Company's operations will be successful or that it will be profitable in the
future.
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<PAGE>
2. UNCERTAINTIES OF REVENUES. While the Company has expended substantial
resources for the development of its Club in San Francisco, California. The
Club is subject to changing state and municipal codes and ordinances. There
can be no assurance that the Company will be successful in operating the Club
or in generating revenues sufficient to sustain profitable operations.
3. CURRENT FINANCIAL STRUCTURE, LIMITED EQUITY, LIMITED WORKING CAPITAL & NEED
FOR ADDITIONAL FINANCING. While the Company's management believes that its
financial policies have been prudent, the Comnpany has relied, in large part,
upon the use of debt financing to provide a substantial portion of the
Company's financial needs. The Company has, as of December 31, 1999, an
aggregate of $2,519,069 in current liabilities that are due for payment prior
to December 31, 2000 and of which $2,283,614 is in the form of convertible debt
convertible into shares of the Company's Common Stock. While the Company
believes that the Company's operation of the Club will be successful and will
allow the Company to generate sufficient profits and cash flow to service and
repay its existing debt, the Company may need to obtain additional financing or
renegotiate its existing debt financing in the event that the Company's
operations are not successful. In that event the Company may need to obtain
additional financing. The Company has had only limited discussions with
potential investors and it does not anticipate receiving any assurances that
the Company will obtain any additional capital from any investors. Further,
the Company has not sought to receive and has not received any commitments or
assurances from any underwriter, investment banker, venture capital fund, or
other individual or institutional investor. In the event that that the Company
needs additional financing there can be no assurance that the Company will
obtain any new financing or, if it is successful, that it can be obtained on
reasonable terms in light of the Company's current circumstances.
4. AUDITOR'S OPINION: GOING CONCERN. Except for the explanatory paragraph
included in the firm's report on the financial statements for the years ended
December 31, 1998 and 1999, relating to the substantial doubt existing about
the Company's ability to continue as a going concern, the audit report did not
contain an adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles.
5. SUBORDINATE TO EXISTING AND FUTURE DEBT & AUTHORIZED BUT UNISSUED PREFERRED
STOCK. All of the Common Stock offered hereby are subordinate to the claims of
the Company's existing and future creditors and any future holders of the
Company's preferred stock. The Company is authorized to issue up to 8,000,000
shares of the Company's preferred stock and currently the Company has not
issued any preferred stock.
6. MARKETING STRATEGY. While the Company believes that the operation of the
Club will be successful, there is no guarantee that these business operations
will be commercially accepted with sales revenues sufficient to permit the
Company to achieve or maintain profitable operations.
7. LIMITED PUBLIC MARKET. There is a limited trading market for the Company's
Common Shares, and there is no guarantee that a continuous liquid trading
market will subsequently develop. There can be no assurance that the Common
Shares will ever gain any liquid trading volumes in any other market or gain
listing on any stock exchange. Further, the Company's Common Stock is a "Penny
Stock" and as such, the ability of the Company to gain a liquid trading market
for it will be inhibited by various regulations and there can be no assurance
that any liquid trading market for the Company's Common Stock will ever develop
or, if it does develop, that it can be maintained. The Company became a
"reporting company" on January 23, 2000.
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<PAGE>
8. CONCENTRATION & LACK OF DIVERSIFICATION. The Company's assets are invested
almost entirely in the existing Club. While the Company believes that will be
successful, in the event that the Club is not successfully received by the
market, the Company will likely incur substantial and protracted losses since
the Company lacks diversification.
9. CONTROL BY OFFICERS AND DIRECTORS. The Company's present directors and
officers hold the power to vote an aggregate of 37.66% of the Company's Common
Shares as of December 31, 1999 (after including any shares purchasable upon
exercise of all existing common stock purchase options held by the Company's
officers and directors). The Company has granted a common stock purchase
option (the "First Amato Option") to Ralph M. Amato, the Company's Chairman,
President, Secretary, and Founder. The First Amato Option grants Mr. Amato the
right to purchase 1,200,000 shares of the Company's Common Stock at an exercise
price of $0.25 per Common Share. The First Amato Option has no expiration
date. In addition, Mr. Amato holds a second common stock purchase option for
the purchase of 600,000 shares of the Company's Common Stock with an exercise
price of $0.25 per share (the "Second Amato Option"). The Second Amato Option
expires February 13, 2004. Finally, Michael L. Potter, the Company's Secretary
and Director, holds an option to purchase 250,000 shares of the Company's
Common Stock at a purchase price of $0.25 per share (the "Potter Option"). The
Potter Option expires on February 13, 2004.
