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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO 1
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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.
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(Exact name of registrant in charter)
Delaware 33-0824801
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(State or Other (IRS Employer
Jurisdiction of Incorporation Identification No.)
or Organization)
7825 Fay Avenue, Suite 200, La Jolla, California 92037
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(address of principal executive offices)
(858) 456-5556
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(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
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None None
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</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $0.001
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(Title of Class)
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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.
While the Company's name includes the ".com," this moniker reflected
the Company's original intention to pursue business activities involving the use
of the internet. However, the Company has determined that it will not currently
pursue any internet-related business activities, any gaming operations, or any
similar ventures.
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.
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
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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.
The Company's subsidiary, AEI-Nevada, previously filed a Registration
Statement on Form SB-2 with the U.S. Securities and Exchange Commission for a
proposed public offering of over $11 million. AEI-Nevada's Registration
Statement became effective on July 3, 1996 and on September 15, 1996, AEI-Nevada
filed Form 8-A.
However, despite the efforts of AEI-Nevada's management, AEI-Nevada was
unsuccessful in obtaining the services of an underwriter and was not able to
sell any of its securities pursuant to the public offering. As a result,
AEI-Nevada subsequently terminated its public offering without selling any of
its common stock or warrants or otherwise raising any capital pursuant to the
Registration Statement.
In January 1997, AEI-Nevada withdrew the filing of its Registration
Statement. Subsequently, on March 10, 1997, AEI-Nevada filed Form 15 with the
U.S. Securities and Exchange Commission to terminate its registration under
Section 12(g) of the SECURITIES EXCHANGE ACT OF 1934.
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). 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.
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 each of which is 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 tradename, the Company has not
yet filed an application with the U.S. Patent and Trademark office to register
these names.
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The Club's revenues are generated from: (1) food and beverage sales;
(2) Boardroom VIP membership sales; (3) nightclub admission (door) fees; (4)
fees charged by the Company in connection with the use of credit cards by
patrons to obtain cash equivalent items (i.e., certificates that may be used in
lieu of cash or credit cards at the Club for purchase of food and beverage at
the Club or for a patron's payment of a "dance fee" to an entertainer); and (5)
sales of certain merchandise on display at the Club and salable on a consignment
basis.
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.
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.
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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.
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.
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* 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.
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.
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* 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).
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.
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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.
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.
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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.
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.
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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 50 part-time employees. The composition of
the Company's current full-time employees is as follows:
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Category No. of Employees
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General Manager 1
Club Day & Evening Managers 2
Bookkeeper 1
Office Staff 2
Executive Chef 1
Kitchen Staff 11
Host & Hostesses 14
Servers 4
Bus Persons 4
</TABLE>
The additional 50 part-time employees are primarily restaurant servers,
bus persons, and support personnel.
In addition to these employees, the Company utilizes 25 to 35 female
exotic entertainers, 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
receive only "dance fees" from patrons of the Club.
The General Manager of the Club reports directly to the Company's
President. Working in concert with club managers, the Company's senior
management will define operations and performance objectives for the Club and
will monitor 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.
Awards under 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 complied with.
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.
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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.
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.
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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.
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.
12
<PAGE>
While the Company has obtained all necessary licenses 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. The failure
of the Company's Club (and any other clubs that the Company 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.
13
<PAGE>
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 website on the internet. Although the
Company believes that its website will be helpful in gaining a corporate
identity for the Company and its business, 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 website to reduce the possibility that any images or
other content may be found to be in violation of such state, federal, and local
laws. Despite these 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.
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
$4,148,117 in losses during the nine months ending September 30, 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.
14
<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 Comnpany has relied, in large part,
upon the use of debt financing to provide a substantial portion of the Company's
financial needs. The Company has, as of September 30, 1999, an aggregate of
$1,992,182 in current liabilities that are due for payment prior to September
30, 2000 and of which $890,000 in convertible debt and $370,980 in notes payable
are convertible into shares of the Company's Common Stock. While the Company
believes that the Company's operation of the Club will be successful and will
allow the Company to generate sufficient profits and cash flow to service and
repay its existing debt, the Company may need to obtain additional financing or
renegotiate its existing debt financing in the event that the Company's
operations are not successful. In that event the Company may need to obtain
additional financing. The Company has had only limited discussions with
potential investors and it does not anticipate receiving any assurances that the
Company will obtain any additional capital from any investors. Further, the
Company has not sought to receive and has not received any commitments or
assurances from any underwriter, investment banker, venture capital fund, or
other individual or institutional investor. In the event that that the Company
needs additional financing there can be no assurance that the Company will
obtain any new financing or, if it is successful, that it can be obtained on
reasonable terms in light of the Company's current circumstances.
4. AUDITOR'S OPINION: GOING CONCERN. Except for the explanatory paragraph
included in the firm's report on the financial statements for the years ended
December 31, 1997 and 1998, relating to the substantial doubt existing about the
Company's ability to continue as a going concern, the audit report did not
contain an adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles.
5. SUBORDINATE TO EXISTING AND FUTURE DEBT & AUTHORIZED BUT UNISSUED PREFERRED
STOCK. All of the Common Stock offered hereby are subordinate to the claims of
the Company's existing and future creditors and any future holders of the
Company's preferred stock. The Company is authorized to issue up to 8,000,000
shares of the Company's preferred stock and currently the Company has not issued
any preferred stock.
6. MARKETING STRATEGY . While the Company believes that the operation of the
Club will be successful, there is no guarantee that these business operations
will be commercially accepted with sales revenues sufficient to permit the
Company to achieve or maintain profitable operations.
7. LIMITED PUBLIC MARKET . There is a limited trading market for the Company's
Common Shares, and there is no guarantee that a continuous liquid trading market
will subsequently develop. There can be no assurance that the Common Shares will
ever gain any liquid trading volumes in any other market or gain listing on any
stock exchange. Further, the Company's Common Stock is a "Penny Stock" and as
such, the ability of the Company to gain a liquid trading market for it will be
inhibited by various regulations and there can be no assurance that any liquid
trading market for the Company's Common Stock will ever develop or, if it does
develop, that it can be maintained. The Company became a "reporting company" on
January 23, 2000.
15
<PAGE>
8. CONCENTRATION & LACK OF DIVERSIFICATION. The Company's assets are invested
almost entirely in the existing Club. While the Company believes that will be
successful, in the event that the Club is not successfully received by the
market, the Company will likely incur substantial and protracted losses since
the Company lacks diversification.
9. CONTROL BY OFFICERS AND DIRECTORS. The Company's present directors and
officers hold the power to vote an aggregate of 37.66% of the Company's Common
Shares as of December 31, 1999 (after including any shares purchasable upon
exercise of all existing common stock purchase options held by the Company's
officers and directors). The Company has granted a common stock purchase option
(the "First Amato Option") to Ralph M. Amato, the Company's Chairman, President,
Secretary, and Founder. The First Amato Option grants Mr. Amato the right to
purchase 1,200,000 shares of the Company's Common Stock at an exercise price of
$0.25 per Common Share. The First Amato Option has no expiration date. In
addition, Mr. Amato holds a second common stock purchase option for the purchase
of 600,000 shares of the Company's Common Stock with an exercise price of $0.25
per share (the "Second Amato Option"). The Second Amato Option expires February
13, 2004. Finally, Michael L. Potter, the Company's Secretary and Director,
holds an option to purchase 250,000 shares of the Company's Common Stock at a
purchase price of $0.25 per share (the "Potter Option"). The Potter Option
expires on February 13, 2004.
10. COMPETITION. The Company's existing Club (and any other clubs that the
Company may establish) will face severe competition from several established
companies who have well-established operations, experienced management, and
possess significantly greater financial resources. In addition, the gentlemen's
club business is very competitive and many of competitors have substantially
greater managerial resources. Further, because the gentlemens club business is
dependent upon the uncertain commercial viability of the Company's business, it
is especially sensitive to ever-changing and unpredictable competitive trends
which can not be easily predicted and which are beyond the control of the
Company. Finally, the Company's sale of any consigned artwork and memorabilia
items can not be guaranteed since competition from other retail outlets is
intense and the availability of desired items for items to display in the Club
may not be desired by some sellers of such items. For these and other reasons,
the Company's business may be said to be riskier than investments in other types
of businesses.
11. DEPENDENCE UPON KEY PERSONNEL AND NEW EMPLOYEES. The Company believes its
success will depend, to a significant extent, on the efforts and abilities of
Ralph M. Amato, the Company's President and CEO. The loss of the services of Mr.
Amato could have a material and continuing adverse effect on the Company. The
Company's success also depends upon its ability to attract and retain qualified
employees. Hiring to meet anticipated Company operations will require the
Company to assimilate significant numbers of new employees during a relatively
short period of time.
12. KEY MAN INSURANCE & LIMITED FULL-TIME MANAGEMENT. While the Company
currently plans to obtain key man life insurance on the life of Ralph M. Amato,
the Company has no key man life insurance on his life. In the event that he is
unable to perform his duties, the Company's business may be adversely impacted.
If the Company grows, it will need to hire additional management and the ability
of the Company to employ suitable management at a cost acceptable to the
Company, in light of the Company's limited financial resources, can not be
assured.
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<PAGE>
13. LACK OF INDEPENDENT EVALUATION OF BUSINESS PLAN & PROPOSED STRATEGY. The
Company has not obtained any independent evaluation of the Company's Business
Plan and the Company's proposed business strategy. There can be no assurance
that the Company's Club or proposed strategy will generate any revenues, or if
revenues can be generated, that they can be generated at a level to maintain
profitability.
14. LIMITED MANAGERIAL EXPERIENCE. 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 in opening the
existing Club. While the Company has, under an employment agreement, employed
Gary Marlin as the General Manager of the Club, and the Company believes that he
possesses the necessary skills and experience, the Company will likely need to
secure the services of others who possess the management skill, experience, and
industry knowledge. There can be no assurance that the Company can secure and
retain any additional necessary management and staff on terms acceptable to the
Company.
15. NO ASSURANCE OF AVAILABILITY OF THE ADDITIONAL CAPITAL & PAYMENT OF DEBTS.
The Company's continued operation of its existing Club will be dependent upon
the Company's ability to meet its obligations to an aggregate of $1,992,182 in
amounts due as Total Current Liabilities (as of September 30, 1999). There can
be no assurance that the Company will be successful in paying these debts. The
Company has received no commitment from any underwriter or other source of
capital that any additional capital will be provided to the Company. There can
be no assurance that the Company will be successful in generating and sustaining
sufficient cash flow to pay these debts.
16. NO PLANNED DIVIDENDS. The Company does not anticipate that it will pay any
dividends on the Company's Common Stock. Any profits that the Company may
generate, if any, will be reinvested into the Company.
