<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
AMENDMENT NO. 4
---------------
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
BOYSTOYS.COM, INC.
------------------
(Exact name of registrant in charter)
Delaware 33-0824801
-------- ----------
(State or Other (IRS Employer
Jurisdiction of Incorporation Identification No.)
or Organization)
412 Broadway, San Francisco, California 94133
-----------------------------------------------
(address of principal executive offices)
(415) 391-2800
--------------
(Issuer's Telephone No., Including Area Code)
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Title of each class Name of Each Exchange on
to be so registered each class is to be
------------------- -------------------
<S> <C>
None None
------------------- -------------------
------------------- -------------------
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $0.001
------------------------------
(Title of Class)
- 1 -
===============================================================================
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
COMPANY STRUCTURE
BoysToys.com, Inc., a Delaware corporation (the "Company"), was
incorporated in the State of Delaware on April 21, 1997 under the name
Wagg Corp.
In January 1998 the Company changed its name to Alternative Entertainment,
Inc. (the same name of a Nevada corporation (identified below as "AEI-Nevada")
previously established for the operation of the Company's business) and in
December 1998 the Company's name was changed to BoysToys.com, Inc.
THE COMPANY'S BUSINESS
The Company, through its wholly-owned subsidiary, RMA of San Francisco,
Inc., a California corporation ("RMA") owns and operates an upscale gentlemen's
club in San Francisco, California (the "Club") under the name, "Boys Toys
Club." The Company originally intended to operate the Club through Boys Toys
Cabaret Restaurants, Inc., a California corporation ("BTC Restaurants") that is
currently a dormant corporation with no operations or assets. All assets and
operations of BTC Restaurants have been assigned to RMA.
The Company has the following subsidiaries: RMA, BTC Restaurants, and
Alternative Entertainment, Inc., a Nevada corporation ("AEI-Nevada") of which
only RMA has any assets or operations.
INTERNET-RELATED MATTERS
While the Company's name includes the ".com" moniker, this reflected the
Company's original intention to pursue business activities involving the use of
the internet. Currently, the Company has not had sufficient financial or
managerial resources to pursue or develop any significant internet related
business: (i) the Company has an internet Web Site for the Company's public and
investor relations (namely, Boystoys.com) (the "Corporate Web Site") and (ii)
six sites that opened in October 1999 and which have remained in development
only (namely, Super-teens.com, Sexyyoungasians.com, Red-hotsex.com,
Pussysource.com, Peeing-girls.com, and Strange-insertions.com) (the
"Developmental Web Sites").
The Company believes that its Corporate Web Sites are useful in giving the
Company an internet presence or identity for its customers, vendors, and
stockholders Given the location of the Company's Club in San Francisco,
California as a venue for business travelers and the possible use of the
internet by visitors to San Francisco (and by San Francisco-area residents),
the Company believes that its Corporate Web Sites are important to disseminate
information regarding the Company, the Club, and the Club menu and interior
decor.
- 2 -
===============================================================================
<PAGE>
The six Developmental Web Sites, which were opened in October 1999, were
intended by the Company as an experiment to assist the Company's management in
becoming familiar with adult internet pay sites (i.e., Web Sites that generate
revenues from monthly subscriber fees).
Currently, the Developmental Web Sites are adult-only Web Sites and each
offers monthly memberships to subscribers at $29.95 per month or $49.95 for
three months. The Company's receives assistance in the operation of each of
the Developmental Web Sites from the following vendors pursuant to oral
agreements as follows: (i) I-Gallery provides adult live-streaming video
content at $1,495 per month under a month to-month arrangement with the
Company; (ii) Web 800 Service provides merchant card services at a fee equal to
15% of any credit card amounts collected under a month-to-month arrangement
with the Company; and (iii) Spotted Fly Technologies is paid $495 per month for
hosting the Company's Corporate Web Sites and the Developmental Web Sites under
a month-to-month arrangement with the Company. From inception in October 1999
through December 31, 1999, the Company derived an aggregate of $916.00 in
revenues from the Developmental Web Sites; and throughout this period the
Company's management has been and remains primarily focused on meeting the
managerial and financial obligations related to the opening and currently the
operation of the Company's Club.
The Corporate Web Sites and the Developmental Web Sites (together with
five inactive but registered Web Sites) required that the Company expend $70
per Web Site or an aggregate of $910 to register the domain names of all these
13 Web Sites. The five inactive Web Sites are as follows: Onlinecontent.com,
Boystoysgambling.com, Boystoyslottery.com, Boystoysgaming.com,
Boystoyshorseracing.com. While the Company registered these Web Sites, the
Company has determined that it does not intend to enter into on-line internet
gaming, horse racing, or any other gambling-related business activities. As a
result, these Web Sites were never developed, tested, and are not on-line.
The Company is continuing to evaluate the Developmental Web Sites and may
add or delete to the list of its Developmental Web Sites as the Company's
financial and managerial resources allows. Further, and subject to the
Company's successful operation of its existing Club, the Company anticipates
that it will explore, within the next 18 months, the acquisition of one or more
established adult-related gentlemens clubs and/or entertainment internet
business opportunities that would compliment the Company's existing Club. In
the event that the Company undertakes any one or more acquisitions, an
acquisition must meet the following criteria:
1) Other upscale gentlemens clubs located in major metropolitan areas;
2) Adult-only Internet Web Sites (Web Sites that require a subscriber to
pay monthly subscription fees);
3) Pre-recorded and/or live-streaming video content providers or vendors
that provide adult-related video content marketable through adult-
related Internet Web Sites (these vendors record live
performances by adult entertainers that may be viewed in real time by
subscribers to adult-only Internet Web Sites); and
4) other business enterprises that possess proprietary technology or
video compression technology that may be used in conjunction with any
adult-only Internet Web Sites and/or pre-recorded or live-streaming
video content that the Company may otherwise offer.
- 3 -
===============================================================================
<PAGE>
Currently, the Company has not identified any acquisition candidates or
otherwise conducted any review or evaluation of any precise acquisition target
or related strategy. The Company has not retained and will likely not have the
financial and managerial resources to obtain independent investment banking or
similar advice in connection with any such acquisition but will likely rely
primarily upon evaluations made by its management. In addition, in the event
that the Company implements an acquisition strategy, the Company will likely be
limited to using its common stock, preferred stock, or a debt security as
consideration in any such transaction. This may well limit the Company's
ability to complete any acquisitions since many sellers prefer to sell their
business in exchange for a cash payment.
The Company is filing this Form 10-SB to ensure that its stockholders can
obtain current information regarding the Company's affairs on a continuous
basis in accordance with the Securities Exchange Act of 1934.
PRIOR PUBLIC OFFERING OF SUBSIDIARY & PRIOR FILING DEFICIENCIES
The Company's subsidiary, AEI-Nevada, previously filed a Registration
Statement on Form SB-2 with the U. S. Securities and Exchange Commission (the
"Registration Statement") for a proposed public offering of over $11 million
(the "Prior Public Offering").
AEI-Nevada's Registration Statement for the Prior Public Offering became
effective on July 3, 1996 and on September 15, 1996, AEI-Nevada filed Form 8-A.
The Prior Public Offering was conducted on an "all or none" basis. This
meant that unless all of the securities that were the subject of AEI-Nevada's
Prior Public Offering were sold, all of the funds received and deposited in the
escrow account (the "Escrow Account") established by AEI-Nevada at First
National Bank (the "Escrow Agent") would be refunded to each purchaser.
All funds received by AEI-Nevada in the Prior Public Offering were
deposited with the Escrow Agent. AEI-Nevada was not successful in obtaining
the services of an underwriter and AEI-Nevada was not successful in selling all
of the securities that were the subject of the Prior Public Offering. As a
result: (1) the Escrow Agent refunded all monies received and deposited into
the Escrow Account to each purchaser of the securities in the Prior Public
Offering; (2) AEI-Nevada did not sell any of the securities that were the
subject of the Prior Public Offering; and (3) AEI-Nevada did not raise any
capital in the Prior Public Offering.
However, under Section 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), AEI-Nevada was obligated to file with the U. S. Securities and
Exchange Commission (the "Commission") all reports required by Section 13(a) of
the Exchange Act for the year ending December 31, 1996 and thereafter unless
AEI-Nevada had less than 300 shareholders of record and AEI-Nevada filed Form
15 within 30 days after the beginning of any fiscal year following the year in
which the Registration Statement for the Prior Public Offering became
effective.
Although AEI-Nevada's Prior Public Offering failed with the result that no
securities were sold and all funds deposited with the Escrow Agent were
refunded, AEI-Nevada was obligated to file the following reports with the
Commission in accordance with Section 15(d) of the Exchange Act and Rules 15d-1
through 15d-13 thereunder:
A) ANNUAL REPORT. AEI-Nevada was required to file Form 10-KSB for the
1996 fiscal year ending December 31st for 1996, 1997, 1998, and 1999;
- 4 -
===============================================================================
<PAGE>
B) QUARTERLY REPORT. AEI-Nevada was required to file a Form 10-QSB for
the third quarter in 1996 and for each calendar quarter commencing
with the first quarter, second quarter, and third quarter of 1997,
1998, 1999, and the first quarter of 2000; and
C) SPECIAL REPORTS. AEI-Nevada was required to file Form 8-K upon the
occurrence of any one or more events enumerated in the instructions
for Form 8-K for all time periods following July 3, 1996 to the
present.
And, under Section 13(b)(2) of the Exchange Act, AEI-Nevada was obligated
to make and keep books, records, and accounts, in reasonable detail, maintain a
system of internal accounting controls for the proper execution and recording
of financial transactions, control access to AEI-Nevada's assets in accordance
with management's authorizations, and reconcile and take appropriate action
with respect to AEI-Nevada's assets, accounts, and records at reasonable
intervals.
Finally, and in connection with the Prior Public Offering, AEI-Nevada
failed to properly file Form SR with the Commission in accordance with Rule 463
of the Securities Act of 1933 and meet the filing requirements thereunder. In
general, Form SR is used to report an issuer's public offering of securities
and use of the proceeds received from a public offering.
Form SR should have been filed within three months and ten days after
July 3, 1996 and the Rule requires that one or more additional filings of Form
SR are required each six months thereafter until all funds received from a
public offering have been applied. Since AEI-Nevada did not receive any
proceeds from the Prior Public Offering, AEI-Nevada should have filed Form SR
to accurately report the failure of the Prior Public Offering and the lack of
any proceeds from the Prior Public Offering. Finally, AEI-Nevada failed to
file a request with the Commission to withdraw its Registration Statement.
Although AEI-Nevada filed Form 15 on March 15, 1997 with the Commission to
terminate its registration under Section 12(g) of the Exchange Act (which
served to terminate AEI-Nevada's obligation to file an Annual Report, Quarterly
Reports, and Special Reports (as described above) required by Section 12(g) of
the Exchange Act), this filing did not terminate AEI-Nevada's obligations to
file an Annual Report, Quarterly Reports, and Special Reports (as described
above) under Section 15(d) of the Exchange Act. Further, the filing of Form 15
did not reduce or eliminate the Company's obligation to properly file Form SR
or meet its record keeping requirements under Section 13(b)(2) of the Exchange
Act.
The Company would likely assert that although AEI-Nevada failed to: (i)
file the Reports (described above) required by Section 15(d) of the Exchange
Act; (ii) file and adhere to the requirements for filing Form SR; and (iii)
failed to adhere to the record keeping requirements of Section 13(b)(2) of the
Exchange Act, these failures were inadvertent and unintentional, did not result
in any injury or loss to any investor, and AEI-Nevada did not receive any
monies or issue any securities as a result of the Prior Public Offering.
The failure of AEI-Nevada to fulfill its obligations to file the reports
required under Section 15(d) of the Exchange Act, to file Form SR in a timely
and accurate basis, and to otherwise observe the record keeping requirements
required by Section 13(b)(2) of the Exchange Act may subject AEI-Nevada, the
Company, and any persons who may be found to have participated in these matters
to liability under Section 20 of the Exchange Act and may subject AEI-Nevada
and such persons to enforcement actions by the Commission under Section 21 and
other provisions of the Exchange Act.
- 5 -
===============================================================================
<PAGE>
Further, and to the extent that the Company incurs any costs or expenses
with resulting damage or injury to any holder of the Company's Common Stock or
any promissory notes issued by the Company, the Company may incur liability
under state and federal anti-fraud statutes and similar laws for any failure to
disclose these liabilities to any person who purchased the Company's common
stock or promissory notes without sufficient disclosure of the liabilities
faced by the Company.
