U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 000-28684
BoysToys.com, Inc.
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(Name of Small Business Issuer in Its Charter)
Delaware 33-0824801
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
412 Broadway, San Francisco, California 94133
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(Address of principal executive office) (Zip Code)
(415) 391-2800
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(g) of the Exchange Act:
Name of Exchange
Title of Each Class On Which Registered
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Common Stock (par value $0.001)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $916.00
The aggregate market value of the voting stock held by non-affiliates
(5,245,334 shares of Common Stock) was $2,622,667 as of May 18, 2000. The
stock price for computation purposes was $0.50, based on the closing sale price
for the Registrant's Common Stock on NASDAQ Bulletin Board on May 18, 2000.
This value is not intended to be a representation as to the value or worth of
the Registrant's shares of Common Stock. The number of shares of non-
affiliates of the Registrant has been calculated by subtracting shares held by
persons affiliated with the Registrant from outstanding shares. The number of
shares outstanding of the Registrant's Common Stock as of May 18,2000 was
6,252,003 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) Into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant
to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The
listed documents should be clearly described for identification purposes (e.g.,
annual report to security holders for fiscal year ended December 24, 1990).
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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BOYSTOYS.COM, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-KSB
Page
PART I
Item 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . 3
Item 2. DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . 23
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . 24
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . 24
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . 24
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 25
Item 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 27
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . 27
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSON;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT . . . . . . 28
Item 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 29
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . 32
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 32
Item 13. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 33
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS . . . . . . . . . . . F-2
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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.
INTERNET-RELATED MATTERS
While the Company's name includes the ".com" moniker, this reflected the
Company's original intention to pursue business activities involving the use of
the internet. Currently, the Company has not had sufficient financial or
managerial resources to pursue or develop any significant internet related
business: (i) the Company has two internet Web Sites for the Company's public
and investor relations (namely, Boystoys.com and Boystoysir.com, respectively)
(the "Corporate Web Sites") and (ii) six sites that opened in October 1999 and
which have remained in development only (namely, Super-teens.com,
Sexyyoungasians.com, Red-hotsex.com, Pussysource.com, Peeing-girls.com, and
Strange-insertions.com) (the "Developmental Web Sites").
The Company believes that its Corporate Web Sites are useful in giving the
Company an internet presence or identity for its customers, vendors, and
stockholders Given the location of the Company's Club in San Francisco,
California as a venue for business travelers and the possible use of the
internet by visitors to San Francisco (and by San Francisco-area residents),
the Company believes that its Corporate Web Sites are important to disseminate
information regarding the Company, the Club, and the Club menu and interior
decor.
The six Developmental Web Sites, which were opened in October 1999, were
intended by the Company as an experiment to assist the Company's management in
becoming familiar with adult internet pay sites (i.e., Web Sites that generate
revenues from monthly subscriber fees).
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Currently, the Developmental Web Sites are adult-only Web Sites and each
offers monthly memberships to subscribers at $29.95 per month or $49.95 for
three months. The Company's receives assistance in the operation of each of
the Developmental Web Sites from the following vendors pursuant to oral
agreements as follows: (i) I-Gallery provides adult live-streaming video
content at $1,495 per month under a month to-month arrangement with the
Company; (ii) Web 800 Service provides merchant card services at a fee equal to
15% of any credit card amounts collected under a month-to-month arrangement
with the Company; and (iii) Spotted Fly Technologies is paid $495 per month for
hosting the Company's Corporate Web Sites and the Developmental Web Sites under
a month-to-month arrangement with the Company.
From inception in October 1999 through December 31, 1999, the Company
derived an aggregate of $916.00 in revenues from the Developmental Web Sites;
and throughout this period the Company's management has been and remains
primarily focused on meeting the managerial and financial obligations related
to the opening and currently the operation of the Company's Club.
The Corporate Web Sites and the Developmental Web Sites (together with
five inactive but registered Web Sites) required that the Company expend $70
per Web Site or an aggregate of $910 to register the domain names of all these
13 Web Sites. The five inactive Web Sites are as follows: Onlinecontent.com,
Boystoysgambling.com, Boystoyslottery.com, Boystoysgaming.com,
Boystoyshorseracing.com. While the Company registered these Web Sites, the
Company has determined that it does not intend to enter into on-line internet
gaming, horse racing, or any other gambling-related business activities. As a
result, these Web Sites were never developed, tested, and are not on-line.
The Company is continuing to evaluate the Developmental Web Sites and may
add or delete to the list of its Developmental Web Sites as the Company's
financial and managerial resources allows. Further, and subject to the
Company's successful operation of its existing Club, the Company anticipates
that it will explore, within the next 18 months, the acquisition of one or more
established adult-related gentlemens clubs and/or entertainment internet
business opportunities that would compliment the Company's existing Club. In
the event that the Company undertakes any one or more acquisitions, the Company
has currently established the following types of business opportunities that it
may consider for acquisition:
1) Other upscale gentlemens clubslocated in major metropolitan areas;
2) Adult-only internet Web Sites (Web Sites that require a subscriber to pay
monthly subscription fees);
3) Pre-recorded and/or live-streaming video content providers or vendors
that provide adult-related video content marketable through adult-related
internet Web Sites (these vendors provide live performances by adult
entertainers that may be viewed in real time by subscribers to adult-only
internet Web Sites); and
4) other business enterprises that possess proprietary technology or video
compression technology that may be used in conjunction with any adult-
only internet Web Sites and/or pre-recorded or live-streaming video
content that the Company may otherwise offer.
Currently, the Company has not identified any acquisition candidates or
otherwise conducted any review or evaluation of any precise acquisition target
or related strategy. The Company has not retained and will likely not have the
financial and managerial resources to obtain independent investment banking or
similar advice in connection with any such acquisition but will likely rely
primarily upon evaluations made by its management. In addition, in the event
that the Company implements an acquisition strategy, the Company will likely be
limited to using its common stock, preferred stock, or a debt security as
consideration in any such transaction.
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This may well limit the Company's ability to complete any acquisitions
since many sellers prefer to sell their business in exchange for a cash
payment.
THE SAN FRANCISCO CLUB
Construction of the 15,000 square foot Club was completed in October 1999
at which time the Company received its certificate of final completion. The
Company has secured an alcoholic beverage license, a cabaret license, and all
other licenses and permits required by the City and County of San Francisco,
California. The Club opened on January 26, 2000 and has remained in operation
since that date.
A subsidiary, Alternative Entertainment, Inc., a Nevada corporation ("AEI-
Nevada") was initially formed to engage in the business of developing, owning,
and operating upscale nightclubs providing exotic dance entertainment combined
with private membership men's clubs and contemporary-styled full service
restaurants and bars. On January 15, 1998, 80% of the Company's Common Stock
was acquired by AEI-Nevada and the Company changed its name from Wagg Corp. to
Alternative Entertainment, Inc. On January 26, 1998, AEI-Nevada, as the
majority stockholder of the Company, effected a one for two reverse split of
the Company's common stock and approved an amendment to the Company's
Certificate of Incorporation to change the Company's name to Alternative
Entertainment, Inc. and to authorize the issuance of up to 8,000,000 shares of
Preferred Stock. The Company has not issued any Preferred Stock and has no
Preferred Stock outstanding.
Following these actions and on January 28, 1998, AEI-Nevada's Board of
Directors voted to approve the exchange of one share of the Company's Common
Stock for each share of AEI-Nevada common stock outstanding. This resulted in
AEI-Nevada becoming a subsidiary of the Company. As a result, AEI-Nevada
became a wholly-owned subsidiary of the Company. Subsequently and on December
29, 1998, a majority of the Company's shareholders approved an amendment to the
Company's Certificate of Incorporation to change the Company's name to
BoysToys.com, Inc.
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); that is, under the Purchase Agreement
that the Company executed with ITEX , the Company holds a Cash Credit equal to
$530,000 and the Company has the right to obtain goods and services from ITEX
up to the maximum amount of the $530,000 Cash Credit such that the price
accorded any such goods or services so obtained is to be equal to the lowest
price verified in writing by competitive bid as agreed between the Company and
ITEX.
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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) within the confines of a single
facility. The business of the Company is conducted under the trade name,
trademark, and service mark of "Boys Toys." Although the Company intends to
register its claim to these tradenames, the Company has not yet filed an
application with the U.S. Patent and Trademark office to register these names.
The Club's revenues are generated from:
(1) food and beverage sales;
(2) Boardroom VIP membership sales;
(3) nightclub admission (door) fees;
(4) fees charged by the Company in connection with the use of credit cards
by patrons to obtain cash equivalent items (i.e., the Company sells
"Diamond Dollars" certificates (in multiples of $10 and $20 amounts) to
patrons of the Club such that each "Diamond Dollars" certificate may be
used in lieu of cash or credit cards at the Club for a patron's payment
of a "dance fee" to an entertainer) ("Cash Equivalent Fees");
(5) sales of certain merchandise on display at the Club and salable on a
consignment basis; and
(6) entertainers' lease fees paid by entertainers (dancers) for the
privilege of performing at the Club. (Currently, the Company charges
each entertain a lease fee equal to $20 to $50 for the right to perform
at the Club during any shift.)
With respect to Cash Equivalent Fees, the Company charges a service fee
equal to 20% of the amount of any "Diamond Dollars" certificate that it sells
to any patron (i.e., if a patron seeks to purchase $100 in "Diamond Dollars"
certificates, the Company sells the certificates at a price equal to $120).
Each "Diamond Dollars" certificate may be used to pay "dance fees" to an
entertainer (as described above). If an entertainer receives a "Diamond
Dollars" certificate in payment for a "dance fee," the entertainer is able to
exchange each "Diamond Dollars" certificate and receive cash from the Company.
The Company purchases each "Diamond Dollars" certificate from the entertainers
at a 10% discount (i.e., for every $100 in stated value in "Diamond Dollars"
certificates submitted for exchange and redemption, the Company pays $90 in
cash).
As a result, the Company earns $20 upon the sale of every $100 in "Diamond
Dollars" certificates and, where an entertainer seeks to redeem a $100 "Diamond
Dollars" certificate, the Company pays only $90 to the entertainer who redeems
it.