17. GOVERNMENT REGULATION & EXOTIC ENTERTAINMENT INDUSTRY. The Company seeks to
operate establishments that offer "female exotic entertainment." This business
routinely suffers severe and unfavorable regulatory burdens, adverse zoning
ordinances, and other oppressive government regulations which may result in the
Company incurring substantial losses and significant delays in connection with
the development of any establishment.
17. LACK OF DIVERSIFICATION. The Company's proposed business involving the
operation of establishments offering "female exotic entertainment" will not
provide any diversification. If the Company is successful, all of the Company's
business and assets will be concentrated in the same industry.
18. POTENTIAL DILUTION. Funding of the Company's business plan is likely to
result in substantial and on-going dilution of the Company's existing
stockholders. While there can be no guarantee that the Company will be
successful in raising additional capital, if the Company is successful in
obtaining any additional capital, existing stockholders may incur substantial
dilution.
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<PAGE>
19. RULE 144 STOCK SALES. As of December 31, 1999, the Company had 1,541,374
shares of the Company's outstanding Common Stock as "restricted securities"
which may be sold only in compliance with Rule 144 adopted under the Securities
Act of 1933 or other applicable exemptions from registration. Rule 144 provides
that a person holding restricted securities for a period of one year may
thereafter sell in brokerage transactions, an amount not exceeding in any three
month period the greater of either (i) 1% of the Company's outstanding Common
Stock, or (ii) the average weekly trading volume during a period of four
calendar weeks immediately preceding any sale. Persons who are not affiliated
with the Company and who have held their restricted securities for at least two
years are not subject to the volume limitation. Possible or actual sales of the
Company's Common Stock by present shareholders under Rule 144 may have a
depressive effect on the price of the Company's Common Stock if any liquid
trading market develops.
20. RISKS OF LOW PRICED STOCKS. Trading in the Company's Common Stock is limited
since the Company's Common Stock is a "PENNY STOCK" and thereby the retail
market for the Common Stock is subject to burdens that are imposed on brokers
whose customers may wish to acquire the Company's Common Stock.
Consequently, a shareholder may find it more difficult to dispose of,
or to obtain accurate quotations as to the price of, the Company's securities.
In the absence of a security being quoted on NASDAQ, or the Company having
$2,000,000 in net tangible assets, trading in the Common Stock is covered by
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934 for non-NASDAQ
and non-exchange listed securities. Under such rules, broker/dealers who
recommend such securities to persons other than established customers and
accredited investors (generally institutions with assets in excess of $5,000,000
or individuals with net worth in excess of $1,000,000 or an annual income
exceeding $200,000 or $300,000 jointly with their spouse) must make a special
written suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. Securities are also exempt
from this rule if the market price is at least $5.00 per share, or for warrants,
if the warrants have an exercise price of at least $5.00 per share. The
Securities Enforcement and Penny Stock Reform Act of 1990 requires additional
disclosure related to the market for penny stocks and for trades in any stock
defined as a penny stock.
The Commission has adopted regulations under such Act which define a
penny stock to be any NASDAQ or non-NASDAQ equity security that has a market
price or exercise price of less than $5.00 per share and allow for the
enforcement against violators of the proposed rules.
In addition, unless exempt, the rules require the delivery, prior to
any transaction involving a penny stock, of a disclosure schedule prepared by
the Commission explaining important concepts involving a penny stock market, the
nature of such market, terms used in such market, the broker/dealer's duties to
the customer, a toll-free telephone number for inquiries about the
broker/dealer's disciplinary history, and the customer's rights and remedies in
case of fraud or abuse in the sale.
Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities, and, if the broker/dealer is the sole market maker, the
broker/dealer must disclose this fact and its control over the market. Monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
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While many NASDAQ stocks are covered by the proposed definition of
penny stock, transactions in NASDAQ stock are exempt from all but the sole
market-maker provision for (i) issuers who have $2,000,000 in tangible assets
has been in operation for at least three years ($5,000,000 if the issuer has not
been in continuous operation for three years), (ii) transactions in which the
customer is an institutional accredited investor, and (iii) transactions that
are not recommended by the broker/dealer.
In addition, transactions in a NASDAQ security directly with the NASDAQ
market maker for such securities, are subject only to the sole market-maker
disclosure, and the disclosure with regard to commissions to be paid to the
broker/dealer and the registered representatives. The Company's securities are
subject to the above rules on penny stocks and the market liquidity for the
Company's securities could be severely affected by limiting the ability of
broker/dealers to sell the Company's securities.
21. MATTER OF "Y2K" AND THE COMPANY'S COMPUTER AND INFORMATION SYSTEMS. The
Company has acquired point-of-sale computer hardware and software together with
certain management information systems for use in its existing Club. While the
Company has had its computer hardware and software evaluated to ensure that it
will operate effectively in the year 2000 or beyond and otherwise not result in
"Y2K" operating problems (problems arising out of the inability of any computer
systems to accurately calendar all dates following December 31, 1999 as
occurring in the year 2000 and thereafter rather than inaccurately calendar all
such dates as 1900, etc.) there can be no assurance that the Company's
point-of-sale computer hardware and software together with certain management
information systems will function effectively in the year 2000 or beyond.
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 over $1,648,014 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 capita needs
for the next 12 months.
In addition, the Company also anticipates utilizing the $530,000 in
barter credits it previously purchased from ITEX Corporation ("ITEX"). 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.
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<PAGE>
Overall, the Company has also used its restricted common stock, issued
on a private placement basis in accordance with applicable exemptions provided
under state and federal securities laws and in lieu of cash, to purchase
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.
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 50 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 25-35 "exotic female entertainers" as
independent contractors. 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
The Company leases an executive office of 160 square feet in an
executive suite at 7825 Fay Avenue Suite #200, La Jolla, California 92037 at a
monthly rental of $1,700.00 under a month-to-month lease. The Company is seeking
to move its executive offices into larger facilities so as to accommodate a need
for expanded staff for accounting and management. The Company has not determined
the exact location of any such expanded facility. However, the Company plans to
maintain its executive offices in La Jolla, California and anticipates it will
require at least 3,600 square feet for its anticipated requirements.
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<PAGE>
Based on a preliminary investigation of office lease rates in La Jolla,
California as of November 1, 1999, the Company anticipates that it may incur an
effective lease rate of between $2.25 to $2.45 per square foot for an office
facility. 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. One unit
is used by the general manager of the Company's Planned San Francisco Club and
the other unit is used by the Company's Chairman. 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.
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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 2,786,669(1) 34.33%(1)
7825 Fay Avenue #200
La Jolla, CA 92037
Common Stock Michael L. Potter, Esq. 270,000(2) 3.33%(2)
7825 Fay Avenue #200
La Jolla, CA 92037
------------------------ --------------------
Total for all persons
as a group (2 persons) 3,056,6693 37.66%3
======================== ====================
</TABLE>
- ------------------
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.
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 shares purchasable upon exercise of the options stated.
In the event that all of the options were exercised 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 8,116,503 shares of its Common
Stock (par value $0.001) outstanding.
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.
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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:
<TABLE>
<CAPTION>
Name Age Position Date
Elected
- --------------------------------------------------- ---------- -------------------------------------- ---------------
<S> <C> <C> <C>
Ralph M. Amato 48 President, Chairman, & Chief 12/06/93
7825 Fay Ave. #200 Financial Officer
La Jolla, California 92037
Michael L. Potter, Esq. 48 Secretary & Director 01/29/96
7825 Fay Ave. #200
La Jolla, California 92037
</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 48, 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.
23
<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>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------
Annual Compensation
---------------------------------------------
Name and Principal Position Other Annual
(a) Salary Bonus Compensation
Year ($) ($) ($)
(b) (c) (d) (e)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ralph M. Amato 1997 $0 $0 $0
Chairman, President and CFO 1998 $7,600 $0 $0
1999 $30,000 $0 $0
- -------------------------------------------------------------------------------------------------------------------
Michael L. Potter 1997 $0 $0 $0
Secretary and Director 1998 $0 $0 $0
1999 $0 $0 $0
====================================================================================================================
</TABLE>
The Company may change or increase salaries as the Company's profits
and cash flow allow. The amount of any increase in salaries and compensation for
existing officers has not been determined at this time and the number and dollar
amount to be paid to additional management staff that will likely be employed
has not been determined.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST TWO FISCAL YEARS
(1998 and 1999 Fiscal Year Individual Grants)
- -------------------------------------------------------------------------------------------------------------------------
No. of Percent of
Securities Total Options/
Underlying SARs Granted Exercise of
Options/SARs to Employees Base Price
Granted in Fiscal Year ($/Sh) Expiration
Name (#)1 (c)1 (d) Date
(a) (b) (e)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ralph M. Amato 1,200,000 87.18% $0.25 None
600,000 $0.25 02-13-00
-------------------------------------------------------------------------------------
Michael L. Potter, Esq. 250,000 12.82% $0.25 02-13-00
=========================================================================================================================
</TABLE>
Footnote:
1. Represents common stock purchase options granted the Company's officers and
directors in 1998 and 1999. 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.
24
<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. 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.
On October 25, 1999 the Company's Board of Directors accepted a loan of
$70,000 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 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%.
25
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
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.
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.
26
<PAGE>
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. The following represents high and low bid prices by quarter as reported
by the National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
High Low
- --------------------------------------------------------------------------------
<S> <C> <C>
1998
- ----
4th Quarter $3.75 $0.5625
- --------------------------------------------------------------------------------
1999
- ----
1st Quarter $4.25 $2.00
2nd Quarter $1.46 $0.62
3rd Quarter $0.81 $0.56
4th Quarter $0.75 $0.56
- --------------------------------------------------------------------------------
</TABLE>
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On December 17, 1999 Pannell Kerr Forster resigned as the Company's
independent accountants. 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.
The Company is actively looking to engage the services of another
independent accounting firm.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In January 1998 the Company issued 602,811 shares of its common stock
(par value $0.001) representing approximately $6,028 pursuant to Section 4(2) of
the SECURITIES ACT OF 1933. The shares were issued in connection with the
purchase of the Company by Alternative Entertainment, Inc., a Nevada
corporation. The Shares were issued without an underwriter.
27
<PAGE>
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.
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.
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.
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.
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 Planned
San Francisco Club at the real property located at 408- 412 Broadway, San
Francisco, California. 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.
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.
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
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.
28
<PAGE>
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 thereunder. The shares were
issued without an underwriter.
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.
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.
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.
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 the investor who was issued 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 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.
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 $0.36 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 without an underwriter.
In October 1999 and again in January 2000, the Company received funds
of $70,000 and $16,000, 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 without an underwriter.
29
<PAGE>
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 Note were issued without an underwriter.
In January 2000, the Company issued a $100,000 Unsecured Promissory
Note 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. 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 without an underwriter.