In an attempt to address these problems and concurrent with the filing of
this Amendment No. 3 to the Company's Form 10-SB, AEI-Nevada will propose the
following to the Commission: (1) that AEI-Nevada file Form 15 to terminate its
obligations under Section 15(d); (2) that AEI-Nevada file Form SR in connection
with the Prior Public Offering; and (3) AEI-Nevada will file a letter with the
Commission requesting the withdrawal of the Registration Statement. The
Company is also conducting an evaluation of the events and actions taken by
AEI-Nevada to ensure that AEI-Nevada's failure to fulfill its obligations under
federal securities laws will not reoccur.
However, although the Company and AEI-Nevada are taking the above actions,
there can be no assurance that the Company will successfully avoid incurring
any liability, costs, or expenses incurred in connection with these problems.
THE SAN FRANCISCO CLUB
Construction of the 15,000 square foot Club was completed in October 1999
at which time the Company received its certificate of final completion. The
Company has secured an alcoholic beverage license, a cabaret license, and all
other licenses and permits required by the City and County of San Francisco,
California. The Club opened on January 26, 2000 and has remained in operation
since that date.
A subsidiary, Alternative Entertainment, Inc., a Nevada corporation ("AEI-
Nevada") was initially formed to engage in the business of developing, owning,
and operating upscale nightclubs providing exotic dance entertainment combined
with private membership men's clubs and contemporary-styled full service
restaurants and bars. On January 15, 1998, 80% of the Company's Common Stock
was acquired by AEI-Nevada and the Company changed its name from Wagg Corp. to
Alternative Entertainment, Inc. On January 26, 1998, AEI-Nevada, as the
majority stockholder of the Company, effected a one for two reverse split of
the Company's common stock and approved an amendment to the Company's
Certificate of Incorporation to change the Company's name to Alternative
Entertainment, Inc. and to authorize the issuance of up to 8,000,000 shares of
Preferred Stock. The Company has not issued any Preferred Stock and has no
Preferred Stock outstanding.
Following these actions and on January 28, 1998, AEI-Nevada's Board of
Directors voted to approve the exchange of one share of the Company's Common
Stock for each share of AEI-Nevada common stock outstanding. This resulted in
AEI-Nevada becoming a subsidiary of the Company. As a result, AEI-Nevada
became a wholly-owned subsidiary of the Company. Subsequently and on
December 29, 1998, a majority of the Company's shareholders approved an
amendment to the Company's Certificate of Incorporation to change the Company's
name to BoysToys.com, Inc.
- 6 -
===============================================================================
<PAGE>
On February 18, 1998, the Company entered into an agreement (the "Purchase
Agreement") with ITEX USA, Inc. ("ITEX") whereby ITEX has agreed to provide the
Company with up to $530,000 cash credit (the "Cash Credit") to be applied to
the Company's purchase of $530,000 in goods and services at prices equal to the
lowest price (as verified in writing); that is, under the Purchase Agreement
that the Company executed with ITEX , the Company holds a Cash Credit equal to
$530,000 and the Company has the right to obtain goods and services from ITEX
up to the maximum amount of the $530,000 Cash Credit such that the price
accorded any such goods or services so obtained is to be equal to the lowest
price verified in writing by competitive bid as agreed between the Company and
ITEX.
ITEX is a barter exchange company that offers goods and services that it
acquires through barter from others. Under the terms of the Purchase Agreement,
the Company is to issue purchase requests to ITEX and ITEX is then obligated to
provide the goods and services requested through ITEX's suppliers and vendors.
In exchange for the Cash Credit, the Company committed to issue to ITEX the
sum of 100,000 shares of the Company's Common Stock. The Company intends to
use the Cash Credit to acquire, in part, newspaper, billboard, and radio
advertising from ITEX using the Cash Credit for use in promoting the Club.
All of the 100,000 shares of the Company's Common Stock to be issued to
ITEX entitle the Company to receive goods and services with a fair market value
at $530,000 in excess of any cash payments made to any ITEX-identified
suppliers or vendors. In connection with any issuance of the Company's Common
Stock to ITEX: (1) all of the shares will be issued solely to ITEX on a private
placement basis in conformity with the requirements of Section 4(2) of the
Securities Act of 1933; (2) a stock certificate representing any such shares
will be imprinted with a restricted securities legend; (3) the Company will
require that an authorized officer of ITEX execute an investment agreement
wherein ITEX will agree that it is purchasing the shares for investment
purposes only and not with a view to reselling or transferring the shares to
any other person; and (4) the Company will not permit the resale or transfer of
any of the shares issued to ITEX unless the Company receives and approves an
opinion of counsel, satisfactory to the Company, that any such transaction does
not violate the Securities Act of 1933.
The Company has not undertaken any investigation or inquiry into ITEX's
affairs. However, the Company believes that ITEX is a reputable barter exchange
company. The Company further believes that since ITEX does not buy or pay the
suppliers or vendors that the Company may utilize (the Company pays them
directly), that any issuance of the Company's Common Stock to ITEX will adhere
to the requirements of state and federal securities laws
The Company believes that the Club serves three distinct business segments
(a nightclub providing exotic dance entertainment, a full service restaurant
and bar and a private membership men's club) within the confines of a single
facility. The business of the Company is conducted under the trade name,
trademark, and service mark of "Boys Toys." Although the Company intends to
register its claim to these tradenames, the Company has not yet filed an
application with the U.S. Patent and Trademark office to register these names.
The Club's revenues are generated from:
(1) food and beverage sales;
(2) Boardroom VIP membership sales;
- 7 -
===============================================================================
<PAGE>
(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 (i.e., polo
shirts, t-shirts, jackets, and caps) and other merchandise 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.)
With respect to Cash Equivalent Fees, the Company charges a service fee
equal to 20% of the amount of any "Diamond Dollars" certificate that it sells
to any patron (i.e., if a patron seeks to purchase $100 in "Diamond Dollars"
certificates, the Company sells the certificates at a price equal to $120).
Each "Diamond Dollars" certificate may be used to pay "dance fees" to an
entertainer (as described above). If an entertainer receives a "Diamond
Dollar" certificate in payment for a "dance fee," the entertainer is able to
exchange each "Diamond Dollars" certificate and receive cash from the Company.
The Company purchases each "Diamond Dollars" certificate from the entertainers
at a 10% discount (i.e., for every $100 in stated value in "Diamond Dollars"
certificates submitted for exchange and redemption, the Company pays $90 in
cash).
As a result, the Company earns $20 upon the sale of every $100 in "Diamond
Dollars" certificates and, upon redemption of a $100 "Diamond Dollars"
certificate, the Company pays only $90 to the entertainer who redeems it.
The Company leases the land and building for the Club through its other
wholly-owned subsidiary, RMA of San Francisco, Inc., a California corporation
("RMA") (and as successor in interest to Boys Toys Caberet Restaurants, Inc., a
California corporation). The real property for the Club is owned by Roma Cafe,
Inc. ("RCI") and is located in San Francisco's financial district at
408-412 Broadway, San Francisco, California.
If the Company is successful in operating the Club and if the Company is
able to obtain additional financing, the Company plans to establish additional
Boys Toys Clubs in other locations, including New York, Chicago, New Orleans
and Boston. However, the Company has not identified any specific location in
any of these cities and these plans are subject to: (i) the successful
operation of its existing Club; (ii) the negotiation of acceptable terms for
the acquisition of an existing gentlemen's club in a location which would be
suitable and compatible with the Company's strategy; and (iii) the availability
of financing terms from a seller of a gentlemen's club that would permit the
Company to complete the acquisition on financial terms that are acceptable to
the Company in view of the Company's then existing financial abilities and the
costs that the Company would incur in expanding its currently limited
management staff and providing additional working capital to meet an expanded
level of operations. The Company has not presently identified any prospective
acquisition candidate and there can be no assurance that the Company will
undertake any such acquisition or otherwise expand to other locations.
- 8 -
===============================================================================
<PAGE>
If the Company were to establish other Boys Toys Clubs, it anticipates
that the Company would likely lease existing nightclub and/or restaurant
locations, acquire related nightclub/restaurant properties and equipment, and
thereafter make all necessary improvements to such locations, properties and
equipment in order to conform them to the Boys Toys motif.
The Boys Toys Club name, embraces a concept featuring exotic dance
entertainment performed by attractive and talented entertainers within an
upscale and trendy nightclub environment. The Club has an interior setting
where patrons will be surrounded, and among, numerous and various material
items which many men aspire to obtain in their life. The Company anticipates
that a patron of its Club will be quickly struck by the nature and number of
items on display, such as artwork, collectibles, unusual artifacts and
memorabilia. The Company currently has $80,000 of artwork on display in the
Club and consigned for sale pursuant to oral agreements with local San
Francisco-area artists.
The Company has placed this artwork on display throughout the Club, each
such displayed item will be available for purchase by patrons, or the Company
is able to provide patrons with detailed information concerning how and where
such displayed item may be purchased.
The Company expects that all items on display in the Club will be replaced
with new and different items approximately every 60 to 90 days, thereby giving
the Club a new interior physical appearance every two to three months.
If the Company is successful, the Company further expects that the
exciting and vibrant atmosphere created by the Club's interior decor will be
enhanced by exhilarating lighting and specially selected upbeat music. In
order to obtain the items to place on display in its Club, the Company approach
local and regional vendors of the items it desires to display, and enters into
consignment arrangements with each vendor.
The Company has verbal consignment arrangements that allows the Company to
display various types of artwork, collectibles and memorabilia owned by the
vendors at each Club at no cost to the Company, while in return providing the
vendor with increased exposure to its owned items, and therefor providing the
vendor with potential additional marketing venues and outlets for the sale of
its owned items. However, retail competition for the sale of such items is
intense and there are many other retail galleries and consignment outlets
likely will be able to attract high quality artwork and other items that the
Company seeks to display for consignment at its Club. Thus, there can be no
assurance that the Company will attract high quality items on a consignment
basis or, if it does, that it can continue to do so.
Failure of the Company to obtain additional desired items in the future
and on a consignment basis may result in the Company being unable to embellish
the interior physical decor of its Club in its planned manner. Further,
failure of the Company to obtain the desired items on a consignment basis will
have a material adverse impact on the Company's plan of operation in that such
failure may require the Company to expend significant amounts of its capital to
purchase such items.
The Club has, in addition to its nightclub proper, a full service
restaurant and bar and full service, private VIP members-only men's club.
- 9 -
===============================================================================
<PAGE>
Rather than just establishing an exotic dance entertainment nightclub, the
Company's business concept for the Club is to create an entertainment complex
combining an exotic dance entertainment nightclub with a full service
restaurant and bar and a private VIP members-only men's club. The concept is to
provide a place where one may enjoy quality exotic dance entertainment, relax
and converse in a place where one may see and be seen, partake in quality
restaurant dining, and entertain and be entertained in private members-only
quarters, all within the Boardroom Restaurant.
The Company believes that excellence in operations, ambiance and location
are important for success in the exotic dance entertainment business. The
Company believes that it will be able to differentiate its Boys Toys Club by
implementing the following strategic elements:
* Combining its exotic dance entertainment nightclubs with its Boys
Toys Club and private VIP members-only men's clubs so as to provide
patrons with a multi-faceted entertainment experience.
* Designing its Boys Toys Club to attract primarily upscale
professionals and businessmen.
* Physically embellishing its Boys Toys concept by creating an
exterior and interior physical decor for its Boys Toys Club which
evidences the style and class of an establishment designed for men's
entertainment and reflecting the upscale caliber of its patrons.
* Providing high quality and attentive service in a manner to ensure
patron satisfaction.
The Company believes that its Boys Toys concept will create a distinct
image and popularity among upscale gentlemen's club patrons. As such, the
Company believes that it will be successful in marketing T-Shirts, jackets and
other casual-wear merchandise that feature the Boys Toys logo and location.
However, absolutely no assurance can be given that the Company's Boys Toys
concept will create a distinct image and widespread popularity, or that the
Company will be successful in marketing T-Shirts, jackets and other casual-wear
merchandise with the Boys Toys logo.
It is also the Company's philosophy and intention that the Boys Toys Club
exhibit civic and social responsibilities by creating and maintaining an active
relationship with a variety of charity organizations in their respective local
communities.
In this regard, the Company expects to make contributions of food,
services or funds benefitting a wide range of causes, which causes management
of the Company expects to be brought to its attention through suggestions from
the Company's employees, officers and shareholders.
- 10 -
===============================================================================
<PAGE>
The Company's Club restaurant provides all patrons of the Company's Boys
Toys Club with a full service restaurant, bar and lounge area providing
business lunch buffet and dinner table service by waitresses. The Company has
hired an experienced executive chef and other experienced support personnel and
believes that its menu represents the finest culinary delights, distinctive for
their taste as well as nutritional balance, from throughout the various regions
of the United States.