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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.
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.
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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.
* 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.
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In this regard, the Company expects to make contributions of food,
services or funds benefiting 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.
* 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).
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Additionally, Boardroom members have free use of Boardroom facilities for
private parties and meetings, preferred seating and advanced notices for
special events and holiday functions held at the Club, and access to personal
improvement seminars and concierge services. Currently Boardroom memberships
are for a period of one year, and may be renewed by a member at the end of each
membership year. Membership fees for the Boardroom are $1,000 per annum.
SITE SELECTION CRITERIA AND LEASING
In the event that the Company expands with other locations, the Company
believes that the selection process for sites for the Company's clubs is
critical in determining the potential success of a Boys Toys Club, and
therefore it expects to devote a significant amount of time and resources to
analyze each prospective club site.
A variety of factors are considered in the site selection process,
including local market demographics, site visibility and accessibility and
proximity to significant generators of potential customers such as office
complexes, hotel concentrations and other entertainment centers such as
stadiums and arenas. The Company will also review potential competition and
attempt to analyze the profitability of other nightclub, restaurant and bar
establishments operating in areas where the Company proposes to establish a
Boys Toys Club.
The Company expects that it will likely lease all of its locations for any
additional Boys Toy Club, although the Company may consider purchasing
properties for its facilities in the future, where it is cost effective to do
so.
LOCATION OF BOYS TOYS CLUB
The Company's existing Club is the Company's first club and is located at
408-412 Broadway, San Francisco, California, in the north beach area of the
financial district of San Francisco (the "Facility"), approximately four blocks
north of the landmark Transamerica Building.
The Company leased the Facility from Roma Cafe, Inc. The Company has
obtained a Place of Entertainment Permit with respect to the exotic dance
entertainment aspects of the Company's business at the San Francisco Premises.
The Company has secured an alcoholic beverage license, a cabaret license, and
all other licenses and permits required by the City and County of San
Francisco, California.
ADDITIONAL BOYS TOYS CABARET CLUBS.
In addition to the existing Club and if the Company can obtain additional
financing on favorable terms, the Company may establish other Boys Toys Clubs.
The exact number, location, and other aspects of this plan has not been
determined at this time.
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.
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The Company has not presently identified any prospective acquisition or
location and there can be no assurance that the Company will undertake any such
acquisition or otherwise expand to other locations.
MARKETING
The Club (and any other clubs that the Company may establish), will be
marketed to attract primarily (if not strictly) professional and white collar
businessmen clientele.
The Company plans to use the Club's name to develop name recognition and
patron loyalty to attract these customers. Due to its upscale theme, exotic
dance entertainment experience and quality food and service, the Company
believes that its Boys Toy Clubs will have the unique ability to attract both
local and out-of-town professional and white collar businessmen patronage.
The tour and travel as well as convention segments of the cities in which
Boys Toys Clubs will be located will be another focus of the Company's
marketing strategy. The Company's marketing strategy will be designed to inform
targeted patrons that Boys Toys Clubs provide a unique and exciting atmosphere
not found elsewhere through visual and audio experiences.
The Company expects that the center of its marketing efforts will revolve
around its exotic dance entertainment nightclubs. The Company's Boys Toys
concept will be directed at upscale, professionals and white collar businessmen
aged 25-65 who either reside in or near major U.S. commercial centers where
Boys Toys Clubs will be located, or who frequently visit these areas on
business.
In order to reach this targeted market, the Company will attempt to
establish Boys Toys Clubs in the heart of those cities in which it intends to
operate, so as to make its facilities easily accessible by professional and
white collar businessmen.
The Company believes that its local patrons will include primarily men who
work and/or live near a Boys Toys Club, and who will seek some form of
nightclub environment at the end of their work day which will provide a
comfortable atmosphere with appropriately priced, high quality, food available.
The Company believes it will meet this type of patron's needs by providing
a quality entertainment experience with a high level of personalized service in
a casual, fun setting - an experience that the Company expects will generate
repeat visits among the local customer segment.
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.
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Additionally, the Company intends to utilize merchandise as a means of
marketing its Boys Toys Clubs. Thus, the Company will promote various Boys Toys
merchandise which is expected to be created by the Company as popularity of the
Boys Toys Clubs increases. Such merchandise is expected to include T-Shirts,
jackets, sweatshirts, and other memorabilia.
Because of its Boys Toys Restaurants, and if the Company can maintain the
presence and availability of many interesting items displayed prominently
throughout the Club, the Company believes that its Club will be able to adopt
event-driven promotion oriented marketing strategies. Thus, in addition to
traditional advertising techniques, the Company intends to seek to establish
close ties with the entertainment industry so as to provide the Company with
extensive promotional opportunities.
Events such as surprise appearances by recording artists or professional
athletes can be expected to attract targeted upscale patrons.
BOYS TOYS CLUB OPERATIONS AND MANAGEMENT
The Company will strive to maintain quality and consistency in its
existing Club through the careful training and supervision of personnel and the
establishment of standards relating to food and beverage preparation,
maintenance of facilities and conduct of personnel.
The Company maintains financial and accounting controls for the existing
Club through the use of centralized accounting and management information
systems. Operations information will be collected weekly from the Club, and
club managers will be provided with weekly and 28-day period operating
statements for their locations. Cash will be controlled through daily deposits
of sales proceeds in local operating accounts. The Club is scheduled to be open
daily from 11:00 a.m. to 2:00 a.m.
Overall management of a typical Boys Toys Cabaret Club will be conducted
by two managers, a day manager and an evening manager in addition the Club's
General Manager. The Club also employs a staff consisting of approximately 40
hourly employees and 35 part-time employees. The composition of the Company's
current full-time employees is as follows:
Category No. of Employees
--------------- ----------------
General Manager 1
Club Manager 1
Restaurant Manager 1
Bookkeeper 1
Office Staff 1
Entertainment Director 1
Executive Chef 1
Kitchen Staff 11
Host & Hostesses 12
Secretarial Staff - Boardroom 2
Servers 4
Bus Persons 4
The additional 35 part-time employees are primarily restaurant servers,
bus persons, and support personnel.
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In addition to these employees, the Company utilizes 25 to 50 female
exotic entertainers (dancers) per night, as independent contractors, on a
varying basis. Each exotic female entertainer is paid directly by a patron for
each dance performed. The Company does not employ or pay any wages, salary,
compensation, or other fees to any of the exotic female entertainers that
perform at the Club. Entertainers also pay a lease fee of $20 to $50 per shift
for the right to perform at the Club. Entertainers receive only "dance fees"
from patrons of the Club. The Company does not receive any percentage from any
cash fees paid by patrons to the entertainers (dancers) that perform at the
Club. However and as described earlier, when an entertainer redeems any
"Diamond Dollars" certificates (previously received from a patron in payment of
any "dance fees"), the Company pays the entertainer an amount equal to 90% of
the face or stated value of the "Diamond Dollars" certificates that are later
submitted for redemption. (Thus, if an entertainer submits $1,000 in "Diamond
Dollars" certificates to the Company, the Company redeems these certificates by
paying the entertainer $900 in cash.)
The General Manager of the Club reports directly to the Company's
President. The Company's Entertainment Director and Club Manager report to the
General Manager of the Club. Working in concert with these managers, the
Company's Chief Executive Officer defines operating and performance objectives
for the Club and monitors implementation. The Company expects that its Club
managers will participate in a variety of Company sponsored employee incentive
programs such as the Company's stock option plans. The Company has not yet
adopted any stock plan but may do so in the future.
Awards under any Company sponsored employee incentive programs will be
tied to achievement by facility managers of specified operating targets. The
Company plans for its senior management to regularly visit each Club the
Company operates and meet with the respective managers of those clubs to ensure
that the Company's strategies and standards of quality in all respects of
operations and personnel development are met.
The Company believes that customer service and satisfaction are keys to
the success of its existing Club and any other clubs that the Company may
establish. The Company's commitment to customer service and satisfaction will
be evidenced by several Company practices and policies, including periodic
visits by managers to customers' tables, active involvement of management in
responding to customer comments and assigning waitresses in the Company's Boys
Toys Restaurants to a limited number of tables, generally four for lunch and
three for dinner.
PURCHASING
The Company negotiates directly with suppliers for food and beverage
products to ensure consistent quality and freshness of products and to obtain
competitive prices. The Company purchases substantially all food and beverage
products from authorized local or national suppliers. Food, beverage and other
products and supplies are shipped directly to the Club, although invoices for
purchases will be paid by the Company's wholly-owned subsidiary, RMA of San
Francisco, Inc., a California corporation ("RMA"). RMA is the corporation the
Company established to operate the existing Club.
MANAGEMENT INFORMATION SYSTEMS
The Company has a computer information system which is designed to
maintain personal profile information on the members of its private VIP
members-only men's club. The profiles are designed to assist managers of the
Club in meeting the personal desires of particular Boardroom members, and will
contain such information as a Boardroom member's favorite beverage, favorite
food and spending habits.
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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.
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.
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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.
Currently, the Company has not experienced any problems with any of their
business, liquor, or other licenses or permits from any governmental agencies
except that on April 5, 2000, the Company was forced to appear before the San
Francisco Planning Board of Appeals (the "Board") to respond to efforts made by
the Telegraph Hill Dwellers Association (a local neighborhood group) ("THDA").
THDA sought to repeal the planning permit previously issued to the Company by
the City of San Francisco Planning Department for the operation of the
Company's Club. In a 3-2 vote, in favor of the Company, the Board re-affirmed
the Company's prior issuance of the Permit.
While the Company has obtained all necessary licenses and permits needed
to open its Club, the Company will need to renew licenses and permits from
various governmental agencies including, without limitation, applicable zoning,
land use, environmental and building permits.
The federal Americans with Disabilities Act prohibits discrimination on
the basis of disability in public accommodations and employment. The Company's
Boys Toys Cabaret Club is designed to be accessible to the disabled, and will
comply with all current applicable regulations relating to accommodating the
needs of the disabled. There can be no assurance that the Company will
maintain its licenses or permits or that they will always be obtained or
renewed in a timely manner. The failure to obtain any such permits or licenses
could adversely affect the Company.