All of the transactions referred to above are exempt from the
registration requirements of the SECURITIES ACT OF 1933, as amended, by virtue
of Section 4(2) thereof covering transactions not involving any public offering
or involving no "offer" or "sale." As a condition precedent to each sale, the
respective purchaser was required to execute an investment letter and consent to
the imprinting of a restrictive legend on each stock certificate received from
the Company.
ITEM 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
30
<PAGE>
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.
(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").
31
<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.
32
<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
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C> <C>
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 Promisory Note (R. Smith)
10.13 Secured Promissory Note (I. Weeda Family Trust)
10.14 Secured Promissory Note (I. Weeda Family Trust)
10.15 Secured Promissory Note (K. Marc)
10.16 Secured Promissory Note (G. W. Smith)
10.17 Secured Promissory Note (D. Hylton)
10.18 Secured Promissory Note (M. Yonika)
10.19 Unsecured 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)
23.1 Consent of Pannell Kerr Forster
23.2* Resignation of Pannell Kerr Forster
27 Financial Data Schedule
</TABLE>
* Filed herewith
33
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
The following exhibits required by Item 601 of Regulation S-B are filed
herewith:
<TABLE>
<CAPTION>
Exhibit No. Document Description
- ----------- --------------------
<S> <C>
3 Certificate of Incorporation - Wagg Corp.
3.1 Amendment to Certificate of Incorporation - Wagg Corp.
3.2 Amendment to Certificate of Incorporation - Wagg Corp.
3.3 By-Laws of Wagg Corp. (Delaware)
3.4 Articles of Incorporation - Alternative Entertainment, Inc. (NV)
3.5 By-Laws of Alternative Entertainment, Inc. (NV)
4.1 Specimen of Common Stock Certificate
10 Agreement for the Purchase of Common Stock
10.1 Lease for Office Space in La Jolla, California
10.2 Lease of Real Property from Roma Cafe, Inc.
10.3 Lease of Apartment Units in San Francisco, California
10.4 Indemnification Agreement between the Company and Ralph M. Amato
10.5 Agreement with Itex Corporation
10.6 Employment Agreement Between the Company and Gary Marlin
10.7 Loan Agreement with Unsecured Convertible Note
10.8 Unsecured Promissory Note (C. Palozzi)
10.9 Settlement Agreement With Bowne of Los Angeles, Inc.
10.10 Unsecured Promissory Note (V. Amato)
10.11 Unsecured Promissory Note (V. Amato)
10.12 Secured Promisory Note (R. Smith)
10.13 Secured Promissory Note (I. Weeda Family Trust)
10.14 Secured Promissory Note (I. Weeda Family Trust)
10.15 Secured Promissory Note (K. Marc)
10.16 Secured Promissory Note (G. W. Smith)
10.17 Secured Promissory Note (D. Hylton)
10.18 Secured Promissory Note (M. Yonika)
10.19 Unsecured Promisory Note (R. Kaelan)
10.20* Unsecured Convertible Promissory Note ($300,000 - Chin)
10.21* Addendum to Promissory Note (Essex)
10.22* Unsecured Promissory Note ($70,000 - Amato)
10.23* Unsecured Promissory Note ($16,000 - Amato)
10.24* Unsecured Promissory Note ($100,000 - Chin)
23.1 Consent of Pannell Kerr Forster
23.2* Resignation of Pannell Kerr Forster
27 Financial Data Schedule
</TABLE>
* Filed herewith
34
<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: March 13, 2000 By /s/ Ralph M. Amato
---------------------------------------
Ralph M. Amato, Chairman,
President, CEO, & Treasurer
35
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................................... F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets
as of December 31, 1997 and 1998,
and September 30, 1999 (unaudited) ..................................... F-2 - F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997 and 1998, and for the Nine Months Ended September 30, 1998
and 1999 (unaudited), and from December 6, 1993 (inception) through
December 31, 1998, and from December 6, 1993 (inception) through
September 30, 1999 (unaudited) ......................................... F-4
Consolidated Statements of Changes in Shareholders' (Deficit) Equity for
the Years Ended December 31, 1997 and 1998, and for the Nine
Months Ended September 30, 1999 (unaudited) and from December
6, 1993 (inception) through September 30, 1999 (unaudited).............. F-5 - F-7
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997 and 1998, and for the Nine Months Ended September 30, 1998
and 1999 (unaudited), and from December 6, 1993 (inception) through
December 31, 1998, and from December 6, 1993 (inception) through
September 30, 1999 (unaudited).......................................... F-8 - F-9
Notes to Consolidated Financial Statements................................ F-10 - F-22
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors.
BoysToys.com, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheets of BoysToys.com,
Inc. as of December 31, 1997 and 1998 and the related consolidated statements
of operations, shareholders' deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
BoysToys.com, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 12 to the consolidated financial statements, the Company's loss from
operations and excess of liabilities over assets raises substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
The financial statements of BoysToys.com, Inc. (formerly Alternative
Entertainment, Inc.) for the period December 6, 1993 (inception) to December
31, 1995 were audited by other auditors whose report dated January 22, 1996,
expressed an unqualified opinion on those statements. We have compiled the
cumulative amounts for the period from December 6, 1993 (inception) to
December 31, 1998 from the audited financial statements for the period
December 6, 1993 (inception) to December 31, 1995, and the audited financial
statements for the years ended December 31, 1996, 1997 and 1998.
San Diego, California PANNELL KERR FORSTER
August 31, 1999 Certified Public Accountants
A Professional Corporation
F-1
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998, and
September 30, 1999 (unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
-------- -------- ------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ - $ - $ 14,449
Prepaid rent - 24,000 4,000
Construction escrow deposits - 240,000 47,971
-------- -------- ----------
Total current assets - 264,000 66,420
-------- -------- ----------
Noncurrent assets:
Organization costs, net 1,445 - -
Note receivable-officer 33,602 35,515 37,073
Deposits 37,000 37,000 64,715
Barter credits - 100,000 100,000
Property and equipment, net 540,525 538,350 2,378,393
-------- -------- ----------
Total noncurrent assets 612,572 710,865 2,580,181
-------- -------- ----------
Total Assets $612,572 $974,865 $2,646,601
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-2
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997, and
September 30, 1999 (unaudited)
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1997 1998 1999
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
Current liabilities:
Bank overdraft $ 2,247 $ 12,556 $ -
Accounts payable and accrued expenses 642,931 621,704 622,969
Accrued interest 175,509 262,856 108,233
Notes payable 1,297,528 1,255,668 370,980
Convertible debt - - 890,000
----------- ----------- -----------
Total current liabilities 2,118,215 2,152,784 1,992,182
----------- ----------- -----------
Commitments and contingencies (Note 11)
Shareholders' (deficit) equity:
Preferred stock, $.01 par value
(8,000,000 authorized; none issued
and outstanding) - - -
Common stock, $.01 par value
(20,000,000 shares authorized; issued
and outstanding: 1,856,687, 3,441,762
and 5,723,283 as of December 31,
1997 and 1998, and September 30,
1999 (unaudited); issuable: 100,000
as of December 31, 1998 and
September 30, 1999 (unaudited) 18,567 35,418 58,233
Additional paid-in-capital 825,733 2,112,996 8,133,136
Common stock subscribed - - (62,500)
Deficit accumulated during the
development stage (2,349,943) (3,326,333) (7,474,450)
----------- ----------- -----------
Total shareholders' (deficit) equity (1,505,643) (1,177,919) 654,419
----------- ----------- -----------
Total Liabilities and Shareholders'
(Deficit) Equity $ 612,572 $ 974,865 $ 2,646,601
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-3
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
from December 6, 1993 (inception) through December 31, 1998
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30, December 6, 1993 December 6, 1993
------------------------ ------------------------- (Inception) through (Inception) through
1997 1998 1998 1999 December 31, 1998 September 30, 1999
--------- ---------- ----------- ----------- ------------------ ------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - $ - $ - $ - $ - $ -
--------- ---------- ---------- ----------- ----------- -----------
General and
Administrative Expenses (355,177) (838,594) (395,921) (3,691,556) (2,705,515) (6,397,071)
--------- ---------- ---------- ----------- ----------- -----------
Other Income (Expenses):
Interest income 1,359 2,102 133 4,064 3,461 7,525
Interest expense (146,949) (139,098) (121,067) (460,025) (322,335) (782,360)
Offering costs written-off - - - - (297,944) (297,944)
--------- ---------- ---------- ----------- ----------- -----------
Total other expenses (145,590) (136,996) (120,934) (455,961) (616,818) (1,072,779)
--------- ---------- ---------- ----------- ----------- -----------
Deficit Before Income Taxes (500,767) (975,590) (516,855) (4,147,517) (3,322,333) (7,469,850)
--------- ---------- ---------- ----------- ----------- -----------
Provision for Income Taxes (800) (800) (600) (600) (4,000) (4,600)
--------- ---------- ---------- ----------- ----------- -----------
Net loss $(501,567) $ (976,390) $ (517,455) $(4,148,117) $(3,326,333) $(7,474,450)
========= ========== ========== =========== =========== ===========
Basic and diluted net loss
per share $ (0.27) $ (0.41) $ (0.24) $ (0.81)
========= ========== ========== ===========
Weighted average shares
used for basic and diluted
net loss per share 1,856,687 2,409,637 2,198,221 5,114,379
========= ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-4
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
Common Stock Additional Subscribed During
-------------------- Paid-in -------------------- Development
Shares Amount Capital Shares Amount Stage Total
--------- ------- ---------- ---------- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 6, 1993 - $ - $ - - $ - $ - $ -
Issuance of common stock 50,000 500 1,000 - - - 1,500
Sale of stock to common stock
subscribers upon full payment of
subscription during December, 1993 11,817 118 237 - - - 355
Common stock subscribed, net
$50,871 of subscriptions receivable - - - 1,666,667 119 - 119
Net loss - - - - - (564) (564)
--------- ------- -------- ---------- ----- ----------- -----------
Balance, December 31, 1993 61,817 618 1,237 1,666,667 119 (564) 1,410
Sale of stock to common stock
subscribers upon full payment of
subscription during June, 1994 1,666,667 16,667 34,233 (1,666,667) (119) - 50,781
Issuance of common stock in
private placement offering, net
$10,067 of offering costs 71,442 714 203,546 - - - 204,260
Net loss - - - - - (170,155) (170,155)
--------- ------- -------- ---------- ----- ----------- -----------
Balance, December 31, 1994 1,799,926 17,999 239,016 - - (170,719) 86,296
Issuance of common stock in
private placement offering 56,761 568 169,717 - - - 170,285
Return and cancellation of
common stock (139,000) (1,390) 1,390 - - - -
Issuance of common stock for
services 139,000 1,390 415,610 - - - 417,000
Net loss - - - - - (777,674) (777,674)
--------- ------- -------- ---------- ----- ----------- -----------
Balance, December 31, 1995 1,856,687 18,567 825,733 - - (948,393) (104,093)
Net loss - - - - - (899,983) (899,983)
--------- ------- -------- ---------- ----- ----------- -----------
Balance, December 31, 1996 1,856,687 18,567 825,733 - - (1,848,376) (1,004,076)
Net loss - - - - - (501,567) (501,567)
--------- ------- -------- ---------- ----- ----------- -----------