Coupled with this distinctively American menu, the restaurants are
expected to offer the highest quality of food prepared with the greatest of
care and presented and served in a manner which would reflect the upscale
nature of the Boys Toys Club. As a complement to its food menu, the Company
expects that its Boys Toys Restaurant will offer an extensive selection of
domestic and foreign wines, spirits, and champagne. Management of the Company
anticipates that an average lunch check per customer will be $25.00 and an
average dinner check per customer will be $60.00.
However, these amounts and the operation of the restaurant will be subject
to prevailing competitive conditions.
In general, the Company believes that excellence in operations and quality
of food and service, ambiance, location and price-value relationship are keys
to success in the restaurant industry. The Company believes that it will be
able to differentiate its Club by emphasizing the following strategic elements:
* Positioning in the mid-priced to upper-priced, full service dining
segment of the restaurant industry.
* The location of the Club within the confines of an exciting and
upbeat facility provides a unique and enduring attraction to a broad
and diverse demographic mix of customers in the 25 to 65 age group.
* Quality and attentive service with each waitress generally being
assigned to no more than four tables at lunch and three tables at
dinner to ensure customer satisfaction.
* Consistent quality products through careful ingredient selection and
food preparation.
There can be no assurance that the Company can achieve any one or more of
these objectives or, if it does achieve these objectives, that it can achieve
them while also achieving and maintaining profitability.
PRIVATE VIP MEMBERSHIP CLUB
The Boys Toys Club has a full service private VIP membership facility is
open only to patrons who are members. These private VIP membership facilities
are known as the "Boardroom." Membership in the Boardroom entitle members to:
(i) access to the private VIP Boardroom; (ii) bring up to six guests to the
Boardroom without payment of any entrance fee (currently $30.00 per person);
(iii) preferred seating for dining; (iv) first priority for special events; and
(v) free limousine service within the city of San Francisco. The Boardroom
also has a business center (with facsimile machines, secretarial staff and
computers).
- 11 -
===============================================================================
<PAGE>
Additionally, Boardroom members have free use of Boardroom facilities for
private parties and meetings, preferred seating and advanced notices for
special events and holiday functions held at the Club, and access to personal
improvement seminars and concierge services. Currently Boardroom memberships
are for a period of one year, and may be renewed by a member at the end of each
membership year. Membership fees for the Boardroom are $1,000 per annum.
SITE SELECTION CRITERIA AND LEASING
In the event that the Company expands with other locations, the Company
believes that the selection process for sites for the Company's clubs is
critical in determining the potential success of a Boys Toys Club, and
therefore it expects to devote a significant amount of time and resources to
analyze each prospective club site.
A variety of factors are considered in the site selection process,
including local market demographics, site visibility and accessibility and
proximity to significant generators of potential customers such as office
complexes, hotel concentrations and other entertainment centers such as
stadiums and arenas. The Company will also review potential competition and
attempt to analyze the profitability of other nightclub, restaurant and bar
establishments operating in areas where the Company proposes to establish a
Boys Toys Club.
The Company expects that it will likely lease all of its locations for any
additional Boys Toy Club, although the Company may consider purchasing
properties for its facilities in the future, where it is cost effective to do
so.
LOCATION OF BOYS TOYS CLUB
The Company's existing Club is the Company's first club and is located at
408-412 Broadway, San Francisco, California, in the north beach area of the
financial district of San Francisco (the "Facility"), approximately four blocks
north of the landmark Transamerica Building.
The Company leased the Facility from Roma Cafe, Inc. The Company has
obtained a Place of Entertainment Permit with respect to the exotic dance
entertainment aspects of the Company's business at the San Francisco Premises.
The Company has secured an alcoholic beverage license, a cabaret license, and
all other licenses and permits required by the City and County of San
Francisco, California.
ADDITIONAL BOYS TOYS CABARET CLUBS.
In addition to the existing Club and if the Company can obtain additional
financing on favorable terms, the Company may establish other Boys Toys Clubs.
The exact number, location, and other aspects of this plan has not been
determined at this time.
- 12 -
===============================================================================
<PAGE>
Additional locations that may be considered for Boys Toys Clubs include
New York, Chicago, New Orleans and Boston. However, the Company has not
identified any specific location in any of these cities and these plans are
subject to: (i) the successful operation of the existing Club; (ii) the
negotiation of acceptable terms for the acquisition of an existing gentlemen's
club in a location which would be suitable and compatible with the Company's
strategy; and (iii) the availability of financing terms from a seller of a
gentlemen's club that would permit the Company to complete the acquisition on
financial terms that are acceptable to the Company in view of the Company's
then existing financial abilities and the costs that the Company would incur in
expanding its currently limited management staff and providing additional
working capital to meet an expanded level of operations. The Company has not
presently identified any prospective acquisition or location and there can be
no assurance that the Company will undertake any such acquisition or otherwise
expand to other locations.
MARKETING
The Club (and any other clubs that the Company may establish), will be
marketed to attract primarily (if not strictly) professional and white collar
businessmen clientele.
The Company plans to use the Club's name to develop name recognition and
patron loyalty to attract these customers. Due to its upscale theme, exotic
dance entertainment experience and quality food and service, the Company
believes that its Boys Toy Clubs will have the unique ability to attract both
local and out-of-town professional and white collar businessmen patronage.
The tour and travel as well as convention segments of the cities in which
Boys Toys Clubs will be located will be another focus of the Company's
marketing strategy. The Company's marketing strategy will be designed to inform
targeted patrons that Boys Toys Clubs provide a unique and exciting atmosphere
not found elsewhere through visual and audio experiences.
The Company expects that the center of its marketing efforts will revolve
around its exotic dance entertainment nightclubs. The Company's Boys Toys
concept will be directed at upscale, professionals and white collar businessmen
aged 25-65 who either reside in or near major U. S. commercial centers where
Boys Toys Clubs will be located, or who frequently visit these areas on
business.
In order to reach this targeted market, the Company will attempt to
establish Boys Toys Clubs in the heart of those cities in which it intends to
operate, so as to make its facilities easily accessible by professional and
white collar businessmen.
The Company believes that its local patrons will include primarily men who
work and/or live near a Boys Toys Club, and who will seek some form of
nightclub environment at the end of their work day which will provide a
comfortable atmosphere with appropriately priced, high quality, food available.
The Company believes it will meet this type of patron's needs by providing
a quality entertainment experience with a high level of personalized service in
a casual, fun setting - an experience that the Company expects will generate
repeat visits among the local customer segment.
- 13 -
===============================================================================
<PAGE>
The Company anticipates that its business travel segment will be primarily
composed of individuals traveling on business to those cities where Boys Toys
Clubs are located. The Company further believes that the marketing approach for
this customer requires an emphasis on the beauty and elegance of the Boys Toys
Clubs, the exciting atmosphere, and safety.
The Company expects to promote and advertise its Boys Toys Restaurant and
private VIP members-only men's club segments of its Boys Toys Clubs as if they
were not dependent upon its exotic dance entertainment segment. Thus, the
Company will strongly promote its Boys Toys Restaurants as an establishment
providing the best food possible at reasonable prices. The Company will promote
its private VIP members-only men's club as a private location where men can
meet to, among other things, discuss and effectuate business in a congenial
atmosphere, as well as a place where men can entertain themselves as well as
business clients and associates.
The Company is utilizing billboard, print and direct mail advertising, and
is conducting coordinated promotional efforts with local and regional hotels,
taxi companies and limousine services.
Additionally, the Company intends to utilize merchandise as a means of
marketing its Boys Toys Clubs. Thus, the Company will promote various Boys Toys
merchandise which is expected to be created by the Company as popularity of the
Boys Toys Clubs increases. Such merchandise is expected to include T-Shirts,
jackets, sweatshirts, and other memorabilia.
Because of its Boys Toys Restaurants, and if the Company can maintain the
presence and availability of many interesting items displayed prominently
throughout the Club, the Company believes that its Club will be able to adopt
event-driven promotion oriented marketing strategies. Thus, in addition to
traditional advertising techniques, the Company intends to seek to establish
close ties with the entertainment industry so as to provide the Company with
extensive promotional opportunities.
Events such as surprise appearances by recording artists or professional
athletes can be expected to attract targeted upscale patrons.
BOYS TOYS CLUB OPERATIONS AND MANAGEMENT
The Company will strive to maintain quality and consistency in its
existing Club through the careful training and supervision of personnel and
the establishment of standards relating to food and beverage preparation,
maintenance of facilities and conduct of personnel.
The Company maintains financial and accounting controls for the existing
Club through the use of centralized accounting and management information
systems. Operations information will be collected weekly from the Club, and
club managers will be provided with weekly and 28-day period operating
statements for their locations. Cash will be controlled through daily deposits
of sales proceeds in local operating accounts. The Club is scheduled to be open
daily from 11:00 a.m. to 2:00 a.m.
Overall management of a typical Boys Toys Cabaret Club will be conducted
by two managers, a day manager and an evening manager in addition the Club's
General Manager. The Club also employs a staff consisting of approximately 40
hourly employees and 35 part-time employees. The composition of the Company's
current full-time employees is as follows:
- 14 -
===============================================================================
<PAGE>
Category No. of Employees
---------------------------- ----------------
General Manager 1
Club Manager 1
Restaurant Manager 1
Bookkeeper 1
Office Staff 1
Entertainment Director 1
Executive Chef 1
Kitchen Staff 11
Host & Hostesses 12
Secretarial Staff - Boardroom 2
Servers 4
Bus Persons 4
The additional 35 part-time employees are primarily restaurant servers,
bus persons, and support personnel.
In addition to these employees, the Company utilizes 25 to 50 female
exotic entertainers (dancers) per night, as independent contractors, on a
varying basis. Each exotic female entertainer is paid directly by a patron for
each dance performed. The Company does not employ or pay any wages, salary,
compensation, or other fees to any of the exotic female entertainers that
perform at the Club. Entertainers also pay a lease fee of $20 to $50 per shift
for the right to perform at the Club. Entertainers receive only "dance fees"
from patrons of the Club. The Company does not receive any percentage from any
cash fees paid by patrons to the entertainers (dancers) that perform at the
Club.
However and as described earlier, when an entertainer redeems any "Diamond
Dollars" certificates (previously received from a patron in payment of any
"dance fees"), the Company pays the entertainer an amount equal to 90% of the
face or stated value of the "Diamond Dollars" certificates that are later
submitted for redemption. (Thus, if an entertainer submits $1,000 in "Diamond
Dollars" certificates to the Company, the Company redeems these certificates by
paying the entertainer $900 in cash.)
The General Manager of the Club reports directly to the Company's
President. The Company's Entertainment Director and Club Manager report to the
General Manager of the Club. Working in concert with these managers, the
Company's President defines operating and performance objectives for the Club
and monitors implementation. The Company expects that its Club managers will
participate in a variety of Company sponsored employee incentive programs such
as the Company's stock option plans. The Company has not yet adopted any stock
plan but may do so in the future.
Awards under any Company sponsored employee incentive programs will be
tied to achievement by facility managers of specified operating targets. The
Company plans for its senior management to regularly visit each Club the
Company operates and meet with the respective managers of those clubs to ensure
that the Company's strategies and standards of quality in all respects of
operations and personnel development are met.
- 15 -
===============================================================================
<PAGE>
The Company believes that customer service and satisfaction are keys to
the success of its existing Club and any other clubs that the Company may
establish. The Company's commitment to customer service and satisfaction will
be evidenced by several Company practices and policies, including periodic
visits by managers to customers' tables, active involvement of management in
responding to customer comments and assigning waitresses in the Company's Boys
Toys Restaurants to a limited number of tables, generally four for lunch and
three for dinner.
PURCHASING
The Company negotiates directly with suppliers for food and beverage
products to ensure consistent quality and freshness of products and to obtain
competitive prices. The Company purchases substantially all food and beverage
products from authorized local or national suppliers. Food, beverage and other
products and supplies are shipped directly to the Club, although invoices for
purchases will be paid by the Company's wholly-owned subsidiary, RMA of San
Francisco, Inc., a California corporation ("RMA"). RMA is the corporation the
Company established to operate the existing Club.
MANAGEMENT INFORMATION SYSTEMS
The Company has a computer information system which is designed to
maintain personal profile information on the members of its private VIP
members-only men's club. The profiles are designed to assist managers of the
Club in meeting the personal desires of particular Boardroom members, and will
contain such information as a Boardroom member's favorite beverage, favorite
food and spending habits. This information will be available to any other Club
locations that the Company may establish through a proprietary database, and
will enable Boardroom members to visit any of the Company's Clubs (that the
Company may establish) and be provided with a similar level of personal
service.