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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 may
acquire or establish) to retain liquor or food service licenses could have a
material adverse effect on its operations. In order to reduce this risk, the
Company intends to develop and implement at its Club standardized procedures
designed to assure compliance with all applicable codes and regulations.
The Company may be subject in certain states to "dram-shop" statutes which
generally provide a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. The Company carries liquor liability
coverage as part of its comprehensive general liability insurance.
The Club is also subject to federal and state minimum wage laws governing
such matters as working conditions, overtime and tip credits and other employee
matters. The Company expects that significant numbers of the Company's food and
beverage service and preparation personnel will be paid at rates related to the
federal minimum wage and, accordingly, further increases in the minimum wage
could increase the Company's labor costs.
Finally, the Company believes that since its operations involve "exotic
female entertainment," the Company may be subject to continuing social,
political, and other institutional pressures from organizations, women's
groups, and others who believe that the Company's business is inimical to
social progress and the rights of women. These groups frequently seek to have
city ordinances and other laws enacted which adversely impact the continued
operation of the Company's business or deny the Company the ability to renew
needed licenses or permits.
As a result, many companies that offer adult entertainment similar to the
Company's business expend substantial sums in legal fees and costs to prevent
or at least delay changes to city zoning ordinances, state laws relating to
adult entertainment, and other similar regulations.
To the extent that these organizations and groups are able to organize and
obtain recognition by certain governmental bodies that license or allow the
Company to operate its planned business, the Company would likely suffer
additional costs, expenses, and losses whose magnitude can not be foreseen.
The Company also maintains two Corporate Web Sites and six Developmental
Web Sites on the internet (as discussed earlier). Although the Company
believes that its Corporate Web Sites will be helpful in gaining a corporate
identity for the Company and its business, the Developmental Web Sites do
contain adult-only content and there is substantial variation in the definition
accorded "pornography" under state and local laws. For this reason and upon
advice of its counsel, the Company has taken recent steps to carefully revise
the content of its Corporate Web Sites to reduce the possibility that any
images or other content may be found to be in violation of such state, federal,
and local laws.
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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. Currently, the
Company has not received any notice that its Web Sites are in violation of any
state, federal, or local laws although there can be no assurance that the
Company will not later need to defend itself against such allegations.
The Company also anticipates that it will also expend substantial sums in
legal fees in connection with defending its business licenses, liquor license,
and any other operating, use, or occupancy licenses it requires to operate its
Club. If the Company later acquires and operates any other gentlemen's clubs
at any other location, it will likely incur significant similar expenses for
any such other location as well. These costs will likely arise since there are
significant segments of our society that believe that the Company's business
will inhibit the social progress, rights, and dignity of women and the efforts
undertaken by these segments to restrict or inhibit the Company and its
business. The magnitude of these costs and expenses is expected to be
significant.
Item 1a. FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's business organization and existing debt and obligations on
its balance sheet all involve elements of substantial risk. In many instances,
these risks arise from factors over which the Company will have little or no
control. Some adverse events may be more likely than others and the
consequence of some adverse events may be greater than others. No attempt has
been made to rank risks in the order of their likelihood or potential harm. In
addition to those general risks enumerated elsewhere, any purchaser of the
Company's Common Stock should also consider the following factors.
1. CONTINUED OPERATING LOSSES & LACK OF OPERATING HISTORY. The Company
incurred $4,530,243 in losses during the twelve months ending December 31, 1999
and the Company anticipates that it may well incur significant additional
losses in the future as well. The Company lacks a substantial operating
history on which to base its anticipated expense and revenues. There is no
assurance that the Company's operations will be successful or that it will be
profitable in the future.
2. UNCERTAINTIES OF REVENUES. While the Company has expended substantial
resources for the development of its Club in San Francisco, California, the
Club is subject to changing state and municipal codes and ordinances. There
can be no assurance that the Company will be successful in operating the Club
or in generating revenues sufficient to sustain profitable operations.
3. CURRENT FINANCIAL STRUCTURE, LIMITED EQUITY, LIMITED WORKING CAPITAL & NEED
FOR ADDITIONAL FINANCING. While the Company's management believes that its
financial policies have been prudent, the Company has relied, in large part,
upon the use of debt financing to provide a substantial portion of the
Company's financial needs. The Company has, as of December 31, 1999, an
aggregate of $2,519,069 in current liabilities that are due for payment prior
to December 31, 2000 and of which $2,283,614 is in the form of convertible debt
convertible into shares of the Company's Common Stock. While the Company
believes that the Company's operation of the Club will be successful and will
allow the Company to generate sufficient profits and cash flow to service and
repay its existing debt, the Company may need to obtain additional financing or
renegotiate its existing debt financing in the event that the Company's
operations are not successful. In that event the Company may need to obtain
additional financing. The Company has had only limited discussions with
potential investors and it does not anticipate receiving any assurances that
the Company will obtain any additional capital from any investors. Further,
the Company has not sought to receive and has not received any commitments or
assurances from any underwriter, investment banker, venture capital fund, or
other individual or institutional investor. In the event that that the Company
needs additional financing there can be no assurance that the Company will
obtain any new financing or, if it is successful, that it can be obtained on
reasonable terms in light of the Company's current circumstances.
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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, 1998, and 1999 relating to the substantial doubt existing
about the Company's ability to continue as a going concern, the audit report
did not contain an adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.
5. SUBORDINATE TO EXISTING AND FUTURE DEBT & AUTHORIZED BUT UNISSUED PREFERRED
STOCK. All of the Common Stock offered hereby are subordinate to the claims of
the Company's existing and future creditors and any future holders of the
Company's preferred stock. The Company is authorized to issue up to 8,000,000
shares of the Company's preferred stock and currently the Company has not
issued any preferred stock.
6. MARKETING STRATEGY. While the Company believes that the operation of the
Club will be successful, there is no guarantee that these business operations
will be commercially accepted with sales revenues sufficient to permit the
Company to achieve or maintain profitable operations.
7. LIMITED PUBLIC MARKET. There is a limited trading market for the Company's
Common Shares, and there is no guarantee that a continuous liquid trading
market will subsequently develop. There can be no assurance that the Common
Shares will ever gain any liquid trading volumes in any other market or gain
listing on any stock exchange. Further, the Company's Common Stock is a "Penny
Stock" and as such, the ability of the Company to gain a liquid trading market
for it will be inhibited by various regulations and there can be no assurance
that any liquid trading market for the Company's Common Stock will ever develop
or, if it does develop, that it can be maintained. The Company became a
"reporting company" on January 23, 2000.
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.
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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 gentlemen's
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.
13. LACK OF INDEPENDENT EVALUATION OF BUSINESS PLAN & PROPOSED STRATEGY. The
Company has not obtained any independent evaluation of the Company's Business
Plan and the Company's proposed business strategy. There can be no assurance
that the Company's Club or proposed strategy will generate any revenues, or if
revenues can be generated, that they can be generated at a level to maintain
profitability.
14. LIMITED MANAGERIAL EXPERIENCE OF CORPORATE OFFICERS. The Company's
officers, Ralph M. Amato and Michael L. Potter, Esq. have no substantial recent
experience in acquiring, establishing, developing, or operating clubs that
feature female exotic dance entertainment other than the recent and limited
experience gained at the existing Club which opened on January 26, 2000. The
Company has, under an employment agreement, employed Gary Marlin as the General
Manager of the Club who has 13 years of managerial experience in the management
of adult entertainment clubs and the Company has hired two additional managers
(a Restaurant Manager and an Entertainment Director) each of whom has over 12
years of experience. While the Company believes that these individuals possess
the necessary skills and experience, the Company will likely need to secure the
services of others who possess top management skill, experience, and industry
knowledge. There can be no assurance that the Company can secure and retain
any additional necessary top corporate officers and corporate staff on terms
acceptable to the Company.
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15. NO ASSURANCE OF AVAILABILITY OF THE ADDITIONAL CAPITAL & PAYMENT OF DEBTS.
The Company's continued operation of its existing Club will be dependent upon
the Company's ability to meet its obligations to an aggregate of $2,519,069 in
amounts due as Total Current Liabilities (as of December 31, 1999). There can
be no assurance that the Company will be successful in paying these debts. The
Company has received no commitment from any underwriter or other source of
capital that any additional capital will be provided to the Company. There can
be no assurance that the Company will be successful in generating and
sustaining sufficient cash flow to pay these debts.
16. NO PLANNED DIVIDENDS. The Company does not anticipate that it will pay
any dividends on the Company's Common Stock. Any profits that the Company may
generate, if any, will be reinvested into the Company.
17. GOVERNMENT REGULATION & EXOTIC ENTERTAINMENT INDUSTRY. The Company seeks
to operate establishments that offer "female exotic entertainment." This
business routinely suffers severe and unfavorable regulatory burdens, adverse
zoning ordinances, and other oppressive government regulations which may result
in the Company incurring substantial losses and significant delays in
connection with the development of any establishment.
17. LACK OF DIVERSIFICATION. The Company's proposed business involving the
operation of establishments offering "female exotic entertainment" will not
provide any diversification. If the Company is successful, all of the
Company's business and assets will be concentrated in the same industry.
18. POTENTIAL DILUTION. Funding of the Company's business plan is likely to
result in substantial and on-going dilution of the Company's existing
stockholders. While there can be no guarantee that the Company will be
successful in raising additional capital, if the Company is successful in
obtaining any additional capital, existing stockholders may incur substantial
dilution.
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.
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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.
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.
- 22 -
===============================================================================
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
On April 30, 2000, the Company terminated its month-to-month lease of
office space at 7825 Fay Avenue, Suite 200, La Jolla, California 92037 and
moved all of its executive offices to the office facilities at the Company's
existing Club located at 412 Broadway, San Francisco, California 94133. The
closing of the Company's La Jolla, California office was undertaken to conserve
the Company's cash resources.