Balance, December 31, 1997 1,856,687 $18,567 $825,733 - $ - $(2,349,943) $(1,505,643)
--------- ------- -------- ---------- ----- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-5
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY (Continued)
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
Common Stock Additional Subscribed During
-------------------- Paid-in --------------- Development
Shares Amount Capital Shares Amount Stage Total
--------- ------- ---------- ------ ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,856,687 $18,567 $ 825,733 - $ - $(2,349,943) $(1,505,643)
Issuance of common stock on
reverse merger (Note 1) 602,811 6,028 - - - - 6,028
Issuance of common stock on
conversion of notes payable and
accrued interest, from September
1998 through December 1998, at
an average price of $1.37 per share 350,388 3,504 477,327 - - - 480,831
Issuance of common stock on
conversion of accounts payable,
from January 1998 through October
1998, at an average price of $0.87
per share 186,376 1,864 160,620 - - - 162,484
Issuance of common stock for
services, from January 1998 through
December 1998, at an average price
of $0.92 per share 185,500 1,855 168,916 - - - 170,771
Issuance of common stock for
construction escrow deposits in
October 1998, at a price of $1.00
per share 240,000 2,400 237,600 - - - 240,000
Issuance of common stock for
prepaid rent in December 1998,
at a price of $1.20 per share 20,000 200 23,800 - - - 24,000
Issuance of stock options on
conversion of accounts payable
in October 1998, at a price of
$1.00 per share (Note 8) - - 90,000 - - - 90,000
Issuance of stock options to
directors for services in
October 1998, at a price of
$1.00 per share (Note 8) - - 30,000 - - - 30,000
Issuable common stock on
receipt of barter credits in
February 1998, at a price of
$1.00 per share (Note 4) - 1,000 99,000 - - - 100,000
Net loss - - - - - (976,390) (976,390)
--------- ------- ---------- ------- ----- ------------ -----------
Balance, December 31, 1998 3,441,762 $35,418 $2,112,996 - $ - $(3,326,333) $(1,177,919)
--------- ------- ---------- ------- ----- ------------ -----------
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-6
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY (Continued)
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
Common Stock Additional Subscribed During
-------------------- Paid-in ------------------ Development
Shares Amount Capital Shares Amount Stage Total
--------- ------- ---------- ------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 3,441,762 $35,418 $2,112,996 - $ - $(3,326,333) $(1,177,919)
Unaudited information:
Issuance of common stock on
exercise of option in September
1999, at an exercise price of $0.25 100,000 1,000 24,000 - - - 25,000
Issuance of common stock on
conversion of notes payable and
accrued interest, from February 1999
through June 1999, at an average
price of $1.22 per share 923,000 9,230 1,120,005 - - - 1,129,235
Issuance of common stock for
services, from April 1999
through July 1999, at an average
price of $1.00 per share 223,642 2,236 221,741 - - - 223,977
Issuance of common stock in
private placement offering, from
February 1999 through May 1999,
at a price of $1.00 per share 909,879 9,099 900,780 - - - 909,879
Issuance of stock options to
directors for services in February
1999 (Note 8) - - 3,042,000 - - - 3,042,000
Issuance of common stock for
cash and subscription receivable
in March 1999, at a price of $1.00
per share 125,000 1,250 123,750 (62,500) (62,500) - 62,500
Beneficial conversion feature of
convertible debt, from June 1999
through December 1999 (Note 13) - - 587,864 - - - 587,864
Net loss - - - - - (4,148,117) (4,148,117)
--------- ------- ---------- ------- -------- ----------- -----------
Balance, September 30, 1999
(Unaudited) 5,723,283 $58,233 $8,133,136 (62,500) $(62,500) $(7,474,450) $ 654,419
========= ======= ========== ======= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-7
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
from December 6, 1993 (inception) through December 31, 1998,
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30, December 6, 1993 December 6, 1993
------------------------ ------------------------ (Inception) through (Inception) through
1997 1998 1998 1999 December 31, 1998 September 30, 1999
---------- ---------- ----------- ----------- ------------------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net loss $(501,567) $(976,390) $(517,455) $(4,148,117) $(3,326,333) $(7,474,450)
Non-cash operating activities
included in deficit accumulated:
Depreciation and Amortization 1,040 2,175 - - 5,931 5,931
Accrued rent converted into
note payable - - - - 94,600 94,600
Issuance of common stock for
services - 170,771 421,983 223,977 170,771 394,748
Issuance of stock options to
directors for services - 30,000 - 3,042,000 30,000 3,072,000
Financing cost of beneficial
conversion feature of
convertible debt - - - 587,864 - 587,864
(Increase) decrease in assets:
Prepaid rent - - - 20,000 - 20,000
Note receivable-officer (22,875) (1,913) 51 (1,558) (35,515) (37,073)
Deposits - - (27,715) (37,000) (67,715)
Organization Costs - 1,445 - - (3,756) (3,756)
Increase (decrease) in
liabilities:
Accounts payable and accrued
expenses 103,959 231,257 (87,344) 1,265 874,188 875,453
Accrued interest 112,359 159,490 65,510 51,384 334,999 389,383
-------- --------- --------- ----------- ----------- -----------
Net cash used in operating
activities (307,084) (383,165) (117,255) (250,900) (1,892,115) (2,143,015)
-------- --------- --------- ----------- ----------- -----------
Cash Flows from Investing
Activities:
Capital expenditures on
leasehold improvements (11,632) - - (1,648,014) (540,525) (2,188,539)
-------- --------- --------- ----------- ----------- -----------
Net cash used in investing
activities (11,632) - - (1,648,014) (540,525) (2,188,539)
-------- --------- --------- ----------- ----------- -----------
Cash Flows from Financing
Activities:
Increase (decrease) in bank
overdraft 328 10,309 2,607 (12,556) 12,556 -
Borrowings on notes payable 318,388 366,828 114,648 38,540 1,569,756 1,608,296
Borrowings on convertible debt 890,000 - 890,000
Proceeds from issuance of
common stock - 6,028 - 972,379 850,328 1,822,707
Proceeds on exercise of stock
option - - 25,000 - 25,000
-------- --------- --------- ----------- ----------- -----------
Net cash provided by financing
activities 318,716 383,165 117,255 1,913,363 2,432,640 4,346,003
-------- --------- --------- ----------- ----------- -----------
Net increase in cash - - - 14,449 - 14,449
Cash at Beginning of Year - - - - - -
-------- --------- --------- ----------- ----------- -----------
Cash at End of Year - $ - $ - $ 14,449 $ - $ 14,449
======== ========= ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-8
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Years Ended December 31, 1998 and 1997,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
from December 6, 1993 (inception) through December 31, 1998
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30, December 6, 1993 December 6, 1993
------------------------ ------------------------ (Inception) through (Inception) through
1997 1998 1998 1999 December 31, 1998 September 30, 1999
---------- ---------- ----------- ----------- ------------------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $(7,500) $ (1,880) $ (1,880) $ - $ (13,380) $ (13,380)
======= ========= ========= ============ =========== ===========
Income taxes $ (800) $ (800) $ (600) $ (600) $ (4,000) $ (4,600)
======= ========= ========= ============ =========== ===========
Noncash investing and financing
activities:
Accrued rent, late payment fees and
costs due to landlord converted into
note payable $ - $ - $ - $ - $ (94,600) $ (94,600)
======= ========= ========= ============ =========== ===========
Issuance of common stock and stock
options on conversion of debt $ - $(733,315) $ - $(1,129,235) $( 733,315) $(1,862,550)
======= ========= ========= ============ =========== ===========
Issuance of common stock and stock
options for goods and services $ - $(264,000) $(264,000) $ - $ (264,000) $ (264,000)
======= ========= ========= ============ =========== ===========
Issuable common stock on receipt of
barter credits $ - $(100,000) $(100,000) $ - $ (100,000) $ (100,000)
======= ========= ========= ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-9
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 1 - ORGANIZATION AND BUSINESS
BoysToys.com, Inc. (formerly Alternative Entertainment, Inc.) was
incorporated in the state of Delaware on April 21, 1997, under the name
Wagg Corp. ("Wagg"). BoysToys.com, Inc. engages in the business of
developing, owning and operating nightclubs providing exotic dance
entertainment combined with a full service restaurant, lounge, and
business meeting facilities.
On December 6, 1993, Alternative Entertainment, Inc., a Nevada
corporation ("AEI Nevada"), was formed. On November 10, 1994, a
wholly-owned subsidiary was formed, BoysToys Cabaret Restaurants, Inc.,
a California Corporation, which plans to operate its first such
nightclub facility in San Francisco, California.
On January 15, 1998, AEI Nevada acquired 80% of the outstanding common
stock of Wagg. On January 25, 1998, the shareholders of AEI Nevada voted
to execute a one-for-three reverse split of its common stock. On January
26, 1998, the shareholders of Wagg voted to execute a one-for-two reverse
split of its common stock. Number of shares and per share amounts have
been restated as though the transaction occurred on December 6, 1993
(Inception).
Following these actions and on January 28, 1998, the Wagg Board of
Directors voted to approve a plan and agreement of reorganization between
Wagg and AEI Nevada. Under the terms of the reorganization, each
outstanding share of Wagg's common stock was exchanged for one share of
AEI Nevada common stock and all of the assets of AEI Nevada were
transferred to Wagg. This resulted in AEI Nevada becoming a wholly-owned
subsidiary of Wagg. In conjunction with these actions, the shareholders
of Wagg approved an amendment to Wagg's Certificate of Incorporation to
change its name to Alternative Entertainment, Inc., a Delaware
Corporation ("AEI"). The reorganization has been accounted for as a
reverse acquisition with a public shell. Accordingly, the accompanying
consolidated financial statements have been presented as if AEI Nevada
had always been a part of Wagg.
During 1998 Wagg changed its name to AEI. On December 29, 1998, AEI
changed its name to BoysToys.com, Inc. (the "Company")
Activity for all periods consisted primarily of efforts devoted to
identifying suitable properties for acquisition, performing
administrative functions, and the initial construction of the Company's
first establishment located in San Francisco, California. Since planned
operating activities have not yet commenced, the financial statements are
those of a development stage company.
F-10
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements in accordance with generally
accepted accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Boys Toys Cabaret Restaurants, Inc.
and AEI Nevada. All significant intercompany transactions and balances
have been eliminated.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of September 30, 1999 and the
statements of operations and cash flows for the nine month periods ended
September 30, 1998 and 1999, and from December 6, 1993 (inception)
through September 30, 1999, have not been audited. However, these
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
management's opinion, the accompanying financial statements reflect all
material adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the results for the interim periods
presented. The results for the interim periods are not necessarily
indicative of the results which will be reported for the entire year.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, bank
overdraft, accounts payable and accrued expenses approximate fair value
due to the immediate short-term maturity of these financial instruments.