10. COMPETITION. The Company's existing Club (and any other clubs that the
Company may establish) will face severe competition from several established
companies who have well-established operations, experienced management, and
possess significantly greater financial resources. In addition, the
gentlemen's club business is very competitive and many of competitors have
substantially greater managerial resources. Further, because the gentlemens
club business is dependent upon the uncertain commercial viability of the
Company's business, it is especially sensitive to ever-changing and
unpredictable competitive trends which can not be easily predicted and which
are beyond the control of the Company. Finally, the Company's sale of any
consigned artwork and memorabilia items can not be guaranteed since competition
from other retail outlets is intense and the availability of desired items for
items to display in the Club may not be desired by some sellers of such items.
For these and other reasons, the Company's business may be said to be riskier
than investments in other types of businesses.
11. DEPENDENCE UPON KEY PERSONNEL AND NEW EMPLOYEES. The Company believes its
success will depend, to a significant extent, on the efforts and abilities of
Ralph M. Amato, the Company's President and CEO. The loss of the services of
Mr. Amato could have a material and continuing adverse effect on the Company.
The Company's success also depends upon its ability to attract and retain
qualified employees. Hiring to meet anticipated Company operations will
require the Company to assimilate significant numbers of new employees during a
relatively short period of time.
12. KEY MAN INSURANCE & LIMITED FULL-TIME MANAGEMENT. While the Company
currently plans to obtain key man life insurance on the life of Ralph M. Amato,
the Company has no key man life insurance on his life. In the event that he is
unable to perform his duties, the Company's business may be adversely impacted.
If the Company grows, it will need to hire additional management and the
ability of the Company to employ suitable management at a cost acceptable to
the Company, in light of the Company's limited financial resources, can not be
assured.
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<PAGE>
13. LACK OF INDEPENDENT EVALUATION OF BUSINESS PLAN & PROPOSED STRATEGY. The
Company has not obtained any independent evaluation of the Company's Business
Plan and the Company's proposed business strategy. There can be no assurance
that the Company's Club or proposed strategy will generate any revenues, or if
revenues can be generated, that they can be generated at a level to maintain
profitability.
14. LIMITED MANAGERIAL EXPERIENCE OF CORPORATE OFFICERS. The Company's
officers, Ralph M. Amato and Michael L. Potter, Esq. have no substantial recent
experience in acquiring, establishing, developing, or operating clubs that
feature female exotic dance entertainment other than the recent and limited
experience gained at the existing Club which opened on January 26, 2000. The
Company has, under an employment agreement, employed Gary Marlin as the General
Manager of the Club who has 13 years of managerial experience in the management
of adult entertainment clubs and the Company has hired two additional managers
(a Restaurant Manager and an Entertainment Director) each of whom has over 12
years of experience. While the Company believes that these individuals possess
the necessary skills and experience, the Company will likely need to secure the
services of others who possess top management skill, experience, and industry
knowledge. There can be no assurance that the Company can secure and retain
any additional necessary top corporate officers and corporate staff on terms
acceptable to the Company.
15. NO ASSURANCE OF AVAILABILITY OF THE ADDITIONAL CAPITAL & PAYMENT OF DEBTS.
The Company's continued operation of its existing Club will be dependent upon
the Company's ability to meet its obligations to an aggregate of $2,519,069 in
amounts due as Total Current Liabilities (as of December 31, 1999). There can
be no assurance that the Company will be successful in paying these debts. The
Company has received no commitment from any underwriter or other source of
capital that any additional capital will be provided to the Company. There can
be no assurance that the Company will be successful in generating and
sustaining sufficient cash flow to pay these debts.