The Company's point-of-sale information system is designed to assist in
labor scheduling and food cost management, provide corporate management quicker
access to financial data and reduce a particular club manager's administrative
time.
TRADE NAMES, TRADEMARKS AND SERVICE MARKS
The Company expects to develop and implement Boys Toys trademarks and/or
service marks which will enhance a customer's ability to identify the Company,
as well as the products and services to be offered by the Company.
Currently, the Company has not developed and implemented any trademarks
and/or service marks, and therefore has not filed any applications to register
any trademarks and/or service marks. Furthermore, the Company is unaware of
names similar to the trade names to be used by the Company which are used by
other persons.
- 16 -
===============================================================================
<PAGE>
The Company's overall policy will be to pursue registration of its marks
whenever possible and to oppose vigorously any infringement of its marks. There
can be no assurance that if and when the Company develops and implements its
trademarks and/or service marks, that such trademarks and/or service marks will
afford protection against competitors with similar products and services. There
can also be no assurance that the Company's trademarks and/or service marks
will not be infringed upon or designed around by others, or that the Company
can adequately prosecute or defend any infringements.
COMPETITION
The Company's existing Club (and any other clubs that the Company may
later establish) will compete with other nightclubs, restaurants and bars, some
of which may be larger and more established, experienced and better financed
than the Company.
Competing nightclubs, restaurants and bars may offer services not offered
by the Club, which could place the Company at a competitive disadvantage.
The Company believes that the following factors will allow the Company to
compete effectively:
* Many of the Company's competitors are not designed to market
themselves as high quality, upscale exotic dance entertainment
complexes and have not attempted to do so.
* The Company's marketing strategy focuses on creating a reputation
for its Clubs as an upscale, tasteful nightclub, restaurant, and bar
facility frequented by professionals and white collar businessmen.
* The Company's three-pronged approach of having its Clubs produce
revenues from food and beverage sales, Boardroom membership fees and
exotic dance nightclub associated fees are anticipated to enhance
the profitability of the Company.
The adult entertainment industry, including adult entertainment offered in
private clubs and through the internet, is large and includes many well-
established and well-managed and experienced enterprises.
Many of these businesses possess financial and managerial skills that far
exceed the resources that the Company has or will have at any time in the
foreseeable future. Some of the larger operators have multiple locations
within a metropolitan area and effectively utilize their advertising and
marketing budgets to gain greater market share while achieving economies of
scale to lower certain fixed costs per unit and per retail location.
In addition, many of these established operators have developed marketing,
real estate, zoning, and licensing management skills that the Company is not
likely to possess at any time in the near future.
While the Company believes that its Club is unique and will offer and
attract an "upscale" clientele, there can be no assurance that the Company will
be successful or, if the Company achieves any success, that other competitors
will not imitate and duplicate the Company's planned business with the result
that the Company will not gain any significant long-term advantage.
- 17 -
===============================================================================
<PAGE>
The retail market for locally-produced and owned artwork, memorabilia, and
other items that may be displayed at the Company's Club on a consignment basis
is characterized by intense competition. Further, while the Company currently
has obtained such items and has them on display at its existing Club under oral
arrangements with the owners of the consigned items (such that the Company is
to receive 20% of the proceeds from the sale of any such consigned item), there
can be no assurance that the Company can attract suitable artwork and
memorabilia on a consignment basis or, if it is able to do so, that any such
items can be sold.
REGULATORY ASPECTS
The ownership and operation of restaurants, bars and exotic dance
nightclub businesses are generally subject to extensive state and local
regulation, and the Company, any subsidiaries it may form and various of their
respective officers and employees will be subject to such regulations.
Currently, the Company has not experienced any problems with any of their
business, liquor, or other licenses or permits from any governmental agencies
except that on April 5, 2000, the Company was forced to appear before the San
Francisco Planning Board of Appeals (the "Appeals Board") to respond to efforts
made by the Telegraph Hill Dwellers Association (a local neighborhood group)
("THDA"). THDA sought to repeal the planning permit previously issued to the
Company by the City of San Francisco Planning Department for the operation of
the Company's Club. In a 3-2 vote, in favor of the Company, the Appeals Board
re-affirmed the Company's prior issuance of the Permit.
While the Company has obtained all necessary licenses and permits needed
to open its Club, the Company will need to renew licenses and permits from
various governmental agencies including, without limitation, applicable zoning,
land use, environmental and building permits.
The federal Americans with Disabilities Act prohibits discrimination on
the basis of disability in public accommodations and employment. The Company's
Boys Toys Cabaret Club is designed to be accessible to the disabled, and will
comply with all current applicable regulations relating to accommodating the
needs of the disabled. There can be no assurance that the Company will
maintain its licenses or permits or that they will always be obtained or
renewed in a timely manner. The failure to obtain any such permits or licenses
could adversely affect the Company.
Further, the Club is subject to numerous federal, state and local laws
affecting health, sanitation and safety standards, as well as to state and
local licensing related to the sale of alcoholic beverages. The Company has
secured all appropriate licenses from regulatory authorities allowing it to
sell liquor, beer and wine, champagne, and a food service license from San
Francisco, California health authorities.
Management of the Company believes that the Company's licenses to sell
alcoholic beverages will in all likelihood require that they be renewed
annually and may be suspended or revoked at any time for cause, including
violation by the Company or its employees of any law or regulation pertaining
to alcoholic beverage control, such as those regulating the minimum age of
patrons or employees, advertising, wholesale purchasing and inventory control.
- 18 -
===============================================================================
<PAGE>
The failure of the Company's Club (and any other clubs that the Company
may acquire or establish) to retain liquor or food service licenses could have
a material adverse effect on its operations. In order to reduce this risk, the
Company intends to develop and implement at its Club standardized procedures
designed to assure compliance with all applicable codes and regulations.
The Company may be subject in certain states to "dram-shop" statutes which
generally provide a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. The Company carries liquor liability
coverage as part of its comprehensive general liability insurance.
The Club is also subject to federal and state minimum wage laws governing
such matters as working conditions, overtime and tip credits and other employee
matters. The Company expects that significant numbers of the Company's food and
beverage service and preparation personnel will be paid at rates related to the
federal minimum wage and, accordingly, further increases in the minimum wage
could increase the Company's labor costs.
Finally, the Company believes that since its operations involve "exotic
female entertainment," the Company may be subject to continuing social,
political, and other institutional pressures from organizations, women's
groups, and others who believe that the Company's business is inimical to
social progress and the rights of women. These groups frequently seek to have
city ordinances and other laws enacted which adversely impact the continued
operation of the Company's business or deny the Company the ability to renew
needed licenses or permits.
As a result, many companies that offer adult entertainment similar to the
Company's business expend substantial sums in legal fees and costs to prevent
or at least delay changes to city zoning ordinances, state laws relating to
adult entertainment, and other similar regulations.
To the extent that these organizations and groups are able to organize and
obtain recognition by certain governmental bodies that license or allow the
Company to operate its planned business, the Company would likely suffer
additional costs, expenses, and losses whose magnitude can not be foreseen.
The Company also maintains a Corporate Web Site and six Developmental Web
Sites on the internet (as discussed earlier). Although the Company believes
that its Corporate Web Site will be helpful in gaining a corporate identity for
the Company and its business, the Developmental Web Sites do contain adult-only
content and there is substantial variation in the definition accorded
"pornography" under state and local laws. For this reason and upon advice of
its counsel, the Company has taken recent steps to carefully revise the content
of its Corporate Web Site to reduce the possibility that the content may be
found to be in violation of such state, federal, and local laws.
The revisions that were undertaken were as follows: (1) a revision to link
the Company's a Corporate Web Site to the U. S. Securities and Exchange
Commission's EDGAR site wherein the Company's filings with the Commission can
be found; (2) the Company's Corporate Web Site has been enhanced to ensure that
a visitor will experience greater ease in navigating each Web Site; and (3) the
content of the Corporate Web Site has been carefully updated to ensure that the
information given is accurate and complete.
- 19 -
===============================================================================
<PAGE>
Despite these revisions and precautions, the Company may well
incur substantial costs and expenses in defending the content of its website
against assertions that it contains impermissible images or other unlawful
content. Currently, the Company has not received any notice that its Web Sites
are in violation of any state, federal, or local laws although there can be no
assurance that the Company will not later need to defend itself against such
allegations.
The Company also anticipates that it will also expend substantial sums in
legal fees in connection with defending its business licenses, liquor license,
and any other operating, use, or occupancy licenses it requires to operate its
Club. If the Company later acquires and operates any other gentlemen's clubs
at any other location, it will likely incur significant similar expenses for
any such other location as well. These costs will likely arise since there are
significant segments of our society that believe that the Company's business
will inhibit the social progress, rights, and dignity of women and the efforts
undertaken by these segments to restrict or inhibit the Company and its
business. The magnitude of these costs and expenses is expected to be
significant.
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 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.
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.
- 20 -
===============================================================================
<PAGE>
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 Company 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. (See
"Financial Statements.")
4. PRIOR FILING DEFICIENCIES OF SUBSIDIARY. The Company's wholly-owned
subsidiary, AEI-Nevada, failed to file certain reports required by Section
15(d) of the Exchange Act, observe its filing obligations with respect to Form
SR, and otherwise observe certain book and record keeping obligations required
under the Exchange Act. While the Company believes that AEI-Nevada's failures
did not result in any injury or loss to any investor, AEI-Nevada and the
Company may have incurred liability for failure to fulfill these obligations
and if so, the Company may incur liability for violation of other laws as well.
5. 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, 1997, 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.
6. 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.
7. 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.
8. 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.
9. 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.
- 21 -
===============================================================================
<PAGE>
10. CONTROL BY OFFICERS AND DIRECTORS. The Company's present directors and
officers hold the power to vote an aggregate of 29.38% of the Company's Common
Shares as of June 30, 2000 (after including any shares purchasable upon
exercise of all existing common stock purchase options held by the Company's
officers and directors and 77,000 issuable upon conversion of promissory notes
issued to a corporate officer and the conversion of the Essex Note held by
Essex Capital Holdings, Ltd.). 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.
11. 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.
12. 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.
13. 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.
14. 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.
- 22 -
===============================================================================
<PAGE>
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. 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.
- 23 -
===============================================================================
<PAGE>
21. 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.
22. 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.
- 24 -
===============================================================================
<PAGE>
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.
22. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company opened its existing Club on January 26, 2000 and the Club has
been in operation since that date. The Club's operations are the Company's
sole source of revenues and its principal asset. It is located in San
Francisco's financial district at 408-412 Broadway, San Francisco, California,
The Club's premises consist of an entire building consisting of two floors and
an alleyway along the west side of the building.
The Company has expended (as of June 30, 2000) over $2,998,379 in
leasehold improvements, equipment, and fixtures at the Club in addition to
other expenditures to implement the Company's business plan. The Company
believes that it will not need to expend any additional sums for equipment,
computer systems, sound systems, furniture, fixtures, or similar capital
expenditures over the next twelve months. The Company has also obtained
approximately $500,000 in working capital financing to support the Company's
operations and working capital needs for the next 12 months.
The Company continues to follow a strategy designed to conserve its
limited cash resources by carefully evaluating proposed cash expenditures to
control cash outlays. To that end, on April 30, 1999, the Company recently
closed its La Jolla, California executive office and consolidated this office
at the office facilities the Company has for its Club.
- 25 -
===============================================================================
<PAGE>
During the first quarter ending March 31, 2000, the Company's operations
achieved positive cash flow.
In addition, the Company also anticipates utilizing the $530,000 in barter
credits it previously purchased from ITEX Corporation ("ITEX") (as described
earlier). ITEX is a barter exchange company that offers goods and services it
acquires through barter.
These barter credits allow the Company to develop and purchase radio and
billboard advertising and other marketing and promotional support from ITEX
which ITEX acquires through barter transactions with other vendors and
suppliers. The Company anticipates using these credits to implement the
marketing and promotion of its existing San Francisco Club.
On June 23, 1999, the Company obtained financing and a commitment for up
to $1,000,000 from Essex Capital Holdings, Ltd. ("Essex") in the form of an
unsecured convertible promissory note (the "Essex Note"). Under the terms of
the Note the Company is able to borrow up to $1,000,000 at a cost of 12%
interest per year with interest due and payable quarterly. The Essex Note has
a maturity date of January 23, 2001 (the "Maturity Date"). The Company has the
right to accelerate the Maturity Date of the Note and prepay all or any portion
of the outstanding principal due under the Essex Note upon payment of a premium
equal to 125% of the then principal balance plus accrued interest. Essex has
the right, upon 30 days notice to the Company, to convert all or any portion of
the then outstanding principal amount, plus any accrued and unpaid interest,
into shares of the Company's Common Stock at a conversion price equal to $0.40
per share.