The fair value of the Company's notes payable and convertible debt
approximates the carrying amount based on the current rates offered to
the Company for debt of the same remaining maturities with similar
collateral requirements.
F-11
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The company is currently
capitalizing all leasehold improvements, equipment and fixtures
associated with the development of its first establishment located in San
Francisco, California. No depreciation or amortization has been recorded
because the Company is currently in the development stage and the assets
have not yet been placed into service. Equipment and fixtures will be
depreciated using the straight-line method over the estimated asset lives
ranging from 3 to 7 years. Leasehold improvements will be amortized using
the straight-line method over the shorter of the life of the improvements
or the length of the lease.
Leasehold improvements are primarily architectural, planning and
construction costs associated with construction of the facility.
Equipment and fixtures are primarily computer systems, furniture,
lighting, sound and video equipment.
The Company applies the provisions of Statement of Financial Accounting
Standards (SFAS) No. 34. Consequently, interest cost related to the
construction of the Company's first establishment is capitalized and will
be amortized consistent with the leasehold improvements. Capitalized
interest totaled $31,422, $31,422 and $233,070 as of December 31, 1997
and 1998, and September 30, 1999 (unaudited), respectively.
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation." This statement allows entities to measure
compensation costs related to awards of stock-based compensation, using
either the fair value method or the intrinsic value method. The Company
has elected to account for stock-based compensation programs using the
intrinsic value method.
Companies that do not choose to adopt the expense recognition rules of
SFAS No. 123 will continue to apply the existing accounting rules
contained in Accounting Principles Board Opinion (APB) No. 25, but are
required to provide pro forma disclosures of the compensation expense
determined under the fair-value provisions of SFAS No. 123. APB No. 25
requires no recognition of compensation expense for most of the
stock-based compensation arrangements provided by the Company, namely,
broad-based employee stock purchase plans and option grants where the
exercise price is equal to the market price at the date of the grant. See
Note 8 for the proforma disclosures of the effect on net loss and net
loss per share.
F-12
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of the impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. No
impairment of long-lived assets has been recognized.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will
not be realized.
BASIC LOSS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share",
which specifies the computation, presentation and disclosure requirements
for earnings (loss) per share for entities with publicly held common
stock. SFAS No. 128 supercedes the provisions of APB No. 15, and requires
the presentation of basic earnings (loss) per share and diluted earnings
(loss) per share. The Company has adopted the provisions of SFAS No.
128 effective December 6, 1993 (Inception).
Basic net loss per share excludes dilution and is computed by dividing
net loss by the weighted average number of common shares outstanding
during the reported periods. Diluted net loss per share reflects the
potential dilution that could occur if stock options and other
commitments to issue common stock were exercised. During the years
ended December 31, 1997 and 1998, options to purchase zero and 120,000
common shares, respectively, were anti-dilutive and have been excluded
from the weighted average share computation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-13
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 3 - NOTE RECEIVABLE-OFFICER
A note receivable in the amount of $33,602, $35,515 and $37,073 is due
from an officer of the Company as of December 31, 1997 and 1998, and
September 30, 1999 (unaudited), respectively. This note bears interest at
5.85% and is due upon demand.
NOTE 4 - BARTER CREDITS
On February 18, 1998, the Company purchased $530,000 of Barter Credits
via the future issuance of 100,000 shares of common stock of the Company.
The Barter Credits entitle the Company to receive goods and services with
a fair value estimated at $530,000 in excess of cash payments made.
Management has valued the Barter Credits at $100,000, which is
management's estimate of the fair value of the Company's common stock at
the time the transaction was entered into. As the Company utilizes the
Barter Credits, it will record an increase in additional paid-in capital
for the excess of the fair value of the goods and/or services received
over cash payments made plus the pro-rata portion of the available Barter
Credits utilized to the fair value of the Barter Credits recorded by the
Company. The shares to be issued are subject to restrictions on their
transferability of up to two years. The Barter Credits expire sixty
months from February 18, 1998, unless the Company has used at least
$100,000 of the Barter Credits during this period, which will extend the
remaining Barter Credits through February 18, 2008.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 and 1998, and September
30, 1999 (unaudited) consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1997 1998 1999
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Equipment and fixtures $ 2,175 $ - $ 171,745
Leasehold improvements:
Capitalized construction costs 506,928 506,928 1,973,578
Capitalized interest 31,422 31,422 233,070
---------- ---------- ----------
$ 540,525 $ 538,350 $2,378,393
========== ========== ==========
</TABLE>
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1997 1998 1999
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Accounts payable $ 625,614 $ 597,214 $ 606,652
Accrued expenses 17,317 24,490 16,317
---------- ---------- ----------
$ 642,931 $ 621,704 $ 622,969
========== ========== ==========
</TABLE>
During 1998, accounts payable of $162,484 and $90,000 were converted into
186,376 shares of common stock and options to purchase 60,000 shares of
common stock, respectively.
F-14
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 7 - NOTES PAYABLE
Notes payable as of December 31, 1997 and 1998, and September 30, 1999
(unaudited) consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Secured promissory notes with issuance dates ranging from September 1995
to February 1999, with interest rates ranging from 8% to 12% per annum
The notes are due at the earlier of one year after the date of the note
or 60 days after the Company's common stock is traded on any securities
exchange or in any over-the-counter market. The notes and accrued
interest thereon are secured by Company common stock and note holders
have the option to convert their debt into Company common stock. These
notes were not paid at their maturity dates and are due upon demand. $1,070,528 $1,120,268 $295,580
Unsecured non-negotiable promissory notes dated September 1997, with an
interest rate of 12% computed on a daily basis. The notes, including
principal and interest, are due six months from the issuance date. These
notes were not paid at their maturity dates and are due upon demand. 60,000 60,000 -
Unsecured promissory notes with issuance dates ranging from May 1997 to
December 1997, with an interest rate of 12% per annum, with interest only
payable on a quarterly basis. These notes were not paid at their maturity
dates and are due upon demand. 50,000 50,000 50,000
F-15
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 7 - NOTES PAYABLE (CONTINUED)
December 31,
------------------------ September 30,
1997 1998 1999
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Unsecured promissory note dated December 31, 1996, due ten business days
after demand for payment. Note is non-interest bearing. Note is due to
landlord of the Company's San Francisco facility for unpaid rent, late
payment fees and costs for the year ended December 31, 1996. 94,600 - -
Unsecured promissory notes dated in 1996 and 1997 due to related parties
upon demand, with an interest rate of 12% per annum. 22,400 25,400 25,400
---------- ---------- --------
$1,297,528 $1,255,668 $370,980
========== ========== ========
</TABLE>
Accrued interest related to notes payable totaled $175,509, $262,856 and
$108,233 as of December 31, 1997 and 1998, and September 30, 1999
(unaudited), respectively. During 1998 and the first nine months of 1999,
notes payable of $408,688 and $923,228 and accrued interest of $72,143
and $206,007, were converted into 350,388 and 923,000 shares of common
stock, respectively.
NOTE 8 - SHAREHOLDERS' EQUITY
STOCK OPTIONS ISSUED ON CONVERSION OF ACCOUNTS PAYABLE
During the year ended December 31, 1998, the Company issued options to
purchase 60,000 shares of common stock at an exercise price of $1 per
share, on the conversion of $90,000 of accounts payable. None of the
options had been exercised at year end and expire on December 31, 2000.
STOCK OPTION PLANS
The Company has approved two stock option plans that became effective
January 1, 1994, an Incentive Stock Option Plan and a Non-qualified
Stock Option Plan. Both plans are available to officers, directors and
key employees of the Company. Each plan allows for the purchase of up to
500,000 shares of common stock of the Company. See Note 13.
F-16
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 8 - SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
During the year ended December 31, 1998, the Company issued 60,000
options to a director at an exercise price of $0.50 per share under the
non-qualified stock option plan. During the nine months ended September
30, 1999 (unaudited), 1,950,000 options were granted to officers of the
Company as a compensation award (the "Compensation Options"). The
Compensation Options were immediately exercisable for $0.25 per share
and were granted at less than the quoted market price of the stock on
the date of grant. The Company has elected to account for incentive
grants and grants under its Plan following APB No. 25 and related
interpretations. Accordingly, the Company recorded $30,000 and
$3,042,000 as compensation expense for the year ended December 31, 1998
and the nine months ended September 30, 1999 (unaudited), respectively,
with a corresponding credit to additional paid in capital.
The Company has adopted the disclosure provisions of SFAS No. 123
effective January 1, 1997. Under SFAS No. 123, the fair value of each
option granted is estimated on the measurement date utilizing the then
current fair value of the underlying shares, as estimated by management,
less the exercise price discounted over the average expected life of the
options of 10 years, with an average risk free interest rate of 5%,
price volatility of .1 and no dividends. Had compensation cost for all
awards been determined based on the fair value method as prescribed by
SFAS No.123, reported net (loss) and net (loss) per common share would
have been as follows:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Net (loss):
As reported $(976,390)
Pro forma $(988,082)
Basic and diluted net (loss) per share:
As reported $ (0.41)
Pro forma $ (0.41)
</TABLE>
F-17
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 8 - SHAREHOLDERS' EQUITY (CONTINUED)
A summary of the activity of the stock options for the year ended
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1998
----------------------
Weighted
Average
Exercise
Shares Price
----------------------
<S> <C> <C>
Outstanding at beginning of period - $ -
Granted 120,000 0.75
Forfeited - -
Expired - -
----------------------
Outstanding at end of period 120,000 $ 0.75
======================
Exercisable at end of period 120,000 $ 0.75
======================
Weighted-average fair value of options
granted during the period $ 1.10
=========
Weighted-average remaining contractual life 10 years
=========
</TABLE>
NOTE 9 - INTEREST EXPENSE
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30, December 6, 1993
---------------------------- ---------------------------- (Inception) through
1997 1998 1998 1999 September 30, 1999
----------- ----------- ----------- ----------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Interest expense incurred $ 146,949 $ 139,098 $ 121,067 $ 661,673 $ 1,015,430
Less: Capitalization interest - - - (201,648) (233,070)
----------- ----------- ----------- ----------- -----------
Net interest expense $ 146,949 $ 139,098 $ 121,067 $ 460,025 $ 782,360
=========== =========== =========== =========== ===========
</TABLE>
NOTE 10 - INCOME TAXES
Provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30, December 6, 1993
---------------------------- ---------------------------- (Inception) through
1997 1998 1998 1999 September 30, 1999
----------- ----------- ----------- ----------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Current income taxes $ (800) $ (800) $ (600) $ (600) $ (4,600)
Deferred income taxes - - - - -
----------- ----------- ----------- ----------- -----------
Provision for income taxes $ (800) $ (800) $ (600) $ (600) $ (4,600)
=========== =========== =========== =========== ===========
</TABLE>
F-18
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 10 - INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
reporting and the amounts used for income tax purposes. The tax effects
of items comprising the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
----------------------------- -------------
1997 1998 1999
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 657,000 $ 1,008,000 $ 2,659,000
Other - 12,000 12,000
----------- ----------- -----------
Gross deferred tax assets 657,000 1,020,000 2,671,000
Valuation allowance (657,000) (1,020,000) (2,671,000)
----------- ----------- -----------
Net deferred tax assets $ - $ - $ -
=========== =========== ===========
</TABLE>
Realization of deferred tax assets is dependant upon sufficient future
taxable income during the period that deductible temporary differences
and carryforward are expected to be available to reduce taxable income.