16. NO PLANNED DIVIDENDS. The Company does not anticipate that it will pay
any dividends on the Company's Common Stock. Any profits that the Company may
generate, if any, will be reinvested into the Company.
17. GOVERNMENT REGULATION & EXOTIC ENTERTAINMENT INDUSTRY. The Company seeks
to operate establishments that offer "female exotic entertainment." This
business routinely suffers severe and unfavorable regulatory burdens, adverse
zoning ordinances, and other oppressive government regulations which may result
in the Company incurring substantial losses and significant delays in
connection with the development of any establishment.
17. LACK OF DIVERSIFICATION. The Company's proposed business involving the
operation of establishments offering "female exotic entertainment" will not
provide any diversification. If the Company is successful, all of the
Company's business and assets will be concentrated in the same industry.
18. POTENTIAL DILUTION. Funding of the Company's business plan is likely to
result in substantial and on-going dilution of the Company's existing
stockholders. While there can be no guarantee that the Company will be
successful in raising additional capital, if the Company is successful in
obtaining any additional capital, existing stockholders may incur substantial
dilution.
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<PAGE>
19. RULE 144 STOCK SALES. As of December 31, 1999, the Company had 1,541,374
shares of the Company's outstanding Common Stock as "restricted securities"
which may be sold only in compliance with Rule 144 adopted under the Securities
Act of 1933 or other applicable exemptions from registration. Rule 144 provides
that a person holding restricted securities for a period of one year may
thereafter sell in brokerage transactions, an amount not exceeding in any three
month period the greater of either (i) 1% of the Company's outstanding Common
Stock, or (ii) the average weekly trading volume during a period of four
calendar weeks immediately preceding any sale. Persons who are not affiliated
with the Company and who have held their restricted securities for at least two
years are not subject to the volume limitation. Possible or actual sales of the
Company's Common Stock by present shareholders under Rule 144 may have a
depressive effect on the price of the Company's Common Stock if any liquid
trading market develops.
20. RISKS OF LOW PRICED STOCKS. Trading in the Company's Common Stock is
limited since the Company's Common Stock is a "Penny Stock" and thereby the
retail market for the Common Stock is subject to burdens that are imposed on
brokers whose customers may wish to acquire the Company's Common Stock.
Consequently, a shareholder may find it more difficult to dispose of, or to
obtain accurate quotations as to the price of, the Company's securities. In the
absence of a security being quoted on NASDAQ, or the Company having $2,000,000
in net tangible assets, trading in the Common Stock is covered by Rule 3a51-1
promulgated under the Securities Exchange Act of 1934 for non-NASDAQ and non-
exchange listed securities. Under such rules, broker/dealers who recommend such
securities to persons other than established customers and accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or an annual income exceeding $200,000 or
$300,000 jointly with their spouse) must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement
to a transaction prior to sale. Securities are also exempt from this rule if
the market price is at least $5.00 per share, or for warrants, if the warrants
have an exercise price of at least $5.00 per share. The Securities Enforcement
and Penny Stock Reform Act of 1990 requires additional disclosure related to
the market for penny stocks and for trades in any stock defined as a penny
stock.
The Commission has adopted regulations under such Act which define a penny
stock to be any NASDAQ or non-NASDAQ equity security that has a market price or
exercise price of less than $5.00 per share and allow for the enforcement
against violators of the proposed rules.
In addition, unless exempt, the rules require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule prepared by the
Commission explaining important concepts involving a penny stock market, the
nature of such market, terms used in such market, the broker/dealer's duties to
the customer, a toll-free telephone number for inquiries about the
broker/dealer's disciplinary history, and the customer's rights and remedies in
case of fraud or abuse in the sale.
Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities, and, if the broker/dealer is the sole market maker, the
broker/dealer must disclose this fact and its control over the market. Monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
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While many NASDAQ stocks are covered by the proposed definition of penny stock,
transactions in NASDAQ stock are exempt from all but the sole market-maker
provision for (i) issuers who have $2,000,000 in tangible assets has been in
operation for at least three years ($5,000,000 if the issuer has not been in
continuous operation for three years), (ii) transactions in which the customer
is an institutional accredited investor, and (iii) transactions that are not
recommended by the broker/dealer.