Subsequently, on February 28, 2000, the Company and Essex negotiated an
Addendum to the Essex Note which resulted in an increase the maximum amount
that the Company may borrow from Essex. Under the Addendum, the Company may
borrow up to $1,500,000 from Essex under all of the same terms and provisions
as given in the original Note. (As of June 30, 2000, the outstanding balance
of the Essex Note was $1,100,314.)
In addition to the monies borrowed from Essex, the Company's financing
needs have also been met through the efforts that the Company has undertaken in
borrowing funds through the issuance of several unsecured promissory notes (the
"Promissory Notes"), on a limited basis, to individuals with whom the Company
has a substantial existing and well-established business or personal
relationship.
As of December 31, 1999, the collective balance of these Promissory Notes
was $1,323,940 and each Promissory Note carries an interest rate ranging from
10% and 12%. The maturity dates for these Promissory Notes ranges from six
months to one year from the date of their issuance. These Promissory Notes
included: (i) a $300,000 Unsecured Convertible Promissory Note (convertible at
$0.36 per Share) issued to Lewis Chin; (ii) a $600,000 convertible promissory
note (convertible at $2.00 per Share) issued to W.B. Elmer & Co., Inc. (which
W.B. Elmer & Co., Inc. converted into 300,000 Shares of the Company's Common
Stock in March 2000 and for which the Company issued 35,000 Shares in payment
of all accrued and unpaid interest thereon); and (iii) 18 other convertible
promissory notes issued to various individuals and aggregating $423,940 (each
convertible at $1.00 per Share).
In total, the Company had, as of December 31, 1999, an aggregate of
$2,283,614 in convertible promissory notes outstanding.
As of June 30, 2000, the Company had $1,967,254 in convertible unsecured
promissory notes outstanding. These Promissory Notes carries an interest rate
ranging from 10% and 12%.
The Company continues to rely and may rely in the future upon the use of
convertible promissory notes to provide needed financing.
The Company anticipates that it will need to continue to follow a strategy
of conserving its cash resources and use its restricted common stock, (and, if
necessary, its Preferred Stock and debt securities) issued on a private
placement basis in accordance with applicable exemptions provided under state
and federal securities laws and in lieu of cash to meet any cash shortfalls or
financial difficulties that it may experience.
- 26 -
===============================================================================
<PAGE>
In the past the Company has followed this strategy, on a selective basis,
to acquire architectural services, to pay rent to the owner of the real
property leased for the Club, to repay interest and principal due on debt, to
pay accounts payable, to pay for various services, to pay compensation to
officers and directors, and otherwise to acquire certain goods and services
needed by the Company.
In this respect, the Company has relied upon the use of its restricted
common stock to provide the financing needed by the Company. There can be no
assurance that the Company can continue to utilize its common stock, in lieu of
cash payments, to pay for goods and services it requires or if it does, that it
can do so on terms that are reasonable in light of the Company's current
financial conditions.
If the Company does undertake any acquisitions or expansion of its
operations beyond the existing Club and even if the Company is successful in
operating the Club, the Company will need to renegotiate and obtain additional
financing to the extent that cash flows generated by the operation of the Club
are not sufficient to provide funds to repay existing creditors and any future
creditors. If the Club's operations are successful and if the Club can
generate sufficient excess cash flows, the Company will not likely require
additional financing unless the Company sought to acquire another club or
expanded its operations. There can be no guarantee that the Company will be
successful in these efforts.
If the Company implements its business plan to acquire and establish new
Boys Toys Clubs in other locations, then the Company will need to obtain
additional debt and equity capital on such terms as the Company may obtain.
The amount and form of any such financing will depend on the Company's then
existing financial condition, then existing market conditions, and the terms
that the Company may be able to obtain in any such negotiations. The Company
has not identified any locations or operations that are suitable for the
establishment of any new Boys Toys Club. In addition, the Company has not had
any discussions with any underwriter, venture capital fund, or other source to
provide additional financing. There can be no assurance that the Company that
the Company can obtain any additional financing or, if it is successful, that
it can be obtained on reasonable terms.
The Company currently has approximately 40 full-time and 35 part-time
employees none of which are employed under a collective bargaining agreement.
The Company believes that its relationship with its employees is excellent.
These employees are grouped as follows: management, office staff, bookkeeper,
executive chef, hosts/hostesses, food servers, bartenders, cocktail
waitresses, kitchen staff. The Company believes that while it will incur
employee turnover, however, the number of employees it will require over the
next 12 months will likely remain at these levels.
The Company also utilizes 25-50 "exotic female entertainers" as
independent contractors on a varying basis. All of these entertainers are not
paid any wage, salary, fee, or other compensation by the Company. Each is and
will continue to remain independent contractors.
ITEM 3. DESCRIPTION OF PROPERTY
On April 30, 2000, the Company terminated its month-to-month lease of
office space at 7825 Fay Avenue, Suite 200, La Jolla, California 92037 and
moved all of its executive offices to the office facilities at the Company's
existing Club located at 412 Broadway, San Francisco, California 94133. The
closing of the Company's La Jolla, California office was undertaken to conserve
the Company's cash resources.
- 27 -
===============================================================================
<PAGE>
The Company leases two residential apartment units from Bayside Village at
180 Brannan Street Suite #217 and #406, San Francisco, California under a
month-to-month lease at a combined monthly rental of $4,520.00. While one unit
is used by the general manager of the Company's Club and the other unit is used
by the Company's Chairman and any officers, employees, or consultants of the
Company as the Company's business needs require. The Company believes that the
two apartment units are sufficient for the Company's anticipated requirements.
The Company's wholly-owned subsidiary, RMA of San Francisco, Inc., a
California corporation ("RMA") and as successor in interest to Boys Toys
Cabaret Restaurants, Inc., a California corporation), is the lessee of a lease
(the "Lease") executed on August 1, 1994 for the lease of a 14,500 square foot
premises at 408 - 412 Broadway, San Francisco, California (the "Facility") in
which the Club is located. The subsidiary has subsequently assigned the lease
to RMA of San Francisco, Inc. The Facility consist of an entire building
consisting of two floors and an alleyway along the west side of the building.
Under the terms of the Lease, Roma Cafe, Inc. ("RCI") leased the Facility
to the Boys Toys Cabaret Restaurants, Inc., a company established and owned by
the Company. This lease was subsequently assigned to RMA. The Facility is
leased to the Company for a period of 10 years from August 1, 1994 to
July 31, 2004 (the "Initial Lease Term"). The Lease provides that the Company
is obligated to pay $12,000 in monthly lease payments to RCI during the twelve
months ending July 31, 1999 and subsequently the amount of $12,500 monthly
during the two years thereafter (ending July 31, 2001), $13,000 monthly during
the following year (ending July 31, 2002), $13,500 monthly in the next year
(ending July 31, 2003), and, in the final 10th year of the lease (ending
July 31, 2004), the Company is obligated to pay $14,000 in monthly lease
payments.
The monthly lease payments to RCI are also subject to adjustment using the
U. S. Department of Labor's Consumer Price Index for the San Francisco/Northern
California Region. All lease payments are due on the first day of each month
and, in the event that the Company fails to pay any obligations due RCI within
10 days of the date that they are due, the Company incurs a late charge equal
to 5% of the amount due in addition to paying all other amounts due under the
Lease.
During the term of the Lease, the Company is also obligated to pay all
real property taxes and personal property taxes assessed against the Facility.
And, provided that the Company is not in default of its obligations under the
Lease, RCI has granted the Company the right to extend the term of the Lease
for an additional two successive five year terms following the Initial Lease
Term. The Company believes that the Facility will be adequate for the
operations of the Company's existing Club.
- 28 -
===============================================================================
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information relating to the beneficial
ownership of Company common stock by those persons beneficially holding more
than 5% of the Company's capital stock, by the Company's directors and
executive officers, and by all of the Company's directors and executive
officers as a group as of December 31, 1999.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
(1) (2) (3) (4)
Name And Amount And
Address Of Nature Of
Title Of Beneficial Beneficial Percent Of
Class Owner Owner Class
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Ralph M. Amato 2,863,669(1) 26.85%(1)
412 Broadway
San Francisco, California
94113
Common Stock Michael L. Potter, Esq. 270,000(2) 2.53%(2)
412 Broadway
San Francisco, California
94113
------------ -----------
Total for all persons
as a group (2 persons) 3,133,669(3) 29.38%(3)
============ ===========
Common Stock Wilfred Van Dam 2,624,185(4) 24.61%
Essex Capital Holdings Ltd.
Cayside, Second Floor
Grand Cayman, B.W.I.
<FN>
------------------
Footnotes:
1. The amounts shown include 1,200,000 shares purchasable at $0.25 per share
by Ralph M. Amato pursuant to a certain common stock purchase option granted by
the Company's Board of Directors (the "First Amato Option"). The First Amato
Option has no expiration date. In addition, the amounts shown includes 600,000
shares purchasable at $0.25 per share by Ralph M. Amato (the "Second Amato
Option"). The Second Amato Option expires on February 13, 2004. The amounts
shown also include up to 77,000 shares of the Company's Common Stock that may
be issued by the Company in the event that certain loans to the Company (from
Mr. Amato and totaling $77,000 as of December 31, 1999) are converted into
shares of the Company's Common Stock.
2. The amounts shown include 250,000 shares purchasable at $0.25 per share by
Michael L. Potter, Esq. pursuant to a certain common stock purchase option
granted by the Company's Board of Directors. This option expires on
February 13, 2004.
3. Totals shown include all Shares purchasable upon exercise of the options
stated and the conversion of the convertible unsecured promissory note issued
to Essex Capital Holdings, Ltd.(the "Essex Note"). In the event that all of
the options were exercised, that the Essex Note (with a principal balance of
$959,674 as of December 31, 1999) is converted (at a conversion price of $0.40
per share) and assuming that the Company does not issue any additional shares
of its Common Stock (par value $0.001), the Company would have an aggregate of
10,664,688 shares of its Common Stock (par value $0.001) outstanding.
4. Essex Capital Holdings, Ltd. holds 225,000 Shares of the Company's Common
Stock (150,000 Shares issued in December 1999 and 75,000 Shares issued
March 2000) in payment of interest on the convertible unsecured promissory note
issued by the Company (the "Essex Note"). The Essex Note had a principal
balance of $959,674 as of December 31, 1999. The Essex Note is convertible
into the Company's common stock at a conversion price of $0.40 per share.
The number of shares shown for Essex assume that Essex has converted the Essex
Note into the Company's Common Stock and include 150,000 Shares of the
Company's Common Stock issued in payment of accrued and unpaid interest to
December 31, 1999 and 75,000 Shares issued in payment of accrued and unpaid
interest on March 31, 2000.
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The members of the Board of Directors of the Company serve until the next
annual meeting of stockholders, or until their successors have been elected.
The Company's by-laws provide for four authorized directors. Currently, the
Company has only two directors and intends, as opportunities become available,
to identify two additional directors to serve on the Company's Board of
Directors.
- 29 -
===============================================================================
<PAGE>
<TABLE>
The officers serve at the pleasure of the Board of Directors. Information
as to the directors and executive officers of the Company is as follows:
<CAPTION>
Name Age Position Date
Elected
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Ralph M. Amato 49 President, Chairman, & 12/06/93
412 Broadway Chief Financial Officer
San Francisco, California 94133
Michael L. Potter, Esq. 48 Secretary & Director 01/29/96
412 Broadway
San Francisco, California 94133
</TABLE>
Each of the foregoing persons may be deemed a "promoter" of the Company,
as that term is defined in the rules and regulations promulgated under the
Securities Act of 1933. Directors are elected to serve until the next annual
meeting of stockholders and until their successors have been elected and have
qualified.
RALPH M. AMATO, age 49, is the founder of the Company and has been its
President and Chairman since the December 6, 1993 incorporation of Alternative
Entertainment, Inc., a Nevada corporation ("AEI-Nevada"). In August of 1998,
Mr. Amato assumed the additional responsibilities of Chief Financial Officer.
In addition to his position as President, Chairman, and Chief Financial
Officer, Mr. Amato is also President of California Merchant Group, an
investment banking firm located in La Jolla, California ("CMG"). CMG
specializes in assisting emerging growth companies in obtaining capital
throughout the United States, Canada, and Mexico. From 1990 to 1992, Mr. Amato
was a management consultant to Big Bob's Sports Collectibles, a Milford
Connecticut-based sports memorabilia distributor. From November 1988 to
November 1990, Mr. Amato was a Senior Account Executive for PaineWebber in its
San Diego, California office.