As the achievement of required future taxable income is uncertain, the
Company recorded a valuation allowance. The valuation allowance
increased by $363,000 and $140,000 from 1997and 1996 respectively.
As of December 31, 1998, the Company has net operating loss carryforwards
for both federal and state income tax purposes of approximately
$2,500,000 which expire through 2018. Under federal and state laws, the
availability of the Company's net operating loss carryforward may be
limited if a cumulative change in ownership of more than 50% occurs
within any three year period. Management has not completed an analysis to
determine whether such a change has occurred.
Subsequent to year end, a cumulative change in ownership as described
above occurred and the availability of the Company's net operating
loss carryforward is limited to approximately $210,000 per year.
F-19
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 10 - INCOME TAXES (CONTINUED)
A reconciliation of the effective tax rates with the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
----------------------------- -----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income tax expense (benefit)
at 35% statutory rate $ (175,500) $ (338,900) $ (181,100) $(1,452,000)
Change in valuation allowance 140,000 363,000 155,300 1,651,000
Nondeductible expenses 1,000 36,400 36,400 -
Adjustment to net operating
loss carryforwards 38,500 - - -
State income taxes, net (28,200) (55,400) (29,600) (240,400)
Other 25,000 (4,300) 19,600 42,000
----------- ----------- ----------- -----------
$ 800 $ 800 $ 600 $ 600
=========== =========== =========== ===========
</TABLE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In February 1995, the Company began leasing real property in San
Francisco, California which will be used to open its first night club
facility. The operating lease is for a period of ten years with two
renewal options, each for an additional five years. At December 31, 1998,
minimum annual rental commitments under this non-cancelable lease were as
follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
1999 $ 94,800
2000 195,600
2001 195,600
2002 201,600
2003 201,600
Thereafter 128,400
------------
$ 1,017,600
============
</TABLE>
Unpaid rent totaling $60,000 has been included in accrued expenses as of
December 31, 1997.
Rent expense for the years ended December 31, 1997 and 1998 and for the
nine months ended September 30, 1998 and 1999 (unaudited) was $157,026,
$180,707, $135,350 and $150,541, respectively.
F-20
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 12 - GOING CONCERN
As shown in the accompanying financial statements the Company has
incurred a deficit of $501,567 and $976,390 for the years ended December
31, 1997 and 1998, respectively, and has incurred a deficit totaling
$7,474,450 since its inception in 1993. Additionally, the Company's
current liabilities exceeded its current assets by $1,925,762 as of
September 30, 1999 (unaudited). The Company has been unable to meet its
loan obligations as they became due. (See Note 7). The ability of the
Company to continue as a going concern is dependent on the significant
generation of revenue from the Company's facility in San Francisco,
California. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
NOTE 13 - SUBSEQUENT EVENTS
CONVERTIBLE DEBT
During 1999 the Company obtained an unsecured convertible promissory note
which is not to exceed $1,000,000. Interest accrues at 12% per year,
payable quarterly. Principal, and any accrued interest, is payable on or
before January 23, 2001. The Company has the right to accelerate the
maturity date and prepay all or any portion of the principal at 125% of
the then outstanding principal amount, plus all accrued interest. The
noteholder has the right, upon thirty days notice to the Company, to
convert all or any portion of the then outstanding principal amount,
plus all accrued interest, into shares of the Company's common stock at
the conversion price of $0.40 per share. Consequently there is no
amortization period and the Company has recognized the value of this
conversion feature by recording additional interest expense based on the
difference between the quoted stock price and the conversion price for
each draw on the line and for each monthly interest accrual. For the nine
months ended September 30, 1999 (unaudited) the Company recognized
$587,864 of interest expense related to this conversion feature.
PRIVATE PLACEMENT
During 1999, the Company completed a private placement of 909,879 shares
of common stock issued under Rule 504 of Regulation D promulgated under
the Securities Act of 1933. Total net proceeds from the offering were
$909,879.
CERTIFICATE OF FINAL COMPLETION
During October 1999 the Company completed its 15,000 square foot
nightclub facility in San Francisco, California and received its
certificate of final completion. The Company anticipates opening the
facility in December 1999.
DEBT CONVERSION
Of the $1,120,268 of outstanding notes payable at December 31, 1998,
$824,688 was converted into equity during the nine months ended September
30, 1999.
F-21
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
STOCK OPTION PLAN
During February 1999, the Company adopted the BoysToys.com Inc. Stock
Option Plan (the "Plan"). The Plan is available to the Company's
officers, directors, and employees. The Plan allows for the grant of up
to 2,500,000 shares of the Company's common stock at exercise prices and
other terms as determined by the Company's Board of Directors. As of
September 30, 1999 the Company has granted 1,950,000 shares (unaudited)
of common stock under this plan.
F-22
<PAGE>
Exhibit 10.20
CONVERTIBLE UNSECURED PROMISSORY NOTE
San Francisco, California
December 3, 1999
Page 1 of 4
FOR VALUE RECEIVED, the undersigned, BoysToys.com, Inc., a Delaware
corporation (hereinafter called "Maker"), promises to pay to the order of Lewis
Chin with principal address at 17 Jacqueline Court, Daley City, California 94014
(together with all subsequent holders of this Note, hereinafter called "Payee"),
or at such other place as Payee may from time to time designate in writing, the
principal sum of the amount that may be loaned to Payee hereby which amount
shall be Three Hundred Thousand Dollars ($300,000), together with interest
thereon calculated on a daily basis (based, at Payee's option, on 360-day or
365/366-day years) from the date hereof on the principal balance from time to
time outstanding (the "Principal Amount") as hereinafter provided, principal,
interest and all other sums payable hereunder to be paid in lawful money of the
United States of America as follows:
A. Interest shall accrue at all times hereunder at the rate of
twelve percent (12%) per annum (non-compounded) commencing upon the
execution of this Note, and shall be payable on December 1, 2000 (the
"Maturity Date").
B. If not earlier due and payable, the unpaid principal
balance, all accrued and unpaid interest and all other amounts payable
hereunder shall be due and payable in full on the Maturity Date.
C. Payee shall have the right, upon thirty (30) days notice to
Maker, to convert all or any portion of the then outstanding principal
of this Note and any accrued and unpaid interest thereon into shares of
the Payee's common stock (the "Shares") at a conversion price of
thirty-six cents ($0.36) per Share.
Maker agrees to an effective rate of interest that is the rate stated
above plus any additional rate of interest resulting from any other charges in
the nature of interest paid or to be paid by or on behalf of Maker, or any
benefit received or to be received by Payee, in connection with this Note.
If any payment required under this Note is not paid within fifteen (15)
days after the date such payment is due, then, at the option of Payee, Maker
shall pay a "late charge" equal to two percent (2%) of the amount of that
payment to compensate Payee for administrative expenses and other costs of
delinquent payments. This late charge may be assessed without notice, shall be
immediately due and payable and shall be in addition to all other rights and
remedies available to Payee.
All payments on this Note shall be applied in such manner as Payee
elects, and may be applied first to the payment of any costs, penalties, late
charges, fees or other charges incurred in connection with the indebtedness
evidenced hereby, next to the payment of accrued interest and then to the
reduction of the principal balance.
This Note and all other documents or instruments relating to the
indebtedness evidenced by this Note or executed or delivered in connection with
the indebtedness evidenced by this Note are hereinafter called the "Loan
Documents."
Time is of the essence of this Note. At the option of Payee, the entire
unpaid principal balance, all accrued and unpaid interest and all other amounts
payable hereunder shall become immediately due and payable without notice upon
the failure to pay any sum due and
<PAGE>
owing hereunder as provided herein or upon the occurrence of any Event of
Default in any of the Loan Documents.
The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure to pay any principal or interest or any other
amount due in connection with this Note when the same shall become due
and payable.
(b) Any failure or neglect to perform or observe any of the
terms, provisions, or covenants of any of the Loan Documents or any
other document or instrument executed or delivered in connection with
the Note, and such failure or neglect either cannot be remedied or, if
it can be remedied, it continues unremedied for a period of fifteen
(15) days after notice thereof to Maker.
(c) Any warranty, representation or statement contained in any
of the Loan Documents or any other document or instrument executed or
delivered in connection with this Note, or made or furnished by or on
behalf of Maker, that shall be or shall prove to have been false when
made or furnished.
(d) The filing by Maker, any endorser of the Note or any
guarantor of this Note (or against Maker or such endorser or guarantor
in which Maker or such endorser or guarantor acquiesces or which is not
dismissed within forty-five (45) days after the filing thereof) of any
proceeding under the federal bankruptcy laws now or hereafter existing
or any other similar stature now or hereafter in effect; the entry of
an order for relief under such laws with respect to Maker or such
endorser or guarantor; or the appointment of a receiver, trustee,
custodian or conservator of all or any part of the assets of Maker or
such endorser or guarantor.
(e) The insolvency of Maker, any endorser of the Note or any
guarantor of this Note; or the execution by Maker or such endorser or
guarantor of an assignment for the benefit of creditors; or the
convening by Maker or such endorser or guarantor of a meeting of its
creditors, or any class thereof, for purposes of effecting a moratorium
upon or extension or composition of its debts; or the failure of Maker
or such endorser or guarantor to pay its debts as they mature; or if
Maker or such endorser or guarantor is generally not paying its debts
as they mature.
(f) The admission in writing by Maker, any endorser of the
Note or any guarantor of this Note that it is unable to pay its debts
as they mature or that it is generally not paying its debts as they
mature.
(g) The death or incapacity of Maker, any endorser of the Note
or any guarantor of this Note, if an individual, or the liquidation,
termination or dissolution of Maker or any such endorser or guarantor,
if a corporation, partnership or joint venture.
(h) The occurrence of any Event of Default under any of the
Loan Documents or any other document or instrument executed or
delivered in connection with this Note; and not otherwise specifically
described in other provisions of this Note.
(i) The occurrence of any adverse change in the financial
condition of Maker that Payee, in its reasonable discretion, deems
material, or if Payee in good faith shall believe that the prospect of
payment or performance of the Note is impaired.