In addition, transactions in a NASDAQ security directly with the NASDAQ market
maker for such securities, are subject only to the sole market-maker
disclosure, and the disclosure with regard to commissions to be paid to the
broker/dealer and the registered representatives. The Company's securities are
subject to the above rules on penny stocks and the market liquidity for the
Company's securities could be severely affected by limiting the ability of
broker/dealers to sell the Company's securities.
21. MATTER OF "Y2K" AND THE COMPANY'S COMPUTER AND INFORMATION SYSTEMS. The
Company has acquired point-of-sale computer hardware and software together with
certain management information systems for use in its existing Club. While
the Company has had its computer hardware and software evaluated to ensure that
it will operate effectively in the year 2000 or beyond and otherwise not result
in "Y2K" operating problems (problems arising out of the inability of any
computer systems to accurately calendar all dates following December 31, 1999
as occurring in the year 2000 and thereafter rather than inaccurately calendar
all such dates as 1900, etc.) there can be no assurance that the Company's
point-of-sale computer hardware and software together with certain management
information systems will function effectively in the year 2000 or beyond.
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PART II
ITEM 1. LEGAL PROCEEDINGS.
On April 13, 2000, Superior Heating and Sheet Metal, Inc.(the "Plaintiff")
filed a Complaint against the Company, W.B. Elmer & Company, Lewis Chin and
other unnamed persons in Superior Court for the County of San Francisco (the
"Complaint").
The Complaint asserts that: (i) the Company breached a contract to pay for
services to the Plaintiff; (ii) the Plaintiff is entitled to payment for the
reasonable value of the services rendered by the Plaintiff; and (iii) the
Plaintiff is entitled to exercise its foreclosure rights pursuant to a
mechanics' lien. The Complaint arises out of the construction of the Company's
Club.
The Plaintiff seeks $119,822 in damages. While the Company believes that it is
not responsible for payment of these monies and that the general contractor,
W.B. Elmer & Company, is responsible for the payment of all such amounts, there
can be no assurance that the Company will prevail in any ultimate resolution of
this litigation or that the Company will not incur substantial and protracted
litigation costs, expenses and settlement payments in resolving the claims made
in the Complaint and the resulting litigation.
On April 18, 2000 the Company was served with a copy of a summons and
a Complaint filed by Tucknott Electric Co. (the "Tucknott Plaintiff") asserts:
(i) that the Company breached its contract with the Tucknott Plaintiff;
(ii) that the Company has been unjustly enriched at the expense of the Tucknott
Plaintiff; and (iii) that the Tucknott Plaintiff is entitled to exercise its
foreclosure rights pursuant to a mechanics' lien. This Complaint also arises
out of the construction of the Company's Club.
The Tucknott Plaintiff seeks $52,666.49 in damages. While the Company believes
that it is not responsible for payment of these monies and that the general
contractor, W.B. Elmer & Company, is responsible for the payment of all such
amounts, there can be no assurance that the Company will prevail in any
ultimate resolution of this litigation or that the Company will not incur
substantial and protracted litigation costs, expenses, and settlement payments
in resolving the claims made in the Complaint and the resulting litigation.
On July 28, 2000, the Company (including its wholly-owned subsidiary, AEI-
Nevada) was served with a copy of a summons and a Complaint filed in the
Superior Court for the County of San Diego by Ken Marc (the "Marc Plaintiff"),
a holder of a convertible promissory note with a principal amount of $10,000
(the "Marc Note"). The Marc Plaintiff asserts: (i) that the Company breached
its obligations to the Marc Plaintiff by not repaying principal and interest
due on the Marc Note; (ii)that the Company has been unjustly enriched at the
expense of the Marc Plaintiff; and (iii) that the Marc Plaintiff is entitled to
damages incurred by the Marc Plaintiff.
The Company intends to attempt to negotiate a settlement with the Marc
Plaintiff. However, there can be no assurance that the Company will be
successful.