MICHAEL L. POTTER, ESQ., age 48, has been the Company's Secretary and a
Director of the Company since January 29, 1996. Since July 1994 to the
present, Mr. Potter has been an attorney with and name partner of the San Diego
law firm of Potter, Day & Associates where he specializes in business law,
asset protection law, and advanced estate planning. From January 1990 to July
1994, Mr. Potter was an attorney with and name partner of the San Diego law
firm of Cannon, Potter & Day. Mr. Potter serves as a Commanding Officer in the
United States Navy Reserve. He holds a B.A. Degree from the University of New
York (Albany), an M.A. Degree (Management and Supervision) from Central
Michigan University, am M.S. Degree (Education) from the University of Southern
California, and a J.D. Degree from National University, San Diego, California.
In addition, to the above officers and directors of the Company, the
Company has entered into a six year employment agreement with Gary Marlin. Mr.
Marlin is serving as the General Manager of the Company's existing Club. Mr.
Marlin has over 13 years of experience in managing gentlemen's clubs.
- 30 -
===============================================================================
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The Company's Board of Directors has authorized the compensation of its
officers with the following annual cash salaries:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long-term Compensation
----------------------- -----------------------------
Awards Payouts
------- -------
Other Restr- Securities All
Name and Annual icted Underlying Other
Principal Compen- Stock Options/ LTIP Compens-
Position Year Salary Bonus sation Awards SARs Payouts ation
(a) (b) ($)(c) ($)(d) ($)(e)* (s)($)(f) (#)(g) ($)(h) ($)(i)
------------ ---- ------- ------ ------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ralph M. 1997 $ 0 $0 $0 $0 $0 $0 $0
Amato 1998 $ 7,600 $0 $0 $0 $0 $0 $0
Chairman, 1999 $30,000 $0 $0 $0 $1,800,000 $0 $0
President
and CFO
Michael L. 1997 $ 0 $0 $0 $0 $0 $0 $0
Potter 1998 $ 0 $0 $0 $0 $0 $0 $0
Secretary 1999 $ 0 $0 $0 $0 $ 250,000 $0 $0
and
Director
<FN>
------------------
Footnotes:
* No other compensation was paid, accrued or received by any of the Company's
officers or directors for any of the years shown.
(1) During 1999, the Company awarded Ralph M. Amato, the Company's Chairman
and President, an option to purchase 1,200,000 shares of the Company's Common
Stock at an exercise price of $0.25 per share (the "First Option"). The First
Option has no expiration date. In addition, the Company also awarded
Ralph M. Amato an additional option to purchase 600,000 shares of the Company's
Common Stock at $0.25 per share (the "Second Option"). The Second Option
expires on February 13, 2004. As a result, Mr. Amato holds an aggregate of
1,800,000 options to purchase 1,800,000 shares of the Company's Common Stock.
In addition, the Company awarded Michael L. Potter, Esq., a Director, an option
to purchase 250,000 shares of the Company's Common Stock at an exercise price
of $0.25 per share (the "Potter Option"). The Potter Option expires on
February 13, 2004. None of the options described in this footnote have been
exercised as of August 7, 2000 and the Company has not granted any other
options to any officer or director of the Company.
</TABLE>
With respect to cash salaries, the Company may change or increase salaries as
the Company's profits and cash flow allow. The amount of any increase in
salaries and compensation for existing officers has not been determined at this
time and the number and dollar amount to be paid to additional management staff
that will likely be employed has not been determined.
- 31 -
===============================================================================
<PAGE>
<TABLE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<CAPTION>
Number of
Unexercised
Securities Value Of
Underlying Unexercised
Options/SARs In-The-Money
At Fy-End 1999 Option/SARs
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
------------- ----------- -------- --------------- -------------
<S> <C> <C> <C> <C>
Ralph M.
Amato, 0 0 1,200,000 $ 0
Chairman &
President 0 0 600,000 $ 0
Michael L.
Potter, Esq., 0 0 250,000 $ 0
Director
<FN>
------------------
Footnotes:
All of the stock options shown are exercisable for the purchase of the
Company's Common Stock at an exercise price of $0.25 per share whereby each
said share will be restricted pursuant to the Securities Act of 1933 and bear a
restricted securities legend. None of the above stock options shown above have
been exercised as of August 7, 2000.
The dollar values shown on the far right hand column utilize a $0.25 per
share common stock market price.
</TABLE>
<TABLE>
OPTION/SAR GRANTS IN LAST TWO FISCAL YEARS
(1999 Fiscal Year Individual Grants)
<CAPTION>
No. of Percent of
Securities Total Options/
Underlying SARs Granted Exercise
Options/SARs to Employees of Base Expiration
Name Granted in Fiscal Year Price Date
(a) (#)(1)(b) (c)(1) ($/Sh)(d) (e)
-------------------- ------------ -------------- --------- ----------
<S> <C> <C> <C> <C>
Ralph M. Amato 1,200,000 87.18% $0.25 None
600,000 $0.25 02-13-04
Michael L. Potter, Esq. 250,000 12.82% $0.25 02-13-04
<FN>
----------------------
Footnote:
1. Represents common stock purchase options granted the Company's officers and
directors in 1999 (no options were granted in 1998). Prior to 1998 and except
for an option to purchase 60,000 shares (at $0.50 per share) granted to
Stanley V. Heyman, a former officer, the Company has not issued or granted any
common stock purchase options to the Company's officers and directors. All of
the options shown were granted in 1999.
</TABLE>
- 32 -
===============================================================================
<PAGE>
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 13, 1999 and in recognition of the limited cash compensation
paid, the Company's Board of Directors granted Ralph M. Amato, the Company's
Chairman, President, Secretary, and Founder, a common stock purchase option
(the "First Amato Option") for the purchase of up to 1,200,000 shares of the
Company's Common Stock at an exercise price of $0.25 per share. The First
Amato Option granted Mr. Amato does not have an expiration date.
On February 13, 1999, the Company granted Michael L. Potter, The Company's
Secretary and a Director, a common stock purchase option for the purchase of up
to 250,000 shares of the Company's Common Stock at an exercise price of $0.25
per share (the "Potter Option"). The Potter Option expires on February 13,
2004.
On February 13, 1999, the Company granted Ralph M. Amato, the Company's
President, Chairman, CEO, and Treasurer a common stock purchase option for the
purchase of up to 600,000 shares of the Company's Common Stock at an exercise
price of $0.25 per share (the "Second Amato Option"). The Second Amato Option
expires on February 13, 2004.
As of September 30, 1999, the Company had outstanding a note receivable in
the amount of $37,073 from its President and Chairman, Ralph M. Amato (which,
as of June 30, 2000 the amount of the note receivable totaled $89,689). The
receivable is due and payable upon demand and bears interest at 5.85%. This
note receivable compares to a $33,602 and $35,515 in note receivables due from
Mr. Amato as of December 31, 1997 and December 31, 1998, respectively.
In September 1999, the Company entered into a lease of two residential
apartment units from Bayside Village at 180 Brannan Street Suite #217 and #406,
San Francisco, California under a month-to-month lease at a combined monthly
rental of $4,520.00. While one unit is used by the general manager of the
Company's Club and the other unit is used by the Company's Chairman and any
officers, employees, or consultants of the Company as the Company's business
needs require, this transaction may be considered a transaction between the
Company and Mr. Amato, the Company's founder, Chairman, and President.
On October 25, 1999 the Company's Board of Directors accepted a loan from
the Company's President, Ralph M. Amato. As of December 31, 1999, the amount
of the loan from him totaled $77,000. The loan is due and payable on or before
October 25, 2000, carries an interest rate of 10%, and is convertible into
shares of the Company's Common Stock at $1.00 per share.
On December 31, 1999, the Company issued 150,000 shares of its Common
Stock to Essex Capital Holdings, Ltd. ("Essex") in payment of interest on the
promissory note held by Essex.
On January 15, 2000, the Company's Board of Directors accepted a loan of
$16,000 from the Company's President, Ralph M. Amato. The loan is due and
payable on or before October 25, 2000 and carries an interest rate of 10%.
On March 31, 2000, the Company issued 75,000 shares of its Common Stock to
Essex Capital Holdings, Ltd. ("Essex") in payment of interest on the promissory
note held by Essex.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
As of November 8, 1999 the Company had 6,066,503 shares of the Company's
Common Stock (par value $0.001) outstanding. The Company's Certification of
Incorporation, authorize the issuance of 20,000,000 shares of the Company's
Common Stock. Holders of shares of the Common Stock are entitled to one vote
for each share on all matters to be voted on by the stockholders. Holders of
Common Stock have no cumulative voting rights. Holders of shares of Common
Stock, subject to the rights of any outstanding Preferred Stock, are entitled
to share ratably in dividends, if any, as may be declared from time to time by
the Board of Directors in its discretion, from funds legally available
therefor.
- 33 -
===============================================================================
<PAGE>
In the event of a liquidation, dissolution or winding up of the Company,
the holders of shares of Common Stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Holders of common stock
have no preemptive rights to purchase the Company's Common Stock. All of the
outstanding shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of
8,000,000 shares of Preferred Stock (par value $0.001) in one or more series
and with such rights, privileges, and preferences as the Company's Board of
Directors may determine. The Company has no Preferred Stock issued or
outstanding.
PART II
Item 1. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS.
The Company's Common Stock trades in the Over-The-Counter ("OTC") market
(Electronic Bulletin Board and "Pink Sheets") listed in the National Daily
Quotations Service. Since October 6, 1998 to the present, there were only
sporadic quotations with only limited and minimal interest by market makers.
As of December 31, 1999, the company had 12 market makers and 751 shareholders
of record.
Since January 23, 2000 the Company's Common Stock has traded only in the
OCT Pink Sheets and the Common Stock has little or no trading market.
Stockholders who may seek to sell any Shares of the Common Stock will not
likely find any significant liquidity and therefore may not be able to sell any
significant volume of the Company's Common Stock.
The following represents high and low bid prices by quarter as reported by
the National Quotation Bureau, Inc.
High Low
------ -------
1998
----
4th Quarter $ 3.75 $0.5625
1999
----
1st Quarter $ 4.25 $2.00
2nd Quarter $ 1.46 $0.625
3rd Quarter $ 0.81 $0.56
4th Quarter $ 0.75 $0.20
2000
----
1st Quarter $ 0.50 $0.20
2nd Quarter $ 0.50 $0.20
- 34 -
===============================================================================
<PAGE>
Item 2. 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.
In 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 principle and interest
due on the Marc Note; (ii) that the Company has been unjustly enriched at the
expense of the Msarc Plaintiff; and (iii) that the Marc Plaintiff is entitled
to relief for damages incurred by the Msarc 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 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company engaged the independent accounting firm of Sporl and Welker,
the predecessor of Pannell Kerr Forster as the Company's independent auditor in
October 1998. Pannell Kerr Forster resigned as the Company's auditor on
December 17, 1999. The resignation did not arise out of any disagreement
between the Company and Pannell Kerr Forster regarding any matter. Pannell Kerr
Forster has stated that their resignation occurred because the industry in
which the Company operates did not meet their long-term client profile
objective.
From December 1993 to March 1, 1996 the Company (through its predecessor,
AEI-Nevada) engaged the firm of Harlan & Boettger as its independent auditor.
Harlan & Boettger were dismissed by the Company in 1996. In that connection:
(i) Harlan & Boettger's report on AEI-Nevada did not contain an adverse opinion
or disclaimer of opinion nor was it modified as to uncertainty, audit scope, or
accounting principles; (2) the decision to dismiss Harlan & Boettger was made
by AEI-Nevada's Board of Directors; (3) the dismissal of Harlan & Boettger did
not arise out of any disagreement between the Company and Harlan & Boettger
regarding any matter related to accounting principles or practices, financial
statement disclosure, or auditing scope or procedures.
On March 18, 2000, the Company has engaged the services of Armando C.
Ibarra, C.P.A. as its independent accountant to replace Pannell Ferr Forster.
- 35 -
===============================================================================
<PAGE>
There have been no disagreements between the Company and any predecessor
auditor during the past two fiscal years and any subsequent interim period
prior to the termination of any said predecessor's engagement. In each case,
the change in auditors was determined by the Company's Chairman of the Board of
Directors.
While Pannell Kerr Forster's audit report on the financial statements for
1997 and 1998 contained a going concern modification, the Company does not have
any disagreements between it and Pannell Kerr Forster through the date of
Pannell Kerr Forster's termination.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In April of 1996 the Company issued a $25,000 unsecured convertible
promissory note to Thomas Johnson in exchange for the Company's receipt of
$25,000 cash. The note bears interest at 10% and is convertible into the
Company's Common Stock at $1.00 per share. Mr. Johnson, an Accredited
Investor, was a sophisticated person and had a pre-existing relationship with
the Company. The note was issued pursuant to Section 4(2) and 4(6) of the
Securities Act of 1933 and Rule 506 of Regulation D thereunder. The note was
issued without an underwriter. The note was issued to Thomas Johnson.