After maturity, including maturity upon acceleration, the unpaid
principal balance, all
<PAGE>
accrued and unpaid interest and all other amounts payable hereunder shall bear
interest from the date of maturity until paid at the rate that is five percent
(5%) above the rate that would otherwise be payable under the terms hereof.
Maker shall pay all costs and expenses, including reasonable attorneys' fees and
court costs, incurred in the collection or enforcement of all or any part of
this Note. All such costs and expenses shall be secured by the Loan Documents.
In the event of any court proceedings, court costs and attorneys' fees shall be
set by the court and not by jury and shall be included in any judgement obtained
by Payee.
Upon the occurrence of an Event of Default under this Note or in any of
the other Loan Documents, Payee may proceed against any collateral securing this
Note or proceed against the undersigned in such order and manner as Payee, in
its sole discretion, shall determine, provided that under no circumstance shall
Payee be obligated to proceed against any collateral or against the undersigned
for collection of any sums due hereunder.
Failure of Payee to exercise any option hereunder shall not constitute
a waiver of the right to exercise the same in the event of any subsequent
default or in the event of the continuance of any existing default after demand
for strict performance hereof.
Maker, sureties, guarantors and endorsers hereof: (a) agree to be
jointly and severally bound, (b) severally waive demand, diligence, presentment
for payment, protest and demand, and notice of extension, dishonor, protest,
demand and nonpayment of this Note, (c) consent that Payee may extend the time
of payment or otherwise modify the terms of payment of any part or the whole of
the debt evidenced by this Note, at the request of any other person primarily
liable hereon, and such consent shall not alter nor diminish the liability of
any person, and (d) agree that Payee may set off at any time any sums or
property owed to any of them by Payee.
No provision of this Note is intended to or shall require or permit
Payee, directly or indirectly, to take, collect or receive in money, goods or in
any other form, any interest (including amount deemed by law to be interest) in
excess of the maximum rate of interest permitted by applicable law.
If any amount due from or paid by Maker shall be determined by a court
of competent jurisdiction to be interest in excess of such maximum rate, Maker
shall not be obligated to pay such excess and, if paid, such excess shall be
applied against the unpaid principal balance of this Note, or if and to the
extent that this Note has been paid in full, such excess shall be remitted to
Maker.
This Note shall be binding upon Maker and its successors and assigns
and shall inure to the benefit of Payee and its successors and assigns.
All notices required or permitted in connection with this Note shall be
given at the place and address as separately provided by each party to this
Note.
This Note shall be governed by and construed according to the laws of
the State of Delaware.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
MAKER:
BOYSTOYS.COM, INC.
(a Delaware corporation)
3
<PAGE>
By:
-------------------------------
Ralph M. Amato, President & CEO
Acknowledgement:
-----------------------------
For: Lewis Chin
4
<PAGE>
Addendum to Loan Agreement of June 23, 1999
ADDENDUM TO UNSECURED PROMISSORY NOTE
Grand Cayman, Cayman Islands
February 28, 2000
Page 1 of 1
THIS IS AN ADDENDUM (the "Addendum") to that certain Unsecured
Promissory Note, dated June 23, 1999 and (the "Note") issued by the
undersigned, BoysToys.com, Inc., a Delaware corporation (hereinafter called
"Maker"), wherein the Maker promised to pay to the order of Essex Capital
Holdings, Ltd. (together with all subsequent holders of this Note, hereinafter
called "Payee"), all sums due and owing under the Note.
WHEREAS:
A. The Maker and Payee acknowledge and agree that the Maker is
not in default on any terms or provisions of the Note and the
Loan Agreement.
B. The parties seek to increase the maximum amount of the
Principal Amount that the Payee is willing to lend to the Maker
from One Million Dollars ($1,000,000) to One Million Five
Hundred Thousand Dollars ($1,500,000) with all such funds to
be loaned from the Payee to the Maker on the same terms and
conditions as provided in the Note.
NOW THEREFORE, the parties agree that the principal sum of the
maximum amount that the Payee shall provide Payee under the terms of the Note
shall be increased from One Million Dollars ($1,000,000) to One Million Five
Hundred Thousand Dollars ($1,500,000) and that all other term and provisions
of the Note, as originally written shall remain and shall be given full force
and effect as if written the date first written above.
This Addendum to the Note shall be binding upon Maker and its
successors and assigns and shall inure to the benefit of Payee and its
successors and assigns.
All notices required or permitted in connection with this Note shall
be given at the place and address as separately provided by each party to
this Note.
This Addendum to the Note shall be governed by and construed
according to the laws of the State of Delaware.
IN WITNESS WHEREOF,these presents are executed as of the date first
written above.
MAKER:
BOYSTOYS.COM, INC.
(a Delaware corporation)
By: /s/ Ralph M. Amato
--------------------------------
Ralph M. Amato, President & CEO
Acknowledgement: [ILLEGIBLE]
----------------------------------
For: Essex Capital Holdings, Ltd.
<PAGE>
Exhibit 10.22
UNSECURED PROMISSORY NOTE
San Diego, California
October 25, 1999
Page 1 of 2
FOR VALUE RECEIVED, the undersigned, BoysToys.com, Inc., a Delaware
corporation (hereinafter called "Maker"), promises to pay to the order of Ralph
M. Amato (together with all subsequent holders of this Note, hereinafter called
"Payee"), or at such other place as Payee may from time to time designate in
writing, the principal sum of the $70,000 together with interest thereon
calculated on a daily basis (based, at Payee's option, on 360- day or
365/366-day years) from the date hereof on the principal balance from time to
time outstanding (the "Principal Amount") as hereinafter provided, principal,
interest and all other sums payable hereunder to be paid in lawful money of the
United States of America as follows:
A. Interest shall accrue at all times hereunder at the rate of
twelve percent (10%) per annum commencing upon the execution of this
Note, and shall be payable quarterly on or before the tenth day of the
month of September, December, March, and June and continuing thereafter
until this Note is paid in full.
B. The amount of the monthly payment shall be equal to the
amount of interest on the principal balance.
C. If not earlier due and payable, the unpaid principal
balance, all accrued and unpaid interest and all other amounts payable
hereunder shall be due and payable in full on or before October 25,
2000 (the "Maturity Date").
Maker agrees to an effective rate of interest that is the rate stated
above plus any additional rate of interest resulting from any other charges in
the nature of interest paid or to be paid by or on behalf of Maker, or any
benefit received or to be received by Payee, in connection with this Note.
If any payment required under this Note is not paid within fifteen (15)
days after the date such payment is due, then, at the option of Payee, Maker
shall pay a "late charge" equal to two percent (2%) of the amount of that
payment to compensate Payee for administrative expenses and other costs of
delinquent payments. This late charge may be assessed without notice, shall be
immediately due and payable and shall be in addition to all other rights and
remedies available to Payee.
All payments on this Note shall be applied in such manner as Payee
elects, and may be applied first to the payment of any costs, penalties, late
charges, fees or other charges incurred in connection with the indebtedness
evidenced hereby, next to the payment of accrued interest and then to the
reduction of the principal balance.
This Note and all other documents or instruments relating to the
indebtedness evidenced by this Note or executed or delivered in connection with
the indebtedness evidenced by this Note are hereinafter called the "Loan
Documents."
Time is of the essence of this Note. At the option of Payee, the entire
unpaid principal balance, all accrued and unpaid interest and all other amounts
payable hereunder shall become immediately due and payable without notice upon
the failure to pay any sum due and owing hereunder as provided herein or upon
the occurrence of any Event of Default in any of the Loan Documents.
<PAGE>
The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure to pay any principal or interest or any other
amount due in connection with this Note when the same shall become due
and payable.
This Note shall be binding upon Maker and its successors and assigns
and shall inure to the benefit of Payee and its successors and assigns.
All notices required or permitted in connection with this Note shall be
given at the place and address as separately provided by each party to this
Note.
This Note shall be governed by and construed according to the laws of
the State of Delaware.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
MAKER:
BOYSTOYS.COM, INC.
(a Delaware corporation)
By: /s/ Michael Potter
------------------
Michael Potter, Director
<PAGE>
Exhibit 10.23
UNSECURED PROMISSORY NOTE
San Diego, California
January 15, 2000
Page 1 of 2
FOR VALUE RECEIVED, the undersigned, BoysToys.com, Inc., a Delaware
corporation (hereinafter called "Maker"), promises to pay to the order of Ralph
M. Amato (together with all subsequent holders of this Note, hereinafter called
"Payee"), or at such other place as Payee may from time to time designate in
writing, the principal sum of the $16,000 together with interest thereon
calculated on a daily basis (based, at Payee's option, on 360- day or
365/366-day years) from the date hereof on the principal balance from time to
time outstanding (the "Principal Amount") as hereinafter provided, principal,
interest and all other sums payable hereunder to be paid in lawful money of the
United States of America as follows:
A. Interest shall accrue at all times hereunder at the rate of
twelve percent (10%) per annum commencing upon the execution of this
Note, and shall be payable quarterly on or before the tenth day of the
month of September, December, March, and June and continuing thereafter
until this Note is paid in full.
B. The amount of the monthly payment shall be equal to the
amount of interest on the principal balance.
C. If not earlier due and payable, the unpaid principal
balance, all accrued and unpaid interest and all other amounts payable
hereunder shall be due and payable in full on or before October 25,
2000 (the "Maturity Date").
Maker agrees to an effective rate of interest that is the rate stated
above plus any additional rate of interest resulting from any other charges in
the nature of interest paid or to be paid by or on behalf of Maker, or any
benefit received or to be received by Payee, in connection with this Note.
If any payment required under this Note is not paid within fifteen (15)
days after the date such payment is due, then, at the option of Payee, Maker
shall pay a "late charge" equal to two percent (2%) of the amount of that
payment to compensate Payee for administrative expenses and other costs of
delinquent payments. This late charge may be assessed without notice, shall be
immediately due and payable and shall be in addition to all other rights and
remedies available to Payee.
All payments on this Note shall be applied in such manner as Payee
elects, and may be applied first to the payment of any costs, penalties, late
charges, fees or other charges incurred in connection with the indebtedness
evidenced hereby, next to the payment of accrued interest and then to the
reduction of the principal balance.
This Note and all other documents or instruments relating to the
indebtedness evidenced by this Note or executed or delivered in connection with
the indebtedness evidenced by this Note are hereinafter called the "Loan
Documents."
Time is of the essence of this Note. At the option of Payee, the entire
unpaid principal balance, all accrued and unpaid interest and all other amounts
payable hereunder shall become immediately due and payable without notice upon
the failure to pay any sum due and owing hereunder as provided herein or upon
the occurrence of any Event of Default in any of the Loan Documents.
<PAGE>
The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure to pay any principal or interest or any other
amount due in connection with this Note when the same shall become due
and payable.