Item 2. Changes in Securities
Not applicable.
(c) Issuances of Equity Securities
The Company reports the following issuances of its equity securities
during the period from January 1, 2000 to March 31, 2000.
During the period from January through March 31, 2000, the Company
issued the following shares of the Company's Common Stock (with each Share
valued at $0.50 per Share):
(i) 75,000 shares of the Company's Common Stock were issued to Essex
Capital Holdings, Ltd. in lieu of a cash payment and in payment of the
accrued and unpaid interest on the amount due under the convertible
unsecured promissory note previously issued to Essex Capital Holdings,
Ltd. Essex is sophisticated investor and has a pre-existing
relationship with the Company. The Shares were issued pursuant to
Section 4(2) of the Securities Act of 1933. The Shares were issued to
Essex without an underwriter;
(ii) 50,000 shares of the Company's Common Stock were issued to Lewis
Chin (the owner of Roma Cafe Inc., the owner of the real estate on
which the Company's San Francisco Club is located), in lieu of a cash
payment and in payment of interest owed to Mr. Chin on a promissory
note previously issued to him. The investor, Mr. Chin, is a
sophisticated and Accredited Investor and has a pre-existing
relationship with the Company. The Shares were issued pursuant to
Section 4(2) of the Securities Act of 1933. The Shares were issued to
Mr. Chin without an underwriter;
(iii) 335,000 Shares of the Company's Common Stock (including 35,000
Shares as payment of accrued and unpaid interest) were issued to W. B.
Elmer & Co., Inc. upon conversion of a $600,000 convertible unsecured
promissory note previously issued to W.B. Elmer & Co., Inc. on
February 10, 1999 and in payment of all principal and unpaid and
accrued interest thereon. The investor, W.B. Elmer & Co., Inc., is a
sophisticated and Accredited Investor and has a pre-existing business
relationship with the Company. The Shares were issued pursuant to
Section 4(2) of the Securities Act of 1933. The Shares were issued to
W.B. Elmer & Co., Inc. without an underwriter; and
(iv) 100,000 shares of the Company's Common Stock to the Ina L. Weeda
Family Trust upon conversion of two convertible promissory notes
previously issued to the Ina L. Weeda Family Trust. The trustee of the
Ina L. Weeda Family Trust, is a sophisticated and Accredited Investor
and has a pre-existing business relationship with the Company. The
Shares were issued pursuant to Section 4(2) of the Securities Act of
1933. The Shares were issued to the Ina L. Weeda Family Trust without
an underwriter.
In addition, during the period from January to March 31, 2000, the
Company issued an aggregate of 202,000 shares of its Common Stock in lieu of
cash payments and in exchange for services received by the Company from the
following individuals and in the amounts shown for each such individual. Each
purchaser is experienced and each had a pre-existing business relationship
withe the Company. The Shares were valued at $0.50 per Share. The Shares were
issued pursuant to Section 4(2) of the Securities Act of 1933 and all of the
Shares were issued without an underwriter:
1) 27,000 Shares of the Company's Common Stock were issued to
Jeff Stuber for marketing services related to the opening of the
Company's Club;
2) 20,000 Shares/ of the Company's Common Stock were issued to
Lindsay Faniel for administrative services for the Company's Club;
3) 20,000 Shares of the Company's Common Stock were issued to
Gina Dawson for marketing services related to the opening of the
Company's Club;
4) 10,000 Shares of the Company's Common Stock were issued to
William Shirk for wine and liquor inventory consulting services for
the Company's Club;
5) 10,000 Shares of the Company's Common Stock were issued to
Gerard Crawford for pastry, desserts, and menu strategy consulting
services for the Company's Club;
6) 10,000 Shares of the Company's Common Stock were issued to
Jacob Watkins for computer and information systems vendor consulting
services for the Company's Club;
7) 10,000 Shares of the Company's Common Stock were issued to
Edward Evans for entertainer selection and recruitment consulting
services;
8) 10,000 Shares of the Company's Common Stock were issued to
Mark Pears for music and sound system configuration consulting
services for the systems installed in the Company's Club;