The Company leases two residential apartment units from Bayside Village at
180 Brannan Street Suite #217 and #406, San Francisco, California under a
month-to-month lease at a combined monthly rental of $4,520.00. While one unit
is used by the general manager of the Company's Club and the other unit is used
by the Company's Chairman and any officers, employees, or consultants of the
Company as the Company's business needs require. The Company believes that the
two apartment units are sufficient for the Company's anticipated requirements.
The Company's wholly-owned subsidiary, RMA of San Francisco, Inc., a
California corporation ("RMA") and as successor in interest to Boys Toys
Cabaret Restaurants, Inc., a California corporation), is the lessee of a lease
(the "Lease") executed on August 1, 1994 for the lease of a 14,500 square foot
premises at 408 - 412 Broadway, San Francisco, California (the "Facility") in
which the Club is located. The subsidiary has subsequently assigned the lease
to RMA of San Francisco, Inc. The Facility consist of an entire building
consisting of two floors and an alleyway along the west side of the building.
Under the terms of the Lease, Roma Cafe, Inc. ("RCI") leased the Facility
to the Boys Toys Cabaret Restaurants, Inc., a company established and owned by
the Company. This lease was subsequently assigned to RMA. The Facility is
leased to the Company for a period of 10 years from August 1, 1994 to
July 31, 2004 (the "Initial Lease Term"). The Lease provides that the Company
is obligated to pay $12,000 in monthly lease payments to RCI during the twelve
months ending July 31, 1999 and subsequently the amount of $12,500 monthly
during the two years thereafter (ending July 31, 2001), $13,000 monthly during
the following year (ending July 31, 2002), $13,500 monthly in the next year
(ending July 31, 2003), and, in the final 10th year of the lease (ending
July 31, 2004), the Company is obligated to pay $14,000 in monthly lease
payments.
The monthly lease payments to RCI are also subject to adjustment using the
U.S. Department of Labor's Consumer Price Index for the San Francisco/Northern
California Region. All lease payments are due on the first day of each month
and, in the event that the Company fails to pay any obligations due RCI within
10 days of the date that they are due, the Company incurs a late charge equal
to 5% of the amount due in addition to paying all other amounts due under the
Lease.
During the term of the Lease, the Company is also obligated to pay all
real property taxes and personal property taxes assessed against the Facility.
And, provided that the Company is not in default of its obligations under the
Lease, RCI has granted the Company the right to extend the term of the Lease
for an additional two successive five year terms following the Initial Lease
Term. The Company believes that the Facility will be adequate for the
operations of the Company's existing Club.
- 23 -
===============================================================================
<PAGE>
Item 3. LEGAL PROCEEDINGS.
As of December 31, 1999, the Company was not a party to any legal
proceedings.
However, on April 13, 2000, Superior Heating and Sheet Metal, Inc. (the
"Plaintiff") filed a Complaint against the Company, W. B. Elmer & Company,
Lewis Chin and other unnamed persons in Superior Court for the County of San
Francisco (the "First Complaint").
The First Complaint asserts that: (i) the Company breached a contract to
pay for services to the Plaintiff; (ii) the Plaintiff is entitled to payment
for the reasonable value of the services rendered by the Plaintiff; and
(iii) the Plaintiff is entitled to exercise its foreclosure rights pursuant to
a mechanics' lien. The First Complaint arises out of the construction of the
Company's Club.
The Plaintiff seeks $119,822 in damages. While the Company believes that
it is not responsible for payment of these monies and that the general
contractor, W. B. Elmer & Company, is responsible for the payment of all such
amounts, there can be no assurance that the Company will prevail in any
ultimate resolution of this litigation or that the Company will not incur
substantial and protracted litigation costs, expenses and settlement payments
in resolving the claims made in the First Complaint and the resulting
litigation.
Finally, on April 18, 2000 the Company was served with a copy of a second
summons and a second Complaint (the "Second Complaint") filed in the Superior
Court for the County of San Francisco filed by Tucknott Electric Co. (the
"Tucknott Plaintiff") which asserts: (i) that the Company breached its contract
with the Tucknott Plaintiff; (ii) that the Company has been unjustly enriched
at the expense of the Tucknott Plaintiff; and (iii) that the Tucknott Plaintiff
is entitled to exercise its foreclosure rights pursuant to a mechanics lien.
This Second Complaint also arises out of the construction of the Company's
Club.
The Tucknott Plaintiff seeks $52,666.49 in damages. While the Company
believes that it is not responsible for payment of these monies and that the
general contractor, W.B. Elmer & Company, is responsible for the payment of all
such amounts, there can be no assurance that the Company will prevail in any
ultimate resolution of this litigation or that the Company will not incur
substantial and protracted litigation costs, expenses and settlement payments
in resolving the claims made in the Second Complaint and the resulting
litigation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company has not held any meeting of the Company's shareholders in 1999
and no action of the Company's shareholders was taken in 1999.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock was formerly traded on the NASDAQ Electronic
Bulletin Board under the symbol, "GRLZ." The Common Stock is currently traded
on the NASDAQ "electronic pink sheets" where it is traded sporadically and with
only limited and minimal interest by market makers.
The following table reflects the high and low prices of the Company's
Common Stock for the two years ended December 31, 1999. The Company's Common
Stock commenced trading on October 6, 1998. As of December 31, 1999, the
Company had 12 market makers.
- 24 -
===============================================================================
<PAGE>
1998 High ($) Low ($)
----------- -------- -------
1st Quarter - -
2nd Quarter - -
3rd Quarter - -
4th Quarter $3.75 $0.5625
1999 High ($) Low ($)
----------- -------- -------
1st Quarter $4.25 $2.00
2nd Quarter $1.46 $0.625
3rd Quarter $0.81 $0.56
4th Quarter $0.75 $0.20
The Company has followed the policy of reinvesting earnings, if any, in
the business and, consequently, has not paid any cash dividends. At the
present time, no change in this policy is under consideration by the Board of
Directors. The payment of cash dividends in the future will be determined by
the Board of Directors in light of conditions then existing, including the
Company's earnings, financial requirements and condition, opportunities for
reinvesting earnings, business conditions and other factors.
The number of shareholders of record of Common Stock on May 18, 2000 was
approximately 765.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FISCAL 1999 VS. FISCAL 1998
During the period from January 1, 1999 to December 31, 1999 ("Fiscal
1999"), the Company devoted most of its attention to raising capital to
complete the construction of the Company's upscale gentlemen's club in San
Francisco, California.
And although the Company was a development-stage company during this
period, the Company did derive $916 in revenues from its six Developmental Web
Sites. These Web Sites (located on the internet), are adult-only Web Sites.
Each of the Company's Developmental Web Sites offers monthly memberships to
subscribers at $29.95 per month or $49.95 for three months.
The Company pays I-Gallery $1,495 per month to provides adult live-
streaming video content and the Company pays Web 800 Service a fee equal to 15%
of any credit card amounts collected under a month-to-month arrangement with
the Company. In addition, the Company pays Spotted Fly Technologies $495 per
month for hosting the Company's Corporate Web Sites and the Developmental Web
Sites under a month-to-month arrangement with the Company.
In comparison, during the period from January 1, 1998 to December 31, 1998
("Fiscal 1998"), the Company did not record any revenues.
- 25 -
===============================================================================
<PAGE>
Although the Company's upscale gentlemen's club in San Francisco,
California (the "Club") did not open until January 26, 2000, the Company
recorded $687,362 in general and administrative expenses in Fiscal 1999. These
expenses were primarily composed of: (i) rental expenses incurred for the lease
of the property on which the Club is located; (ii) rental of two apartments in
San Francisco (where one apartment is provided for the Club's manager and the
other for use by the Company's management and consultants to the Company);
(iii) rental of the Company's executive office in La Jolla, California (which
was later closed with office functions transferred and consolidated with the
Company's offices at the Club; (iv) payment of salaries to the General Manager
of the Club and other office and administrative staff; (v) payment of travel,
entertainment, and promotional costs associated with the development of the
Company's Club; and (vi) payment of accounting, legal, and other general and
administrative expenses.
And while the Company recorded $687,362 as General and Administrative
Expenses in Fiscal 1999, this represented an 18.03% decline from $832,594 in
General and Administrative Expenses recorded in Fiscal 1998. The decline in
these expenses was primarily due to a reduction in travel and entertainment
expenses.
Total General and Administrative Expenses in Fiscal 1999 also included a
charge of $3,042,000 recorded for stock options granted the Company's officers
and directors. Included in this amount were two options granted the Company's
Founder, Chairman, President, and CFO, Ralph M. Amato: (i) one option for the
purchase of up to 1,200,000 shares of the Company's Common Stock (par value
$0.001) at $0.25 per share (with no expiration date); and (ii) one option for
the purchase of up to 600,000 shares of the Company's Common Stock (par value
$0.001) at $0.25 per share (with a February 13, 2004 expiration date).
Also included was a 250,000 share option granted the Company's Director,
Michael L. Potter, Esq. This option is exercisable for the purchase of 250,000
shares of the Company's Common Stock at an exercise price of $0.25 per share.
As a result, Total General and Administrative Expenses in Fiscal 1999 were
$3,729,362 or approximately 344.72% more than the $838,594 recorded in Fiscal
1998.
Other Expenses in Fiscal 1999 were also higher than in Fiscal 1998. While
the Company recorded Interest Income of $2,077 in Fiscal 1999 compared to
$2,102 in Fiscal 1998 (in each case derived from temporary cash bank balances),
the Company recorded an aggregate of $432,184 in Interest Expense in Fiscal
1999 compared to $139,098 in Interest Expense in Fiscal 1998.
The increase of over 210.70% from Fiscal 1998 was due in large part to the
Company's increased use of debt financing during Fiscal 1999 compared to Fiscal
1998. For example, as of December 31, 1999, the Company had an aggregate
balance of $2,283,614 in secured and unsecured promissory notes outstanding.
This compares to an aggregate of $1,255,668 in secured and unsecured promissory
notes outstanding as of December 31, 1998. While these promissory notes carried
interest rates ranging from 8% to 12%, overall the Company increased the dollar
amount of these notes by nearly 82% in Fiscal 1999 compared to Fiscal 1998.