In June 1996, the Company issued a $10,000 unsecured convertible
promissory note to Ken Marc in exchange for the Company's receipt of $10,000
cash. The note bears interest at 10% and is convertible into the Company's
Common Stock at $1.00 per share. Mr. Marc, an Accredited Investor, was a
sophisticated person and had a pre-existing relationship with the Company.
The note was issued pursuant to Section 4(2) and 4(6) of the Securities Act of
1933 and Rule 506 of Regulation D thereunder. The note was issued without an
underwriter. The note was issued to Ken Marc.
On June 28, 1996, the Company issued a $120,000 convertible unsecured
promissory note to Marge Yonika in exchange for the Company's receipt of
$120,000 in cash. The note bears interest at 10% and is convertible into the
Company's Common Stock at $1.00 per share. Mrs. Yonika, an Accredited
Investor, was a sophisticated person and had a pre-existing relationship with
the Company. The note was issued pursuant to Section 4(2) and 4(6) of the
Securities Act of 1933 and Rule 506 of Regulation D thereunder. The note was
issued without an underwriter. The note was issued to Marge Yonika.
In April 1997 the Company issued a $1,400 unsecured convertible promissory
note to Vincent Amato in exchange for the Company's receipt of $1,400 in cash.
The note bears interest at 10% and is convertible into the Company's Common
Stock at $1.00 per share. Mr. Amato, an Accredited Investor, was a
sophisticated person and had a pre-existing relationship with the Company. The
note was issued pursuant to Section 4(2) and 4(6) of the Securities Act of 1933
and Rule 506 of Regulation D thereunder. The note was issued without an
underwriter. The note was issued to Vincent Amato.
In May of 1997, the Company issued a $25,000 unsecured convertible
promissory note to the Ina L. Weeda Family Trust in exchange for the Company's
receipt of $25,000 in cash. The note bears interest at 10% and is convertible
into the Company's Common Stock at $1.00 per share. The trustee of the Ina L.
Weeda Family Trust, an Accredited Investor, was a sophisticated person and had
a pre-existing relationship with the Company. The note was issued pursuant to
Section 4(2) and 4(6) of the Securities Act of 1933 and Rule 506 of Regulation
D thereunder. The note was issued without an underwriter. The note was issued
to the Ina L. Weeda Family Trust.
In June 1997 the Company issued a $5,000 unsecured convertible promissory
note to Vincent Amato in exchange for the Company's receipt of $5,000 in cash.
The note bears interest at 10% and is convertible into the Company's Common
Stock at $1.00 per share. Mr. Amato, an Accredited Investor, was a
sophisticated person and had a pre-existing relationship with the Company. The
note was issued pursuant to Section 4(2) and 4(6) of the Securities Act of 1933
and Rule 506 of Regulation D thereunder. The note was issued without an
underwriter. The note was issued to Vincent Amato.
In December 1997, the Company issued a $25,000 unsecured convertible
promissory note to the Ina L. Weeda Family Trust in exchange for the Company's
receipt of $25,000 in cash. The note bears interest at 12% and is convertible
into the Company's Common Stock at $1.00 per share. The trustee of the
Ina L. Weeda Family Trust, an Accredited Investor, was a sophisticated person
and had a pre-existing relationship with the Company. The note was issued
pursuant to Section 4(2) and 4(6) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder. The note was issued without an underwriter. The note
was issued to the Ina L. Weeda Family Trust.
In January 1998 and in March 1998 the Company issued a $3,000 and a $5,000
unsecured convertible promissory note (respectively) to Vincent Amato in
exchange for the Company's receipt of $3,000 and $5,000 in cash respectively.
The note is convertible into the Company's Common Stock at $1.00 per share.
Mr. Amato, an Accredited Investor, was a sophisticated person and had a pre-
existing relationship with the Company. The note was issued pursuant to
Section 4(2) and 4(6) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder. The note was issued without an underwriter. The note
was issued to Vincent Amato.
In June 1998, the Company issued a $14,000 unsecured convertible
promissory note to Vincent Amato in exchange for the Company's receipt of
$14,000 in cash. The note bears interest at 12% and is convertible into the
Company's Common Stock at $1.00 per share. Mr. Amato, an Accredited Investor,
is and was a sophisticated person and had a pre-existing relationship with the
Company. The note was issued pursuant to Section 4(2) and 4(6) of the
Securities Act of 1933 and Rule 506 of Regulation D thereunder. The note was
issued without an underwriter. The note was issued to Vincent Amato.
During the period from October through December 1998, the Company issued
350,388 shares of its common stock (par value $0.001) to convert $480,831 in
outstanding notes payable. Each of the noteholders who exchanged their
promissory notes to acquire the shares were sophisticated persons and each had
a pre-existing relationship with the Company. All of the shares were issued
pursuant to Section 4(2) and 4(6) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder. The shares were issued without an underwriter. The
Shares were issued to Anthony Azevedo, William M. Aul, Christopher Palozzi,
Lewis Chin, Hannah Cohen, Morris Diamond, James Palacek, Paul Palacek, Ina L.
Weeda, Steve Cohen, Van Dam, and James DiNapoli.
During the period from October through December 1998, the Company issued
186,376 shares of its common stock (par value $0.001) to convert $162,484 of
then outstanding accounts payable. Each of the purchasers were sophisticated
persons and each had a pre-existing relationship with the Company. All of the
shares were issued pursuant to Section 4(2) and 4(6) of the Securities Act of
1933 and Rule 506 of Regulation D thereunder. The shares were issued without
an underwriter. The Shares were issued to Scott Kelley, John L. Martin,
Vernon Chu and Olde Monmouth Capital.
During the period from October through December 1998 and in lieu of cash
payments, the Company issued 185,500 shares its common stock (par value $0.001)
for approximately $170,771 in architectural, design, and other services. Each
of the purchasers were sophisticated persons and each had a pre-existing
relationship with the Company. All of the shares were issued pursuant to
Section 4(2) and 4(6) of the Securities Act of 1933 and Rule 506 of Regulation
D thereunder. The shares were issued without an underwriter. The Shares were
issued to W.B. Elmer & Company, Inc.
In November 1998, the Company issued a $25,000 unsecured convertible
promissory note to the Ina L. Weeda Family Trust in exchange for the Company's
receipt of $25,000 in cash. The note bears interest at 12% and is convertible
into the Company's Common Stock at $1.00 per share. The trustee of the
Ina L. Weeda Family Trust, an Accredited Investor, is and was a sophisticated
person and had a pre-existing relationship with the Company. The note was
issued pursuant to Section 4(2) and 4(6) of the Securities Act of 1933 and
Rule 506 of Regulation D thereunder. The note was issued without an
underwriter. The note was issued to the Ina L. Weeda Family Trust.
During the period from October through December 1998 and in lieu of cash
payments, the Company issued 240,000 shares of its common stock (par value
$0.001) for approximately $240,000 in construction work. The purchaser was a
sophisticated person and had a pre-existing relationship with the Company. All
of the shares were issued pursuant to Section 4(2) of the Securities Act of
1933. The shares were issued without an underwriter. The Shares were issued
to W. B. Elmer & Company, Inc.
In December 1998 and in lieu of a cash payment, the Company issued 20,000
shares of its common stock (par value $0.001) in payment of certain deposits
due under the lease of the Company's lease agreement for its San Francisco Club
at the real property located at 408-412 Broadway, San Francisco, California.
The Shares were valued at $1.00 per Share. The purchaser was a
sophisticated person and had a pre-existing relationship with the Company.
All of the shares were issued pursuant to Section 4(2) of the Securities Act of
1933. The shares were issued without an underwriter. The Shares were issued
to Roma Cafe, Inc.
- 36 -
===============================================================================
<PAGE>
During October and November 1998 and in exchange for approximately $90,000
of accounts payable, the Company issued common stock purchase options for the
purchase of up to 60,000 shares of its common stock at an exercise price of
$1.00 per share. The options remain exercisable however none of the options
have been exercised. The holders of the options are sophisticated investors
and each had a pre-existing relationship with the Company. The options were
issued pursuant to Section 4(2) of the Securities Act of 1933. The options
were issued without an underwriter. The options were issued to Palmer
Schooley, AIA, Architecture.
In January 1999, the Company issued two convertible unsecured promissory
notes to Vincent Amato in exchange for the Company's receipt of $13,540 in
cash. The notes bear interest at 12% and each note is convertible into the
Company's Common Stock at $1.00 per share. Mr. Amato is and was a
sophisticated investor and the Company had a pre-existing relationship with
him. The note was issued pursuant to Section 4(2) and 4(6) of the Securities
Act of 1933 and Rule 506 of Regulation D thereunder. The note was issued
without an underwriter. The note was issued to Vincent Amato.
In January 1999, an investor exercised an option to purchase 100,000
shares of the Company's common stock (par value $0.001) at an exercise price of
$0.25 per share. The Company received $25,000 upon exercise of the option.
The option had been granted in December 1996. The investor is a
sophisticated investor and had a pre-existing relationship with the Company.
The shares were issued pursuant to Sections 4(2) and 4(6) of the Securities Act
of 1933 and Rule 506 thereunder. The shares were issued without an
underwriter. The Shares were issued to Alex Lemus.
On February 10, 1999, the Company issued a $600,000 convertible unsecured
promissory note to W.B. Elmer & Company in exchange for the Company's receipt
of construction and general contractor's services. The Note (including any
accrued and unpaid interest thereon) is convertible into shares of the
Company's Common Stock at $2.00 per share and carried an interest rate of 10%.
W.B. Elmer & Company is a sophisticated investor and had a pre-existing
relationship with the Company. The note was issued pursuant to Sections 4(2)
and 4(6) of the Securities Act of 1933 and Rule 506 thereunder. The note was
issued without an underwriter.
The note was issued to W. B. Elmer & Company and subsequently, in
March 2000 W.B. Elmer & Co., Inc. converted the Note into 300,000 Shares of the
Company's Common Stock and also received 35,000 Shares of the Company's Common
Stock in full payment of all accrued and unpaid interest thereon.
In January through August 1999, the Company issued 923,000 shares of its
common stock (valued at $1,129,235) to certain holders of $1,129,235 of the
Company's convertible promissory notes. Each of the converting promissory note
holders were sophisticated investors, Accredited Investors (as that term is
defined under Rule 501(a) of Regulation D) and each had a pre-existing
relationship with the Company. The shares were issued pursuant to Section 4(2)
and 4(6) of the Securities Act of 1933 and Rule 506 of Regulation D thereunder.
The shares were issued without an underwriter. The Shares were issued to
Ranji Doshl, Richard Langley, Lenny Gotter, Chris Haltnerman, John Yadegar,
Arthur Adams, Even Yoav, Shingal Ashok, Arthur Steinberg, P. Scaccia, Robert
Smith, Trafalgar Trust, J. Carey, Harvey Productions, Joseph Minieri, Curtis
Moring, Rich and Famous Travel, Charlene Abernathy, W.B. Elmer & Company, Inc.,
Thomas Johnson, Brian Pado, Geoffrey Smith, Wendell Stemley, Robert Woo, Marge
Yonika, Ken Yonika, William M. Randoll, Van Dam, Deloof Haj, Steven Demko,
Colbert Gutierrez, Picilde Kirby, Ina L. Weeda, Ballymore Investments, Dairen
Hylton, and Gary Gee.
In February 1999 and in lieu of cash payments, the Company issued
223,642 shares of the Company's Common Stock at $1.00 per share for certain
consulting services rendered to the Company. The purchaser was a sophisticated
person and had a pre-existing relationship with the Company. All of the shares
were issued pursuant to Section 4(2) and 4(6) of the Securities Act of 1933 and
Rule 506 thereunder. The shares were issued without an underwriter. The
Shares were issued to Olde Monmouth Capital Corp.
In February 1999, the Company issued a $25,000 unsecured convertible
promissory note to Christopher Palozzi in exchange for the Company's receipt of
$25,000 cash. The note bears interest at 10% and is convertible into the
Company's Common Stock at $1.00 per share. Mr. Palozzi, an Accredited
Investor, was a sophisticated person and had a pre-existing relationship with
the Company. The note was issued pursuant to Section 4(2) and 4(6) of the
Securities Act of 1933 and Rule 506 of Regulation D thereunder. The note was
issued without an underwriter. The note was issued to Christopher Palozzi.