9) 5,000 Shares of the Company's Common Stock were issued to
Dennis DeGori for business strategy consulting services related to the
opening of the Company's Club;
10) 10,000 Shares of the Company's Common Stock were issued to
Susan Adair for recruitment of entertainers and consulting services;
11) 5,000 Shares of the Company's Common Stock were issued to
Randy Beasley for national recruitment of entertainers and consulting
services;
12) 1,500 Shares of the Company's Common Stock were issued to
Daniela Lazar for modeling services related to the opening of the
Company's Club;
13) 1,500 Shares of the Company's Common Stock were issued to
Johanna Mattox for modeling services related to the opening of the
Company's Club;
14) 1,500 Shares of the Company's Common Stock were issued to
Jennifer Powell modeling services related to the opening of the
Company's Club;
15) 1,500 Shares of the Company's Common Stock were issued to
Jeena Nijjar modeling services related to the opening of the Company's
Club;
16) 1,500 Shares of the Company's Common Stock were issued to
Ross Grossman for model selection and consulting services related to
the opening of the Company's Club;
17) 20,000 Shares of the Company's Common Stock were issued to
Bianca Hodge for business strategy consulting services related to the
marketing and advertising of the Company's Club;
18) 20,000 Shares of the Company's Common Stock were issued to
Deborah Gintoli for business strategy consulting services related to
the marketing and advertising of the Company's Club;
19) 10,000 Shares of the Company's Common Stock were issued to
Gary Marlin, the Company's Club Manager pursuant to his employment
agreement with the Company;
20) 5,000 Shares of the Company's Common Stock were issued, as a
bonus, to Erik Reese, the Company's Executive Chef; and
21) 2,500 Shares of the Company's Common Stock were issued, as a
bonus, to Nicholas S. Morganstern, the Company's Kitchen Manager.
In March 2000, the Company also issued 82,000 Shares of the Company's
Common Stock to Roma Cafe, Inc., the owner of the real estate on which the
Company's San Francisco Club is located), in lieu of a cash payment and in
payment of rent owed to Roma Cafe, Inc.. The owner of Roma Cafe, Inc., Mr.
Lewis Chin, is a sophisticated and Accredited Investor and has a pre-existing
relationship with the Company. The Shares were valued at $0.50 per Share. The
Shares were issued pursuant to Section 4(2) of the Securities Act of 1933. The
Shares were issued to Roma Cafe, Inc. without an underwriter.
In March 2000, the Company issued 50,000 shares of the Company's
Common Stock to William M. Aul, Esq. in payment of legal services to the
Company. The Shares were valued at $0.50 per Share. The investor,
William M. Aul, is a sophisticated investor and has a pre-existing relationship
with the Company. The Shares were issued pursuant to Section 4(2) of the
Securities Act of 1933. The Shares were issued to Mr. Aul without an
underwriter.
In March 2000, the Company issued 5,000 Shares of the Company's Common
Stock to Victor Basanac in payment for certain travel services. The Shares
were valued at $0.50 per Share. The investor, Victor Basanac, is sophisticated
and experienced investor and has a pre-existing business relationship with the
Company. The Shares were issued pursuant to Section 4(2) of the Securities Act
of 1933. The Shares were issued to Mr. Basanac without an underwriter.
In March 2000, the Company issued 35,000 Shares of the Company's
Common Stock to Suns Associates Group in lieu of cash and in payment for
certain public relations services. The Shares were valued at $0.50 per Share.
The investor, Suns Associates Group, is sophisticated and experienced investor
and has a pre-existing business relationship with the Company. The Shares were
issued pursuant to Section 4(2) of the Securities Act of 1933. The Shares were
issued to Suns Associates Group without an underwriter.
In March 2000, the Company issued 40,000 Shares of the Company's
Common Stock to Olde Monmouth Stock Transfer Co. in lieu of a cash payment and
in payment of prior transfer agent services. The Shares were valued at $0.50
per Share. The Shares were issued pursuant to Section 4(2) of the Securities
Act of 1933. The Shares were issued to Olde Monmouth Stock Transfer Co., Inc.
without an underwriter.