In particular, the largest single component of this increase in Interest
Expense was due in large part to the transaction that the Company had in June
1999 with the Company's largest creditor, Essex Capital Holdings, Ltd.
("Essex"). As of December 31, 1999, the Company owed Essex $959,674 under a
Convertible Unsecured Promissory Note (the "Essex Note"). While the Essex Note
represented approximately 42% of the aggregate outstanding amount of Notes
Payable as of December 31, 1999, the Essex Note carries a 12% interest rate,
requires quarterly interest payments, is convertible into the Company's Common
Stock at $0.36 per share, and the principal amount of the Essex Note is due and
payable in full on January 23,2001. The Essex Note, issued in June 1999 allows
the Company to borrow up to $1,000,000 (subsequently increased to $1,500,000 in
January 2000).
- 26 -
===============================================================================
<PAGE>
The Company also recorded $369,974 in Depreciation Expense in Fiscal 1999
compared to zero Depreciation Expense in Fiscal 1998.
As a result, the Company's Total Other Expenses in Fiscal 1999 were
$800,081 in Fiscal 1999 which represented a 484.02% increase from Fiscal 1998.
This resulted in a Deficit Before Income Taxes of $4,529,443 for Fiscal 1999
compared to a Deficit Before Income Taxes of $976,390 in Fiscal 1998.
In both Fiscal 1999 and Fiscal 1998, the Company recorded $800 as a
provision for the payment of its minimum corporate California Franchise Taxes.
This resulted in the Company recording a Net Loss of $4,530,243 in Fiscal 1999
or a 363.98% increase in Net Losses from Fiscal 1998's Net Loss of $976,390.
And although the Company weighted averages shares in Fiscal 1999 were
5,418,220 compared to only 2,409,687 weighted average shares outstanding in
Fiscal 1998, the Company recorded a Net Loss per share of $0.84 in Fiscal 1999
compared to a Net Loss per share of only $0.41 per share in Fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had $11,500 in Total Current Assets
compared to $2,519,069 in Total Current Liabilities. This striking imbalance
between Total Current Assets and Total Current Liabilities underscores the
illiquidity of the Company. The Company's significant reliance on short-term
debt financing with the resulting obligation to pay these creditors
$2,519,069 on or before December 31, 2000 will be a significant financial
burden on the Company and there can be no assurance that the Company will have
the ability to satisfy the claims of these creditors.
The Total Current Liabilities included $70,926 in Accounts Payable and
Accrued Expenses, $164,529 in Accrued Interest, $600,000 in Convertible Debt
for Construction Services, and $1,683,614 in Convertible Debt. Since the
amount shown for Total Current Liabilities represents debts that must be repaid
within 12 months from December 31, 1999, the Company will need to generate
positive cash flows from its operations or otherwise obtain funds from other
financing to repay this debt and, for that debt that is convertible, to convert
the convertible debt into shares of the Company's Common Stock.
While the Company had, as of December 31, 1999, no long term debt, the
Company has no track record for its operations and there can be no basis to
believe that the Company will be successful in obtaining the funds needed for
the necessary repayment of any of this debt.
IMPACT OF INFLATION
Because of the nature of its services, the Company does not believe that
inflation has a significant impact on its sales or profits.
Item 7. FINANCIAL STATEMENTS.
The financial statements and related financial information required to be
filed hereunder are indexed on page F-1 of this report and are incorporated
herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company engaged the independent accounting firm of Sporl and Welker,
the predecessor of Pannell Kerr Forster as the Company's independent auditor in
October 1998. Pannell Kerr Forster resigned as the Company's auditor on
December 17, 1999. The resignation did not arise out of any disagreement
between the Company and Pannell Kerr Forster regarding any matter. Pannell Kerr
Forster has stated that their resignation occurred because the industry in
which the Company operates did not meet their long-term client profile
objective.
- 27 -
===============================================================================
<PAGE>
From December 1993 to March 1, 1996 the Company (through its predecessor,
AEI-Nevada) engaged the firm of Harlan & Boettger as its independent auditor.
Harlan & Boettger were dismissed by the Company.
On March 18, 2000, the Company has engaged the services of Armando C.
Ibarra, C.P.A. as its independent accountant to replace Pannell Ferr Forster.
There have been no disagreements between the Company and any predecessor
auditor during the past two fiscal years and any subsequent interim period
prior to the termination of any said precdecessor's engagement. In each case,
the change in auditors was determined by the Company's Chairman of the Board of
Directors.
While Pannell Kerr Forster's audit report on the financial statements for
1997 and 1998 contained a going concern modification, the Company does not have
any disagreements between it and Pannell Kerr Forster through the date of
Pannell Kerr Forster's termination.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The Company's By-laws authorize four 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. The
Directors serve until the next annual meeting of shareholders or until their
successors are elected.
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:
Name Age Position Date Elected
Ralph M. Amato 49 President, Chairman, & 12/06/93
412 Broadway Chief Financial Officer
San Francisco, California 94133
Michael L. Potter, Esq. 48 Secretary & Director 01/29/96
412 Broadway
San Francisco, California 94133
Each of the foregoing persons may be deemed a "promoter" of the Company,
as that term is defined in the rules and regulations promulgated under the
Securities Act of 1933. Directors are elected to serve until the next annual
meeting of stockholders and until their successors have been elected and have
qualified.
RALPH M. AMATO, age 49, is the founder of the Company and has been its
President and Chairman since the December 6, 1993 incorporation of Alternative
Entertainment, Inc., a Nevada corporation ("AEI-Nevada"). In August of 1998,
Mr. Amato assumed the additional responsibilities of Chief Financial Officer.
In addition to his position as President, Chairman, and Chief Financial
Officer, Mr. Amato is also President of California Merchant Group, an
investment banking firm located in La Jolla, California ("CMG"). CMG
specializes in assisting emerging growth companies in obtaining capital
throughout the United States, Canada, and Mexico. From 1990 to 1992, Mr. Amato
was a management consultant to Big Bob's Sports Collectibles, a Milford
Connecticut-based sports memorabilia distributor. From November 1988 to
November 1990, Mr. Amato was a Senior Account Executive for PaineWebber in its
San Diego, California office.
- 28 -
===============================================================================
<PAGE>
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, an 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.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors, executive officers and persons who own more
than 10% of the Company's Common Stock (collectively "Covered Persons") to file
initial reports of ownership (Form 3) and reports of changes in ownership of
Common Stock (Forms 4 and Forms 5) with the Securities and Exchange Commission
(the "Commission") as well as the Company and any exchange upon which the
Company's Common Stock is listed.
The Company is required to identify Covered Persons that the Company knows
have failed to file or filed late Section 16(a) reports during the previous
fiscal year. To the Company's knowledge, the following Covered Persons during
the fiscal year ended December 31, 1999 failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act:
Number of Reports
Not Filed on a
Name Position Timely Basis(2)
----------------------- ---------------------------- -----------------
Ralph M. Amato President, Chairman of the Form 3 & Form 5
Board, CFO(1)
Michael L. Potter, Esq. Director(1) Form 3 & Form 5
-----------------------
(1) Also beneficial owner of more than 10% of equity securities of
Registrant.
(2) To the Company's knowledge, based solely on a review of the copies of
the reports furnished to the Company by such persons, in the fiscal year
ended December 31, 1999, such persons have subsequently filed the
reports required by Section 16(a) of the Exchange Act.
Item 10. EXECUTIVE COMPENSATION
The Company's Board of Directors has authorized the compensation of its
officers with the following annual cash salaries:
- 29 -
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<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation
----------------------------------------
Name and Other Annual
Principal Position Year Salary Bonus Compensation ($)*
---------------------- ---- -------- ------ -----------------
<S> <C> <C> <C> <C>
Ralph M. Amato 1997 $ 0 $0 $0
Chairman, President 1998 $ 7,600 $0 $0
and CFO 1999 $ 30,000 $0 $0
Michael L. Potter 1997 $ 0 $0 $0
Secretary and Director 1998 $ 0 $0 $0
1999 $ 0 $0 $0
<FN>
-----------------------
Footnote:
* The amounts shown do not include any value assigned to the Options granted
in 1999 as follows:
1) an option to purchase 1,200,000 shares of the Company's Common Stock
exercisable 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, Mr. Amato received an option to
purchase 600,000 shares exercisable at $0.25 per share by Ralph M.
Amato (the "Second Amato Option"). The Second Amato Option expires
on February 13, 2004.
2) an option to purchase 250,000 shares of the Company's Common Stock
at $0.25 per share by Michael L. Potter, Esq. pursuant to a certain
common stock purchase option granted by the Company's Board of
Directors. This option expires on February 13, 2004.
All of the above options have not been exercised and all of them would
result in the Company issuing restricted shares of the Company's Common Stock.
Each option does not require that the Company file any registration statement
for the registration of the shares. With respect to cash salaries, the Company
may change or increase salaries as the Company's profits and cash flow allow.
The amount of any increase in salaries and compensation for existing officers
has not been determined at this time and the number and dollar amount to be
paid to additional management staff that will likely be employed has not been
determined.
</TABLE>
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<PAGE>
<TABLE>
OPTION/SAR GRANTS IN LAST TWO FISCAL YEARS
(1999 Fiscal Year Individual Grants)
<CAPTION>
No. of Percent of
Securities Total Options/
Underlying SARs Granted Exercise of
Options/SARs to Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year (1) ($/Sh) Date
----------------- -------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Ralph M. Amato 1,200,000 87.18% $0.25 None
600,000 $0.25 02-13-04
Michael L. Potter, 250,000 12.82% $0.25 02-13-04
Esq.
<FN>
-----------------------
Footnote:
(1) Represents common stock purchase options granted the Company's officers
and directors in 1999 (no options were granted in 1998). Prior to 1998
and except for an option to purchase 60,000 shares (at $0.50 per share)
granted to Stanley V. Heyman, a former officer, the Company has not issued
or granted any common stock purchase options to the Company's officers and
directors. All of the options shown were granted in 1999.