This Note shall be binding upon Maker and its successors and assigns
and shall inure to the benefit of Payee and its successors and assigns.
All notices required or permitted in connection with this Note shall be
given at the place and address as separately provided by each party to this
Note.
This Note shall be governed by and construed according to the laws of
the State of Delaware.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
MAKER:
BOYSTOYS.COM, INC.
(a Delaware corporation)
By: /s/ Michael Potter
------------------
Michael Potter, Director
<PAGE>
Exhibit 10.24
UNSECURED PROMISSORY NOTE
San Francisco, California
January 21, 2000
Page 1 of 4
FOR VALUE RECEIVED, the undersigned, BoysToys.com, Inc., a Delaware
corporation (hereinafter called "Maker"), promises to pay to the order of Lewis
Chin with principal address at 17 Jacqueline Court, Daley City, California 94014
(together with all subsequent holders of this Note, hereinafter called "Payee"),
or at such other place as Payee may from time to time designate in writing, the
principal sum of One Hundred Thousand Dollars ($100,000) together with interest
thereon (as calculated pursuant to Paragraph "B." herein) from the date hereof
on the principal balance from time to time outstanding (the "Principal Amount")
as hereinafter provided, principal, interest and all other sums payable
hereunder to be paid in lawful money of the United States of America as follows:
A. Interest shall accrue on the Principal Amount and in lieu
of all amounts that payable as interest, the Company shall, on March
24, 2000 (the "Maturity Date"), pay and deliver to Payee a stock
certificate representing fifty thousand (50,000) shares of the common
stock (par value $0.01) of Maker (the "Interest"). Said stock
certificate shall be impressed with a restricted securities legend in
accordance with the SECURITIES ACT OF 1933.
B. If not earlier due and payable, the unpaid principal
balance, all accrued and unpaid Interest and all other amounts payable
hereunder shall be due and payable in full on the Maturity Date.
C. Maker agrees that, on or before the Maturity Date, to repay
the Principal Amount of this Note by assigning to Payee all of the
proceeds of certain loan proceeds received by Maker from certain
equipment loans.
If any payment required under this Note is not paid within thirty (30)
days after the date such payment is due, then, at the option of Payee, Maker
shall pay a "late charge" equal to five percent (5%) of the amount of that
payment plus an amount equal to two percent (2%) of the Principal Amount for
each month thereafter with both of said amounts paid to compensate Payee for
administrative expenses and other costs of delinquent payments. This late charge
may be assessed without notice, shall be immediately due and payable and shall
be in addition to all other rights and remedies available to Payee.
All payments on this Note shall be applied in such manner as Payee
elects, and may be applied first to the payment of any costs, penalties, late
charges, fees or other charges incurred in connection with the indebtedness
evidenced hereby and then to the reduction of the principal balance. Payee
acknowledges that he is an Accredited Investor (as that term is defined under
Rule 501 of Regulation D of the SECURITIES ACT OF 1933). This Note and all other
documents or instruments relating to the indebtedness evidenced by this Note or
executed or delivered in connection with the indebtedness evidenced by this Note
are hereinafter called the "Loan Documents." Time is of the essence of this
Note.
At the option of Payee, the entire unpaid principal balance, all
accrued and unpaid interest and all other amounts payable hereunder shall become
immediately due and payable without notice upon the failure to pay any sum due
and owing hereunder as provided herein or upon the occurrence of any Event of
Default in any of the Loan Documents.
The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
<PAGE>
(a) Any failure to pay any principal or interest or any other
amount due in connection with this Note when the same shall become due
and payable.
(b) Any failure or neglect to perform or observe any of the
terms, provisions, or covenants of any of the Loan Documents or any
other document or instrument executed or delivered in connection with
the Note, and such failure or neglect either cannot be remedied or, if
it can be remedied, it continues unremedied for a period of thirty (30)
days after notice thereof to Maker.
(c) Any warranty, representation or statement contained in any
of the Loan Documents or any other document or instrument executed or
delivered in connection with this Note, or made or furnished by or on
behalf of Maker, that shall be or shall prove to have been false when
made or furnished.
(d) The filing by Maker, any endorser of the Note or any
guarantor of this Note (or against Maker or such endorser or guarantor
in which Maker or such endorser or guarantor acquiesces or which is not
dismissed within forty-five (45) days after the filing thereof) of any
proceeding under the federal bankruptcy laws now or hereafter existing
or any other similar stature now or hereafter in effect; the entry of
an order for relief under such laws with respect to Maker or such
endorser or guarantor; or the appointment of a receiver, trustee,
custodian or conservator of all or any part of the assets of Maker or
such endorser or guarantor.
(e) The insolvency of Maker, any endorser of the Note or any
guarantor of this Note; or the execution by Maker or such endorser or
guarantor of an assignment for the benefit of creditors; or the
convening by Maker or such endorser or guarantor of a meeting of its
creditors, or any class thereof, for purposes of effecting a moratorium
upon or extension or composition of its debts; or the failure of Maker
or such endorser or guarantor to pay its debts as they mature; or if
Maker or such endorser or guarantor is generally not paying its debts
as they mature.
(f) The admission in writing by Maker, any endorser of the
Note or any guarantor of this Note that it is unable to pay its debts
as they mature or that it is generally not paying its debts as they
mature.
(g) The death or incapacity of Maker, any endorser of the Note
or any guarantor of this Note, if an individual, or the liquidation,
termination or dissolution of Maker or any such endorser or guarantor,
if a corporation, partnership or joint venture.
(h) The occurrence of any Event of Default under any of the
Loan Documents or any other document or instrument executed or
delivered in connection with this Note; and not otherwise specifically
described in other provisions of this Note.
(i) The occurrence of any adverse change in the financial
condition of Maker that Payee, in its reasonable discretion, deems
material, or if Payee in good faith shall believe that the prospect of
payment or performance of the Note is impaired.
Maker shall pay all costs and expenses, including reasonable attorneys'
fees and court costs, incurred in the collection or enforcement of all or any
part of this Note. All such costs and expenses shall be secured by the Loan
Documents. In the event of any court proceedings, court costs and attorneys'
fees shall be set by the court and not by jury and shall be included in any
judgement obtained by Payee.
Upon the occurrence of an Event of Default under this Note or in any of
the other Loan
2
<PAGE>
Documents, Payee may proceed against any collateral securing this Note or
proceed against the undersigned in such order and manner as Payee, in its sole
discretion, shall determine, provided that under no circumstance shall Payee be
obligated to proceed against any collateral or against the undersigned for
collection of any sums due hereunder.
Failure of Payee to exercise any option hereunder shall not constitute
a waiver of the right to exercise the same in the event of any subsequent
default or in the event of the continuance of any existing default after demand
for strict performance hereof.
Maker, sureties, guarantors and endorsers hereof: (a) agree to be
jointly and severally bound, (b) severally waive demand, diligence, presentment
for payment, protest and demand, and notice of extension, dishonor, protest,
demand and nonpayment of this Note, (c) consent that Payee may extend the time
of payment or otherwise modify the terms of payment of any part or the whole of
the debt evidenced by this Note, at the request of any other person primarily
liable hereon, and such consent shall not alter nor diminish the liability of
any person, and (d) agree that Payee may set off at any time any sums or
property owed to any of them by Payee.
No provision of this Note is intended to or shall require or permit
Payee, directly or indirectly, to take, collect or receive in money, goods or in
any other form, any interest (including amount deemed by law to be interest) in
excess of the maximum rate of interest permitted by applicable law.
If any amount due from or paid by Maker shall be determined by a court
of competent jurisdiction to be interest in excess of such maximum rate, Maker
shall not be obligated to pay such excess and, if paid, such excess shall be
applied against the unpaid principal balance of this Note, or if and to the
extent that this Note has been paid in full, such excess shall be remitted to
Maker. This Note shall be binding upon Maker and its successors and assigns and
shall inure to the benefit of Payee and its successors and assigns. All notices
required or permitted in connection with this Note shall be given at the place
and address as separately provided by each party to this Note.
This Note shall be governed by and construed according to the laws of
the State of Delaware as if this Note were executed and all actions were taken
hereby in the State of Delaware.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
MAKER:
BOYSTOYS.COM, INC.
(a Delaware corporation)
By:
-------------------------------
Ralph M. Amato, President & CEO
Payee acknowledges and agrees that prior to execution and delivery of
this Note to Payee, Payee:
(i) is an ACCREDITED INVESTOR (as that term is defined under Rule
501 of Regulation D) and had and continues to have a
pre-existing business relationship with Payee in that Payee is
the landlord under the terms of that certain lease agreement
3
<PAGE>
between Payee and Maker wherein Maker (as Tenant) leases that
certain real property located at 408-412 Broadway, San
Francisco, California;
(ii) received a copy of Maker's Form 10-SB (as filed with the U.S.
Securities and Exchange Commission;
(iii) received a copy of Maker's audited financial statements for
the years ending December 31, 1997 and December 31, 1998
together with unaudited financial statements as of September
30, 1999;
(iv) understands that the Note and the Shares are restricted
securities of a small public company whose common stock is
traded only sporadically on the OTC Pink Sheets and there is
no guarantee that the Shares can be sold in any liquid trading
market; and
(v) has read and understands that this Note and the Shares are
subject to significant risks as identified in that Section of
Form 10-SB titled as, "Factors That May Affect Future
Results."
Agreement and acknowledgement:
-------------------------------
Lewis Chin
4
<PAGE>
EXHIBIT 23.2
[PANNELL KERR FORSTER LETTERHEAD]
December 17, 1999
Mr. Ralph Amato
Alternative Entertainment, Inc.
7825 Fay Avenue, Suite 200
La Jolla, CA 92037
Dear Ralph:
This letter serves as written notice of our resignation as independent
auditors of BoysToys.com, Inc. (formerly Alternative Entertainment, Inc.) and
its subsidiaries (the "Company"), with effect from the date of this letter.
Our resignation is due to the fact that the industry in which the Company
operates does not meet our long-term client profile objective. We appreciate
having had the opportunity to serve your business over the last two years,
and wish you every success in the future.
We will continue to be available to consult on the filing of the Company's
Form 10-SB and to assist you in responding to comments raised thereon by the
Securities and Exchange Commission.
Our resignation is required to be reported to the Securities and Exchange
Commission ("SEC") within 5 days of the date of this letter on Form 8-K.
Please provide us with a draft copy of the Form 8-K for our review in order
for us to provide the required letter to accompany the Form 8-K. In addition,
as the AICPA's SEC Practice Section membership requires, we must provide you
with a letter of resignation within 5 days of the date of this letter, with a
copy provided to the SEC.
Sincerely,
PANNELL KERR FORSTER,
A Professional Corporation
/s/ ROBERT SPORL
- -----------------
Robert Sporl, CPA
Director
cc: William M. Aul