In January through March 1999, the Company issued 909,879 shares of its
common stock at $1.00 per share in exchange for $909,879 in cash proceeds
pursuant to Section 4(2) of the Securities Act of 1933 and Rule 504 of
Regulation D thereunder. All of the shares were issued without an underwriter.
The Shares were issued to Idalari, S.A., Generation Capital Associates, and
Ballymore Investments, Ltd.
In June 1999, the Company issued 125,000 shares of its common stock at
$1.00 per share in exchange for $125,000 in cash pursuant to Section 4(2) and
4(6) of the Securities Act of 1933 and Rule 506 thereunder. The purchaser was a
sophisticated investor and the Company had a pre-existing relationship with the
purchaser. The shares were issued without an underwriter. The Shares were
issued to Arthur Adams.
- 37 -
===============================================================================
<PAGE>
In June 1999, the Company obtained commitments for the Company's issuance
of up to $1,000,000 in an unsecured convertible promissory note (the "Note")
issued to Essex Capital Holdings, Ltd. Under the terms of the Note, the
Company received $890,000 from Essex in exchange for the Note. The investor is
a sophisticated investor and has a pre-existing relationship with the Company.
The Note was issued pursuant to Section 4(2) of the Securities Act of 1933.
The Note was issued to Essex without an underwriter.
On September 7, 1999, the Company agreed to issue 150,000 shares of its
common stock in exchange for certain consulting services to be valued at
$150,000. The purchaser was a sophisticated investor and the Company had a
pre-existing relationship with the purchaser. The shares were to be issued
pursuant to Section 4(2) of the Securities Act of 1933. The shares were issued
without an underwriter. The Shares were issued to Market Pulse.
In December 1999, the Company issued a $50,000 unsecured convertible
promissory note to the Ina L. Weeda Family Trust in exchange for the Company's
receipt of $50,000 in cash. The note bears interest at 12% and is convertible
into the Company's Common Stock at $1.00 per share. The note was issued
pursuant to Section 4(2) and 4(6) of the Securities Act of 1933 and Rule 506 of
Regulation D thereunder. The note was issued without an underwriter. The note
was issued to the Ina L. Weeda Family Trust.
In December 1999 the Company obtained $300,000 from 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 exchange for the $300,000, the Company
issued Mr. Chin an Unsecured Convertible Promissory Note convertible into
shares of the Company's Common Stock at $0.40 per share. The investor is a
sophisticated investor and has a pre-existing relationship with the Company.
The Note was issued pursuant to Section 4(2) of the Securities Act of 1933.
The Note was issued to Mr. Chin without an underwriter.
In October 1999, November 1999, and again in December 1999, the Company
received funds of $68,000, $6,000, and $3,000 respectively, from the Company's
President and Chairman, Ralph M. Amato under the terms of unsecured promissory
notes which bear interest at 10% and payable on or before October 25, 2000.
Mr. Amato is a sophisticated investor and has a pre-existing relationship with
the Company. The Notes were issued pursuant to Section 4(2) of the Securities
Act of 1933. The Note were issued to Mr. Amato without an underwriter.
In December 1999 and again in January 2000, the Company received funds
from Essex Capital Holdings, Ltd. ("Essex") pursuant to an Addendum to the
Unsecured Convertible Promissory Note (the "Addendum") issued to Essex. Under
the terms of the Addendum, the Company is able to borrow additional funds from
Essex up to a maximum of $1,500,000. The Addendum increases the amount of
funds that the Company may borrow from the original $1,000,000 amount
established by the terms of the original note issued to Essex in June 1999.
(See above.) Essex is sophisticated investor and has a pre-existing
relationship with the Company. The Notes were issued pursuant to Section 4(2)
of the Securities Act of 1933. The Addendum was issued to Essex without an
underwriter.
In January 2000, the Company issued a $100,000 Unsecured Promissory Note
to Lewis Chin, the owner of Roma Caf, Inc., the owner of the real estate on
which the Company's San Francisco Club is located. The Company received
$100,000 in cash from the sale of the Note. The investor, Mr. Chin, is a
sophisticated and Accredited Investor and has a pre-existing relationship with
the Company. The Note was issued pursuant to Section 4(2) of the Securities
Act of 1933. The Note was issued to Mr. Chin without an underwriter.
On March 17, 2000, the Company issued a $50,000 Convertible Unsecured 12%
Promissory Note to Gary M. Kawesch, M.D. in exchange for a $50,000 in cash
received from Dr. Kawesch. The Note is convertible at $0.40 per Share. The
investor, Dr. Kawesch, is a sophisticated and Accredited Investor and has a
pre-existing relationship with the Company. The Note was issued pursuant to
Section 4(2) of the Securities Act of 1933. The Note was issued to Dr. Kawesch
without an underwriter.
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 199,500 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 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 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;
(2) 20,000 Shares of the Company's Common Stock were issued to
Lindsay Faniel;
(3) 20,000 Shares of the Company's Common Stock were issued to
Gina Dawson;
(4) 10,000 Shares of the Company's Common Stock were issued to
William Shirk;
(5) 10,000 Shares of the Company's Common Stock were issued to
Gerard Crawford;
(6) 10,000 Shares of the Company's Common Stock were issued to
Jacob Watkins;
(7) 10,000 Shares of the Company's Common Stock were issued to
Edward Evans;
(8) 10,000 Shares of the Company's Common Stock were issued to
Mark Pears;
(9) 5,000 Shares of the Company's Common Stock were issued to
Dennis DeGori;
(10) 10,000 Shares of the Company's Common Stock were issued to
Susan Adair;
(11) 5,000 Shares of the Company's Common Stock were issued to
Randy Beasley;
(12) 1,500 Shares of the Company's Common Stock were issued to
Daniela Lazar;
(13) 1,500 Shares of the Company's Common Stock were issued to
Johanna Mattox;
(14) 1,500 Shares of the Company's Common Stock were issued to
Jennifer Powell;
(15) 1,500 Shares of the Company's Common Stock were issued to
Jeena Nijjar;
(16) 1,500 Shares of the Company's Common Stock were issued to
Ross Grossman;
(17) 20,000 Shares of the Company's Common Stock were issued to
Bianca Hodge;
(18) 20,000 Shares of the Company's Common Stock were issued to
Deborah Gintoli;
(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 to
Erik Reese, the Company's Executive Chef; and
(21) 2,500 Shares of the Company's Common Stock were issued to
Nicholas S. Morganstern.
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 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.
On June 22, 2000 the Company issued a $25,000 Convertible Unsecured
Promissory Note to J. Dean Tinney in exchange for $25,000 cash received by the
Company. The investor, J. Dean Tinney, is an Accredited Investor and a
sophisticated investor who has a pre-existing business relationship with the
Company. The note carries a 12% interest rate and is convertible into Shares
of the Common Stock at $0.40 per Share. The Note was issued pursuant to
Section 4(2) of the Securities Act of 1933. The Note was issued to
J. Dean Tinney 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.
- 38 -
===============================================================================
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware Corporation Law provides that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit or proceeding by
reason of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgements, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if the person acted in good faith and in a manner the person
reasonably believed to be or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful, except that, in
the case of an action or suit by or in the right of the corporation, the
corporation shall not indemnify such persons against judgements and fines and
no person shall be indemnified as to any claim, issue, or matter as to which
such person shall have been adjudged to be liable for the negligence or
misconduct in the performance of that person's duty to the corporation, unless
and only to the extent that the court in which the action or suit was brought
determines upon application that such person is fairly and reasonably entitled
to indemnity for proper expenses.
In addition, the Company amended its Certificate of Incorporation on
January 26, 1998 and, among other provisions, adopted Article "EIGHTH" which
provides for the indemnification of the Company's officers and directors as
follows:
EIGHTH. (a.) A Director of the Corporation shall not be personally
liable to the Corporation or its shareholders for monetary damages for
breach of fiduciary duty as a Director, except for liability (i) for any
breach of the Director's duty of loyalty to the Corporation or its
shareholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the Director derived an improper personal benefit.
If the Delaware General Corporation Law is amended after approval by the
shareholders of this article to authorize corporate action further
eliminating or limiting the personal liability of Directors, then the
liability of a Director of the Corporation shall be eliminated or limited
to the fullest extent permitted by the Delaware General Corporation Law,
so as amended. Any repeal or modification of the foregoing paragraph by
the shareholders of the Corporation shall not adversely affect any right
or protection of a Director of the Corporation existing at the time of
such repeal or modification.
- 39 -
===============================================================================
<PAGE>
(b.) Right to Indemnification. Each person who was or is made
a party to, or is threatened to be made a party to, or is otherwise
involved, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "proceeding"), by reason
of the fact that he or she is or was a Director, Officer, or employee of
the Corporation, or is or was serving at the request of the Corporation as
a Director, Officer, employee, or agent of another corporation or of a
partnership, joint venture, trust, or other enterprise, including service
with respect to employee benefit plans (hereinafter an "indemnitee"),
whether the basis of such proceeding is alleged action in an official
capacity as a Director, Officer, employee, or agent or in any other
capacity while serving as a Director, Officer, employee, or agent, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment, against all expense, liability, and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties, and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith, and such indemnification shall
continue as to an indemnitee who has ceased to be a Director, Officer,
employee, or agent and shall inure to the benefit of the indemnitee's
heirs, executors, and administrators; provided, however, that, except as
provided in paragraph (b) hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
The right to indemnification conferred in this section shall be a
contract right and shall include the right to be reimbursed by the
Corporation for expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a Director of Officer (and not
in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee
benefit plan) shall be made only upon delivery to the Corporation of
an undertaking, by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal that
such indemnitee is not entitled to be indemnified for such expenses
under this section or otherwise (hereinafter an "undertaking").
- 40 -
===============================================================================
<PAGE>
(c.) Right of Indemnitee to Bring Suit. If a claim under
paragraph (a) of this section is not paid in full by the Corporation
within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses,
in which case the applicable period shall be twenty days, the indemnitee
may, at any time thereafter, bring suit against the Corporation to recover
the unpaid amount of the claim. If successful, in whole or in part, in
any such suit or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses), it shall be
a defense that the indemnitee has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law. In any suit
brought by the Corporation to recover an advancement of expenses, pursuant
to the terms of an undertaking, the Corporation shall be entitled to
recover such expenses upon a final adjudication that the indemnitee has
not met the applicable standard of conduct set forth in the Delaware
General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the indemnitee has
not met such applicable standard of conduct, shall create a presumption
that the indemnitee has not met the applicable standard of conduct or, in
the case of such suit brought by the indemnitee, by a defense to such
suit. In any suit brought by the indemnitee to enforce a right hereunder,
or by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is
not entitled to be indemnified or to such advancement of expenses under
this section or otherwise shall be on the Corporation.
(d.) Non-Exclusivity of Rights. The rights to indemnification
and to the advancement of expenses conferred in this section shall not be
exclusive of any other right which any person may have or hereafter
acquire under any statute, this Certificate of Incorporation, By-Law,
agreement, vote of shareholders or disinterested Directors, or otherwise.
(e.) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer, employee, or agent
of the Corporation or another corporation, partnership, joint venture,
trust, or other enterprise against any expense, liability, or loss,
whether or not the Corporation would have the power to indemnify such
person against such expense, liability, or loss under the Delaware General
Corporation Law.
(f.) Indemnification of Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of
expenses to any agent of the Corporation to the fullest extent of the
provisions of this section with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
- 41 -
===============================================================================
<PAGE>
Finally, on December 10, 1993, the Company's predecessor, Alternative
Entertainment, Inc., a Nevada corporation, agreed to indemnify Ralph M. Amato,
the Company's Chairman, from and against any loss, damage, deficiency, expense,
or cost (including reasonable attorneys' fees) incurred by Mr. Amato on account
of or in connection with his serving as a director of the Company.
PART III
ITEM 1. INDEX TO EXHIBITS
Description Page
------------------------------------------------------------------ ----
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)
3.6 Articles of Incorporation of RMA of San Francisco, Inc.
3.7 By-Laws of RMA of San Francisco, Inc.
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 Promissory 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 Promissory 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 Pannell Kerr Forster
23.4 Acknowledgment of Armando C. Ibarra
27 Financial Data Schedule
- 42 -
===============================================================================
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
The following exhibits required by Item 601 of Regulation S-B are filed
herewith:
Exhibit
No. Document Description
------- ----------------------------------------------------------
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 Promissory 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
- 43 -
===============================================================================
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized.
BOYSTOYS.COM, INC.
(Registrant)
Date: August 7, 2000 By /s/ Ralph M. Amato
-------------------------
Ralph M. Amato, Chairman,
President & Treasurer
- 43 -
===============================================================================
<PAGE>