</TABLE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options made during fiscal 1999 to the Named Executive Officers:
<TABLE>
<CAPTION>
Options Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------
Number of % of Total
Shares Options
Underlying Granted Exercise or
Options Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Share) Date
------------------- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Ralph M. Amato 1,200,000 $0.25 None
600,000 87.18% 0.25 02/13/04
Michael L. Potter, Esq. 250,000 12.82% $0.25 02/13/04
</TABLE>
The following table sets forth information with respect to the Named
Executive Officers, concerning the exercise of options during the fiscal year
ended December 31, 1999 and unexercised options held as of the end of that
fiscal year.
<TABLE>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<CAPTION>
Number of
Shares Value of
Shares Underlying Unexercised
Acquired Unexercised In-the-Money
on Value Options at Options at
Exercise Realized FY-End FY-End
Name (#) ($) (#)(1) ($)(1)(2)
----------------------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Ralph M. Amato 0 -- 1,800,000 $450,000
Michael L. Potter, Esq. 0 -- 250,000 $ 62,500
<FN>
-----------------------
(1) All options are presently exercisable.
(2) Market value of underlying securities minus the exercise price. Based on
closing sale price of $0.50 per share on May 18, 2000.
(3) Exercise price equal to $0.25 per share.
- 31 -
===============================================================================
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding beneficial ownership
as of May 18, 2000 of the Company's Common Stock, by any person who is known to
the Company to be the beneficial owner of more than 5% of the Company's voting
securities and by each Director and by Officers and Directors of the Company as
a group. The Company has only one class of stock.
</TABLE>
<TABLE>
Number of Percentage
Name and Address shares of class
-------------------------------- ------------ ----------
<S> <C> <C>
Ralph M. Amato. 2,786,669(1) 34.33%
412 Broadway
San Francisco, California 94133
Michael L. Potter, Esq. 270,000 3.33%
412 Broadway
San Francisco, California 94133
All Officers and
Directors as a Group (2 persons) 3,056,669(1)(2) 37.66%
<FN>
-----------------------
(1) Represents shares owned by Ralph M. Amato, the Company's President,
Chairman, Founder, and Chief Financial Officer. Includes 1,800,000 shares
of Common Stock purchasable under options granted Mr. Amato.
(2) Includes 250,000 shares of Common Stock purchasable pursuant to options
issued to Mr. Potter.
</TABLE>
Item 12. 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.
- 32 -
===============================================================================
<PAGE>
In September 1999, the Company entered into a lease of two residential
apartment units from Bayside Village at 180 Brannan Street Suite #217 and #406,
San Francisco, California under a month-to-month lease at a combined monthly
rental of $4,520.00. While one unit is used by the general manager of the
Company's Club and the other unit is used by the Company's Chairman and any
officers, employees, or consultants of the Company as the Company's business
needs require, this transaction may be considered a transaction between the
Company and Mr. Amato, the Company's founder, Chairman, and President.
On October 25, 1999 the Company's Board of Directors accepted a loan 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%.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
None.
- 33 -
===============================================================================
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
(Registrant): BoysToys.com, Inc.
By: /S/ Ralph M. Amato Date: 06/08/00
-------------------------- --------
Ralph M. Amato
President,
Chairman of the Board and
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
By: /S/ Ralph M. Amato Date: 06/08/00
-------------------------- --------
Ralph M. Amato
Chairman
By: /S/ Michael L. Potter, Esq. Date: 06/08/00
-------------------------- --------
Michael L. Potter, Esq.
Director
- 34 -
===============================================================================
<PAGE>
ARMANDO C. IBARRA
CERTIFIED PUBLIC ACCOUNTANTS
(A Professional Corporation)
Armando C. Ibarra, C.P.A. Members of the California Society of
Armando Ibarra, Jr., C.P.A. Certified Public Accounts
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BoysToys.com, Inc.
La Jolla, Ca. 92037
We have audited the accompanying consolidated balance sheets of BoysToys.com,
Inc. as of December 31, 1999 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. The 1998 financial statements were audited by other auditors
whose report dated August 31, 1999, included an explanatory paragraph
describing conditions that raised substantial doubt about the Company's ability
to continue as a going concern.
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, 1999 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 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 losses from operations raise
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.
/S/ ARMANDO C. IBARRA
---------------------
ARMANDO C. IBARRA, CPA
San Diego, California
April 12, 2000
350 E Steet, Suite H, Chula Vista, CA 91910
Tel: (619) 422-1348 Fax: (619) 422-1465
- F - 1 -
===============================================================================
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 1998
<TABLE>
ASSETS
------
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 2 $ -
Prepaid Rent - 24,000
Prepaid Insurance 3,000 -
Deposits 8,500 240,000
---------- ----------
Total Current Assets 11,500 264,000
Property and Equipment, Net 3,075,916 538,350
Other Assets:
Note Receivable - Officer 37,592 35,515
Deposits 48,226 37,000
---------- ----------
Total Other Assets 85,818 72,515
TOTAL ASSETS $3,173,234 $ 874,865
========== ==========
<F1>
See Auditors' Report and Notes to Financial Statements
</TABLE>
- F - 2 -
===============================================================================
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 1998
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts Payable and Accrued Expenses $ 70,926 $ 621,704
Bank Overdraft - 12,556
Accrued Interest 164,529 262,856
Convertible Debt for Construction Services 600,000 -
Convertible Debt 1,683,614 1,255,668
---------- ----------
Total Current Liabilities 2,519,069 2,152,784
TOTAL LIABILITIES 2,519,069 2,152,784
Shareholders' (deficit) equity :
Preferred stock, $.01 par value ( 10,000,000
authorized; none issued and outstanding.) - -
Common Stock, $.01par value ( 20,000,000
shares authorized; issued and outstanding:
6,252,003 and 3,441,762 as of
December 31, 1999 and 1998, respectively) 62,520 34,418
Additional Paid-in-capital 8,510,721 2,013,996
Common stock subscribed (62,500) -
Deficit accumulated during the development stage (7,856,576) (3,326,333)
---------- ----------
Total Shareholders' (Deficit) Equity 654,165 (1,277,919)
TOTAL LIABILITIES AND SHAREHOLDERS'
(DEFICIT) EQUITY $3,173,234 $ 874,865
========== ==========
See Auditors' Report and Notes to Financial Statements
</TABLE>
- F - 3 -
===============================================================================
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Dec 6, 1993
(inception)
Years Ended December 31, through
1999 1998 Dec 31, 1999
---------- ---------- -----------
<S> <C> <C> <C>
Revenues $ 916 $ - $ 916
---------- ---------- -----------
General and Administrative Expenses (687,362) (808,594) (3,363,157)
Officer compensation in stock options (3,042,000) (30,000) (3,072,000)
---------- ---------- -----------
Total General &
Administrative Expenses (3,729,362) (838,594) (6,435,157)
Other Income (Expenses):
Interest Income 2,077 2,102 5,818
Interest Expense (432,184) (139,098) (754,519)
Offering Costs Written - off - - (297,944)
Depreciation (369,974) - (369,974)
---------- ---------- -----------
Total Other Income (Expenses) (800,081) (136,996) (1,416,619)
Deficit Before Income Taxes (4,529,443) (975,590) (7,851,776)
Provision for Income Taxes (800) (800) (4,800)
---------- ---------- -----------
Net loss $(4,530,243) $ (976,390) $(7,856,576)
=========== =========== ===========
Net loss per share $ (0.84) $ (0.41)
=========== ===========
Weighted average shares used
for net loss per share 5,418,220 2,409,637
=========== ===========
Net loss per diluted share $ (0.58) $ (0.18)
=========== ===========
Weighted average shares used
for net loss per diluted share 7,398,827 3,913,929
=========== ===========
<F1>
See Auditors' Report and Notes to Financial Statements
</TABLE>
- F - 4 -
===============================================================================
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY
From December 6, 1993 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Common stock During
Common Stock Paid-in Subscribed Development
Shares Amount Capital Shares Amount Stage Total
--------- -------- ---------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 6, 1993 - $ - $ - - $ - $ - $ -
Issuance of common stock 50,000 500 1,000 - - - 1,500
Sale of stock to common stock
susbcribers upon full payment of
subscription during December 1993 11,817 118 237 - - - 355
Common stock subscribed, net
$50,871 of subscriptions receivable - - - 1,666,667 119 - 119
Net Loss - - - - - (564) (564)
--------- -------- ---------- --------- -------- ------------ ------------
Balance, December 31, 1993 61,817 618 1,237 1,666,667 119 (564) 1,410
Sale of stock to common stock
susbcribers upon full payment of
subscription during June,1994 1,666,667 16,667 34,233 (1,666,667) (119) - 50,781
Issuance of common stock in
private placement offering, net
$10,067 of offering costs 71,442 714 203,546 - - - 204,260
Net Loss - - - - - (170,155) (170,155)
--------- -------- ---------- --------- -------- ------------ ------------
Balance, December 31, 1994 1,799,926 17,999 239,016 - - (170,719) 86,296
Issuance of common stock in
private placement offering 56,761 568 169,717 - - - 170,285
Return and cancellation of
common stock (139,000) (1,390) 1,390 - - - -
Issuance of common stock for
services 139,000 1,390 415,610 - - - 417,000
Net Loss - - - - - (777,674) (777,674)
--------- -------- ---------- --------- -------- ------------ ------------
Balance, December 31, 1995 1,856,687 18,567 825,733 - - (948,393) (104,093)
Net Loss - - - - - (899,983) (899,983)
--------- -------- ---------- --------- -------- ------------ ------------
Balance, December 31, 1996 1,856,687 18,567 825,733 - - (1,848,376) (1,004,076)
Net Loss - - - - - (501,567) (501,567)
--------- -------- ---------- --------- -------- ------------ ------------
Balance, December 31,1997 1,856,687 $ 18,567 $ 825,733 0 $ - $ (2,349,943) $ (1,505,643)
--------- -------- ---------- --------- -------- ------------ ------------
<F1>
See Auditors' Report and Notes to Financial Statements
</TABLE>
- F - 5 -
===============================================================================