In March 2000, the Company issued 72,636 Shares of the Company's
Common Stock were issued to Stanley V. Heyman, C.P.A., a former officer and
director of the Company in payment of an outstanding balance of $72,636 in
accordance with a prior understanding with Mr. Heyman. The investor,
Stanley V. Heyman, C.P.A., is a sophisticated investor and has a pre-existing
business relationship with the Company. The Shares were valued at $1.00 per
Share. The Shares were issued pursuant to Section 4(2) of the Securities Act of
1933. The Shares were issued to Stanley V. Heyman, C.P.A. without an
underwriter.
All of the transactions referred to above are exempt from the
registration requirements of the Securities Act of 1933, as amended, by virtue
of Section 4(2) thereof covering transactions not involving any public offering
or involving no "offer" or "sale." As a condition precedent to each sale, the
respective purchaser was required to execute an investment letter and consent
to the imprinting of a restrictive legend on each stock certificate received
from the Company.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
The following exhibits were filed with the Company's Form 10-SB
and are hereby incorporated by reference.
3 Certificate of Incorporation - Wagg Corp.
3.1 Amendment to Certificate of Incorporation - Wagg Corp.
3.2 Amendment to Certificate of Incorporation - Wagg Corp.
3.3 By-Laws of Wagg Corp. (Delaware)
3.4 Articles of Incorporation -
Alternative Entertainment, Inc. (NV)
3.5 By-Laws of Alternative Entertainment, Inc. (NV)
4.1 Specimen of Common Stock Certificate
10 Agreement for the Purchase of Common Stock
10.1 Lease for Office Space in La Jolla, California
10.2 Lease of Real Property from Roma Cafe, Inc.
10.3 Lease of Apartment Units in San Francisco, California
10.4 Indemnification Agreement between the Company and
Ralph M. Amato
10.5 Agreement with Itex Corporation
10.6 Employment Agreement Between the Company and Gary Marlin
10.7 Loan Agreement with Unsecured Convertible Note
10.8 Unsecured Promissory Note (C. Palozzi)
10.9 Settlement Agreement With Bowne of Los Angeles, Inc.
10.10 Unsecured Promissory Note (V. Amato)
10.11 Unsecured Promissory Note (V. Amato)
10.12 Secured Promisory Note (R. Smith)
10.13 Secured Promissory Note (I. Weeda Family Trust)
10.14 Secured Promissory Note (I. Weeda Family Trust)
10.15 Secured Promissory Note (K. Marc)
10.16 Secured Promissory Note (G. W. Smith)
10.17 Secured Promissory Note (D. Hylton)
10.18 Secured Promissory Note (M. Yonika)
10.19 Unsecured Promisory Note (R. Kaelan)
10.20 Unsecured Convertible Promissory Note ($300,000 - Chin)
10.21 Addendum to Promissory Note (Essex)
10.22 Unsecured Promissory Note ($70,000 - Amato)
10.23 Unsecured Promissory Note ($16,000 - Amato)
10.24 Unsecured Promissory Note ($100,000 - Chin)
10.25 Unsecured Promissory Note
($25,000- I. Weeda Family Trust)
10.26 Unsecured Promissory Note
($25,000 - I. Weeda Family Trust)
10.27 Loan Agreement & Convertible Unsecured Promissory Note
($50,000 - Kawesch)
10.28 Unsecured Promissory Note ($100,000 - Lewis Chin)
10.29 Unsecured Promissory Note ($25,000 - Thomas Johnson)
10.30 Loan Agreement & Convertible Unsecured Promissory Note
($25,000-Tinney)
23.1 Consent of Pannell Kerr Forster
23.2 Resignation of Pannell Kerr Forster
23.3 Consent of Pasnnell Kerr Forster
23.4 Acknowledgment of Armando C. Ibarra
27 Financial Data Schedule
(B) The Company did not file any Reports on Form 8-K during the three
months ending March 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Registrant:
BoysToys.com, Inc.
/S/ Ralph M. Amato
------------------
Ralph M. Amato,
President, CEO, Chairman, & CFO
Date: September 2, 2000
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