BusinessTN

Larry Lunan gave his company a bad name—and for good reason.

He has spent the past year custom transforming his publicly traded company, Bad Toys Holdings, into a would-be, full-service conglomerate providing sales and service of custom V-twin motorcycles and custom streetcars. The California-born certified public accountant is no stranger to the motorcycle business having started his first company in 1997. He closed that shop after discovering that simply selling bikes wasn’t enough to keep the doors open.

Today, there is a resurgence in popularity of custom-built vehicles, thanks to motorcycle and car shows on cable television. This specialty niche has exploded into a $27 billion market, by the reckoning of Lunan, who took the opportunity to restart Bad Toys with a tricked out business plan some might consider radical.

As president and CEO, Lunan initiated public trading of his Kingsport company on the NASDAQ Bulletin Board in November 2003 with the primary aim of buying other companies. “We are the only public entity, that I’m aware of, that offers both custom motorcycles and custom cars,” he says.

His style of raising capital through roll-ups may not be unheard of on Wall Street, but it’s new to a market full of mom-and-pop shops that specialize in one or two vehicle components. “It’s actually cheaper to grow through roll-ups [of companies that] may lack for management or capital, and convince them that their deal is better off inside our operation,” Lunan says.

But going through the acquisition process has been no easy ride. For example, the takeover of Chambers Automotive, located 10 miles north of Nashville in Cheatham County, was supposed to rev up the custom car business line. Instead, it resulted in an as yet unsettled lawsuit. Last year, Bad Toys acquired 100% of Carlsbad, Calif.-based American Eagle Manufacturing Co. as the base of the company’s motorcycle business. Now, it is buying Gambler Motorcycle Co. in Hendersonville, Tenn., a machine shop that manufactures, sells components and provides service for both motorcycles and “outlaw cars.” At press time, Bad Toys disclosed plans to pay $5.5 million in cash and debt and 5.5 million in stock and warrants for a medical ambulance and van company, contingent on financing.

Despite the company’s M&A activity, its stock has steadily declined from north of $2 in mid-2004 to recent prices in the 35-45 cents range. While the stock was cresting, Lunan called on Cornell Capital Partners in Jersey City, N.J., to kick-start its operations with a $12 million “stand-by” equity line for funding more acquisitions and a down payment on the company’s future home in an old Oldsmobile dealership in Kingsport. The company blames the subsequent stock-price dive on a share certificate exchange it says was bungled by broker/dealers and related, improper short-selling of shares by unknown parties.

Alan Mayes, a freelance writer from Tullahoma who writes for four national motorcycle and car magazines, hasn’t heard of Bad Toys, but cautions that “there are little motorcycle companies opening up all over the place. Anybody who can turn a wrench thinks he can build motorcycles.” Apparently, the custom motorcycle and custom streetrod market is not far from saturation.

While wishing Bad Toys well, Mayes notes that “American Eagle is not a well-established brand, and they’ve had trouble selling enough bikes to keep in business themselves, so I don’t know how much of a plum that will be for Bad Toys. Hopefully, they bought cheap.”

He might have said the same for Bad Toys shareholders.