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY (continued)
From December 6, 1993 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Common stock During
Common Stock Paid-in Subscribed Development
Shares Amount Capital Shares Amount Stage Total
--------- -------- ---------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,856,687 $ 18,567 $ 825,733 - $ - $ (2,349,943) $ (1,505,643)
Issuance of common stock on
reverse merger 602,811 6,028 - - - - 6,028
Issuance of common stock on
conversion of notes payable and
accrued interest from September
1998, through December 1998, at
an average price of $1.37 per share 350,388 3,504 477,327 - - - 480,831
Issuance of common stock on
conversion of accounts payable,
January through October 1998, at
an average price of $0.87 per share 186,376 1,864 160,620 - - - 162,484
Issuance of common stock for
services, from January through
October 1998, at an average price
of $0.92 per share 185,500 1,855 168,916 - - - 170,771
Issuance of common stock for
construction escrow deposits in
October 1998, at a price of
$1.00 per share 240,000 2,400 237,600 - - - 240,000
Issuance of common stock for
prepaid rent in December 1998,
at a price of $1.20 per share 20,000 200 23,800 - - - 24,000
Issuance of stock options on
conversion of accounts payable
in October 1998, at a price of
$1.00 per share - - 90,000 - - - 90,000
Issuance of stock options to directors
for services in October 1998, at a
price of $1.00 per share - - 30,000 - - - 30,000
Net Loss - - - - - (976,390) (976,390)
--------- -------- ---------- --------- -------- ------------ ------------
Balance, December 31, 1998 3,441,762 $ 34,418 $2,013,996 0 $ 0 $ (3,326,333) $ (1,277,919)
--------- -------- ---------- --------- -------- ------------ ------------
<F1>
See Auditors' Report and Notes to Financial Statements
</TABLE>
- F - 6 -
===============================================================================
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY (continued)
From December 6, 1993 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Common stock During
Common Stock Paid-in Subscribed Development
Shares Amount Capital Shares Amount Stage Total
--------- -------- ---------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 3,441,762 $ 34,418 $2,013,996 - $ - $ (3,326,333) $ (1,277,919)
Issuance of common stock on
exercise of option in September
1999, at an exercise price of $0.25 100,000 1,000 24,000 - - - 25,000
Issuance of common stock on
conversion of notes payable and
accrued interest, from February
1999 through June 1999, at an
average price of $1.22 per share 962,985 9,630 1,171,529 - - - 1,181,159
Issuance of common stock for
services, from April 1999 through
December 1999, at an average
price of $1.00 per share 562,377 5,624 556,753 - - - 562,377
Issuance of common stock in
private placement offering from
February 1999 through May 1999,
at a price of $1.00 per share 909,879 9,098 900,780 - - - 909,878
Issuance of stock options to
directors for services in February
1999 - - 3,042,000 - - - 3,042,000
Issuance of common stock for
cash and subscription receivable
in March 1999, at a price of $1.00
per share 125,000 1,250 123,750 (62,500) (62,500) - 62,500
Issuance of stock in lieu of
interest payment due in December
1999 150,000 1,500 46,827 - - - 48,327
Beneficial conversion feature of
convertible debt, from June 1999
through December 1999 - - 631,086 - - - 631,086
Net Loss - - - - - (4,530,243) (4,530,243)
--------- -------- ---------- --------- -------- ------------ ------------
Balance, December 31, 1999 6,252,003 $ 62,520 $8,510,721 (62,500) $(62,500) $ (7,856,576) $ 654,165
========= ======== ========== ========= ======== ============ ============
<F1>
See Auditors' Report and Notes to Financial Statements
</TABLE>
- F - 7 -
===============================================================================
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Dec 6, 1993
(inception)
Years Ended December 31, through
1999 1998 Dec 31, 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss $(4,530,243) $ (976,390) $(7,856,576)
Non-cash operating activities included in deficit accumulated:
Amortization and Depreciation 369,974 2,175 373,730
Accrued rent converted into note payable - - -
Issuance of common stock for services 150,000 170,771 1,102,391
Issuance of stock options to directors for services 3,042,000 30,000 3,072,000
Financing costs of beneficial conversion feature of
convertible debt 631,086 - 631,086
(Increase) decrease in assets:
Prepaid rent 24,000 - -
Prepaid Insurance (3,000) - (3,000)
Note receivable-officer (2,077) (1,913) (37,592)
Deposits 220,724 - (56,726)
Organization Costs - 1,445 (3,756)
Increase (decrease) in liabilities :
Accounts payable and accrued expenses (550,778) 231,257 70,926
Construction contract payable 600,000 - 600,000
Accrued interest (98,237) 159,490 164,529
----------- ----------- -----------
Net cash used in operating activities (146,551) (383,165) (1,942,988)
=========== =========== ===========
Cash Flows from Investing Activities
Capital expenditures on leasehold improvements (2,907,540) - (3,445,890)
----------- ----------- -----------
Net cash used in investing activities (2,907,540) - (3,445,890)
=========== =========== ===========
Cash Flows from Financing Activities :
Increase (decrease) in bank overdraft (10,309) 10,309 (10,309)
Increase (decrease) in convertible notes (834,513) 366,828 423,940
Borrowings on convertible debt 1,259,674 - 1,259,674
Issuances of common stock 1,656,035 - 2,714,598
Proceeds from private placement 909,879 6,028 909,879
Issuance of stock in lieu of interest 48,327 - 48,327
Proceeds on exercise of stock options 25,000 - 25,000
----------- ----------- -----------
Net cash provided by financing activities 3,054,093 383,165 5,381,418
=========== =========== ===========
Net increase in cash 2 - (7,460)
Cash at Beginning of Year - - -
----------- ----------- -----------
Cash at End of Year $ 2 $ 0 $ (7,460)
=========== =========== ===========
<F1>
See Auditors' Report and Notes to Financial Statements
</TABLE>
- F - 8 -
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
<TABLE>
<CAPTION>
Dec 6, 1993
(inception)
Years Ended December 31, through
1999 1998 Dec 31, 1999
----------- ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
Cash Paid During the Year for:
Interest (Net of amount capitalized) $ - $ (1,880) $ (1,880)
=========== =========== ===========
Income Taxes $ (800) $ (800) $ (800)
=========== =========== ===========
Noncash investing and financing activities:
Issuance of common stock and stock options on
conversion of debt $(1,181,158) $ (733,315) $(1,914,473)
=========== =========== ===========
Issuance of common stock and stock options for
goods and services $ (609,204) $ (264,000) $ (873,204)
=========== =========== ===========
<F1>
See Auditors' Report and Notes to Financial Statements
</TABLE>
- F - 9 -
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTE 1 - ORGANIZATION AND BUSINESS
BoysToys.com., Inc. (formerly Alternative Entertainment, Inc.) was incorporated
in the state of Delaware on April 21, 1997, under the name Wagg Corp. ("Wagg").
BoyToys.com, Inc. engages in the business of developing, owning and operating
nightclubs providing exotic dance entertainment combined with a full service
restaurant, lounge, and business meeting facilities.
On December 6, 1993 Alternative Entertainment, Inc. a Nevada corporation ("AEI
Nevada") was formed. On June 11, 1999, a wholly owned subsidiary was formed,
RMA of San Francisco, Inc., a California Corporation, which will be the
operating entity for the first such nightclub facility in San Francisco,
California.
On January 15, 1998, AEI Nevada acquired 80% of the outstanding common stock of
Wagg. On January 25, 1998, the shareholders of AEI Nevada voted to execute a
one-for-three reverse split of its common stock. On January 26, 1998, the
shareholders of Wagg voted to execute a one-for-two reverse split of its common
stock. Number of shares and per share amounts have been restated as though the
transaction occurred on December 6, 1993 (Inception).
Following these actions and on January 28, 1998, the Wagg Board of Directors
voted to approve a plan and agreement of reorganization between Wagg and AEI
Nevada. Under the terms of the reorganization, each outstanding share of
Wagg's common stock was exchanged for one share of AEI Nevada common stock and
all of the assets of AEI Nevada were transferred to Wagg. This resulted in AEI
Nevada becoming a wholly-owned subsidiary of Wagg. In conjunction with these
actions, the shareholders of Wagg approved an amendment of Wagg's Certificate
of Incorporation to change its name to Alternative Entertainment, Inc., a
Delaware Corporation ("AEI"). The reorganization has been accounted for as a
reverse acquisition with a public shell. Accordingly, the accompanying
consolidated financial statements have been presented as if AEI Nevada had
always been a part of Wagg.
During 1998 Wagg changed its name to AEI. On December 29, 1998, AEI changed
its name to BoysToys.com, Inc. (the "Company").
Activity 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. Subsequently, in January 2000, operations commenced at
the Company's first location in San Francisco.
- F - 10 -
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Company's policy is to use the accrual method of accounting and to prepare
and present financial statements in accordance with generally accepted
accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, RMA of San Francisco, Inc. and AEI Nevada. All
significant intercompany transactions and balances have been eliminated.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, accounts payable
and accrued expenses approximate fair value due to the immediate short-term
maturity of these financial instruments.
The fair value of the Company's notes payable and convertible debt approximates
the carrying amount based on the current rates offered to the Company for debt
of the same remaining maturities with similar collateral requirements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The company is currently
capitalizing all leasehold improvements, equipment and fixtures associated with
the development of its first establishment located in San Francisco,
California. No depreciation or amortization was recorded in 1998 because the
Company was in the development stage and the assets had not yet been placed
into service. Equipment and fixtures are being depreciated using the straight-
line method over the estimated asset lives ranging from 3 to 7 years.
Leasehold improvements will be amortized using the straight-line method over
the shorter of the life of the improvements or the length of the lease.
The company started recording depreciation and amortization expense in 1999
consistent with generally accepted accounting principles.
Leasehold improvements are primarily architectural, planning and construction
costs associated with construction of the facility. Equipment and fixtures are
primarily computer systems, furniture, lighting, sound and video equipment.
- F - 11 -
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company applies the provisions of Statement of Financial Accounting
Standards (SFAS) No. 34. Consequently, interest cost related to the
construction of the Company's first establishment is capitalized and will be
amortized consistent with the leasehold improvements. Capitalized interest
totaled $284,496 and $31,422 as of December 31, 1999 and 1998, 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
proforma disclosures of the compensation expense determined under the fair-
value provisions of SFAS No. 123. APB No. 25 requires no recognition of
compensation expense for most of the stock-based compensation arrangements
provided by the Company, namely, broad-based employee stock purchase plans and
option grants where the exercise price is equal to the market price at the date
of the grant.
LONG-LIVED ASSETS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of the impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. SFAS No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of . No impairment of long-lived assets has been
recognized.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized.
- F - 12 -
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BASIC LOSS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which
specifies the computation, presentation and disclosure requirements for
earnings (loss) per share for entities with publicly held common stock. SFAS
No. 128 supersedes the provisions of APB No. 15, and requires the presentation
of basic earnings (loss) per share and diluted earnings (loss) per share. The
Company has adopted the provisions of SFAS No. 128 effective December 6, 1993
(inception).
Basic net loss per share excludes dilution and is computed by dividing net loss
by the weighted average number of common shares outstanding during the reported
periods. Diluted net loss per share reflects the potential dilution that could
occur if a stock option and other commitments to issue common stock were
exercised. During the years ended December 31, 1997 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. Furthermore,
the stock options issued to officer in 1999 have also been excluded from the
weighted average share computation. This is consistent with accounting
principles because during 1999 the average market price of the shares was not
greater than the exercise stock option price and was therefore anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 3 - NOTE RECEIVABLE - OFFICER
A note receivable in the amount of $37,592 and $35,515 is due from an officer
of the Company as of December 31, 1999 and 1998, respectively. This note bears
interest at 5.85% and is due upon demand.
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTE 4 - BARTER CREDIT
On February 18, 1998, the Company purchased $530,000 of Barter Credits via the
future issuance of 100,000 shares of common stock of the Company. The Barter
Credits entitle the Company to receive goods and services with a fair value
estimated at $530,000 in excess of cash payments made. Management has 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 a stock
issuance for par value and additional paid-in capital for the excess of the
fair value of the goods and/or services received over cash payments made plus
the pro-rata portion of the available Barter Credits utilized to the fair value
of the Barter Credits estimated ($100,000) by the Company. The shares to be
issued are subject to restrictions on their transferability of up to two years.
The Barter Credits expire sixty months from February 18, 1998, unless the
Company has used at least $100,000 of the Barter Credits during this period,
which will extend the remaining Barter Credits through February 18, 2008.
Management has elected to omit the $100,000 asset reflected in the 1998 year
end financial statements and the paid-in capital associated with it.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 and 1998, consists of the
following:
December 31,
1999 1998
---------- ----------
Equipment and fixtures $ 247,816 $ -
Leasehold improvements:
Capitalized construction costs 2,913,578 506,928
Capitalized interest 284,496 31,422
Less: accumulated depreciation (369,974) -
---------- ----------
$3,075,916 $ 538,350
========== ==========
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31,
1999 1998
---------- ----------
Accounts payable $ 70,926 $ 597,214
Accrued expenses - 24,490
---------- ----------
$ 70,926 $ 621,704
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTE 7 - NOTES PAYABLE
Notes payable as of December 31, 1999 and 1998, consist of the following:
December 31,
1999 1998
---------- ----------
Secured promissory notes with issuance dates
ranging from September 1995 to February 1999,
with interest rates ranging from 8% to 12% per
annum. The notes are due at the earlier of one
year after the date of the note or 60 days after
the Company's common stock is traded on any
securities exchange or in any over-the-counter
market. The notes and accrued interest thereon
are secured by Company common stock and
note holders have the option to convert their
debt into Company common stock. These notes
were not paid at their maturity dated and are due
upon demand. $ 423,940 $1,120,268
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. -0- 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
payable on a quarterly basis. These notes were
not paid at their maturity dates and are due upon
demand. -0- 50,000
Unsecured promissory notes dated in 1996 and
1997 due to related parties upon demand, with an
interest rate of 12% per annum -0- 25,400
- F - 15 -
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTES 7 - NOTES PAYABLE (Continued)
December 31,
1999 1998
---------- ----------
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. 959,674 -0-
Unsecured convertible promissory note dated
January 10, 1999 with an interest rate at 10%
per annum. Principal, and accrued interest, is
payable on or before January 10, 2000. 600,000 -0-
Unsecured convertible promissory of $300,000
dated December 3, 1999 with a maturity date of
December 1, 2000, and accrues interest at 12%
per annum. 300,000 -0-
---------- ----------
$2,283,614 $1,255,668
========== ==========
Accrued interest related to notes payable totaled $164,529 and $262,856 as of
December 31, 1999 and 1998 respectively. During 1999 notes payable of $999,513
plus accrued interest were converted into shares of common stock.
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.
- F - 16 -
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTE 8 - SHAREHOLDERS' EQUITY (Continued)
STOCK OPTION PLANS
The Company has approved two stock option plans that become effective
January 1, 1994, an Incentive Stock Option Plan and a Non-qualified Stock
Option Plan. Both plans are available to officers, directors and key employees
of the Company. Each plan allows for the purchase of up to 500,000 shares of
common stock of the Company.
During the year ended December 31, 1998, the Company issued 60,000 options to a
director under the non-qualified stock option plan. During the year ended
December 31, 1999, 1,950,000 options were granted to officers of the Company as
a compensation award. The options were immediately exercisable for $0.25 per
share and were granted at less than the quoted market price of the stock on the
date of grant. The Company has elected to account for incentive grants and
grants under its Plan following APB No. 25 and related interpretations.
Accordingly, the Company recorded $30,000 and $3,042,000 as compensation
expense for the year ended December 31, 1998 and the year ended December 31,
1999 respectively, with a corresponding credit to additional paid in capital.
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 market 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 method
as prescribed by SFAS No. 123, reported net (loss) and net (loss) per common
share would have been as follows:
December 31,
1999 1998
----------- -----------
Net (loss):
As reported $(4,530,243) $ (976,390)
Pro forma $(4,218,245) $ (988,082)
Basic net (loss) per share:
As reported $ (.83) $ (0.41)
Pro forma $ (.78) $ (0.41)
Diluted net (loss) per share:
As reported $ (.61) $ (0.18)
Pro forma $ (.57) $ (0.25)
- F - 17 -
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTE 8 - SHAREHOLDERS' EQUITY (Continued)
A summary of the activity of the stock options for the year ended
December 31, 1999 is as follows:
December 31, 1999
-------------------------------
Weighted Average
Share Exercise Price
----------- ----------------
Outstanding at beginning of period 120,000 $ 0.75
Granted 1,950,000 0.25
Forfeited -0-
Exercised (100,000) 0.25
----------- ----------------
Exercisable at end of period $ 1,970,000 0.35
Weighted-average fair value of options
granted during the period $ 0.64
========
Weighted-average remaining contractual life 10 years
========
NOTE 9 - INTEREST EXPENSE
Dec 6, 1993
(inception)
Years Ended December 31, through
1999 1998 Dec 31, 1999
---------- ---------- -----------
Interest expense incurred $ 716,680 $ 139,098 $ 1,105,430
Less: Capitalization interest (284,496) - (233,070)
---------- ---------- -----------
Net Interest expense $ 432,184 $ 139,098 $ 782,360
========== ========== ===========
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTE 10 - INCOME TAXES
Provision for income taxes is summarized as follows:
Dec 6, 1993
(inception)
Years Ended December 31, through
1999 1998 Dec 31, 1999
---------- ---------- -----------
(Unaudited)
Current income taxes $ (800) $ (800) $ (4,800)
Deferred income taxes - - -
---------- ---------- -----------
Provision for income taxes $ (800) $ (800) $ (4,800)
========== ========== ===========
Deferred income taxes reflect the next tax effects of temporary differences
between the carrying amount of assets and liabilities for reporting and the
amounts used for income tax purposes. The tax effects of items comprising the
Company's net deferred tax assets are as follows:
December 31,
1999 1998
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 2,248,725 $ 1,008,000
Other -0- 12,000
----------- -----------
Gross deferred tax assets 2,248,725 1,020,000
Valuation allowance (2,248,725) (1,020,000)
----------- -----------
Net deferred tax assets $ -0- $ -0-
=========== ===========
Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that deductible temporary differences and carryforward
are expected to be available to reduce taxable income. As the achievement of
required future taxable income is uncertain, the Company recorded a valuation
allowance. The valuation allowance increased by $363,000 and $140,000 from
1997 and 1996 respectively.
As of December 31, 1999, the Company has net operating loss carryforwards for
both federal and state income tax purposes of approximately $4,500,000, which
expire through 2019. Under federal and state laws, the availability of the
Company's net operating loss carryforward may be limited if a cumulative change
in ownership of more than 50% occurs within any three year period.
- F - 19 -
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
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, 1999, minimum annual rental
commitments under this non-cancelable lease were as follows:
Year Ending
-----------
2000 195,600
2001 201,600
2002 201,600
2003 201,600
Thereafter 128,400
---------
$ 928,800
=========
Rent expense for the years ended December 31, 1999 and 1998 was $209,041 and
$157,026, respectively.
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 $7,856,576 since its
inception in 1993. 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
COMMENCEMENT OF OPERATIONS
During October 1999 the Company completed its 15,000 square foot nightclub
facility in San Francisco, California and received its certificate of final
completion.
In January 1999 the Company commenced operations of their first location in San
Francisco, California.
- F - 20 -
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<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998,
and from December 6, 1993 (inception) through December 31, 1999
NOTE 13 - SUBSEQUENT EVENTS (Continued)
CONVERTIBLE DEBT
In April 2000 the Company converted the $600,000 note due, plus accrued
interest, to WB Elmer & Co. for construction services into 335,000 common
shares.
Management expects that the other outstanding convertible debt of 1,259,674
will be fully converted by March 2001.
- F - 21 -
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<PAGE>
