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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ________________
COMMISSION FILE NO. 0-15501
ULTRA MOTORCYCLE COMPANY
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C>
CALIFORNIA 33-0140149
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
3810 WACKER DRIVE MIRA LOMA, CALIFORNIA 91752
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
ISSUER'S TELEPHONE NUMBER: (909) 360-2500
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: COMMON STOCK
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 [X]
No [ ]
Check if 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. [X]
State issuer's revenues for its most recent fiscal year. The issuer had
revenues of $27,614,231 for the fiscal year ended December 31, 2000.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act). The aggregate market value of the voting and
non-voting common equity held by non-affiliates on March 27, 2001 was
approximately $1,189,836 based on the closing price of the Company's Common
Stock on the OTC Bulletin Board on that date.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of March 27, 2001,
8,920,946 shares of the issuer's Common Stock were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Not applicable
Transitional Small Business Disclosure Format (check one):
Yes [X] No [ ]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL BUSINESS DEVELOPMENT
The Company, which was originally known as HDL Communications, was
incorporated in California in October 1985. The Company was engaged in the
publishing business until June 1989, when it acquired Biker's Dream, Inc., a
California corporation engaged in the sales and service of used Harley-Davidson
motorcycles. Prior to its acquisition of Biker's Dream, Inc., the Company
effected a 1 for 1,363.341473 reverse split of its outstanding Common Stock.
After the acquisition, Biker's Dream, Inc. was merged into HDL Communications
and HDL Communications changed its name to Bikers Dream, Inc. For accounting
purposes, Biker's Dream, Inc. is considered to be the acquirer of HDL
Communications. In January 2001, the Company changed its name to Ultra
Motorcycle Company. The change was approved at the Company's annual meeting of
shareholders held on December 15, 2000.
In September 1996, the Company formed a joint venture with Mull Acres
Investments, Inc. ("MAI"), whose Ultra Kustom Cycles division in Riverside,
California manufactured custom "V-twin" motorcycles and show-bikes. The joint
venture was formed to act as the exclusive distributor of Ultra Kustom Cycles
with exclusive rights to all direct retail sales of Ultra Kustom Cycles in
Southern California, Sacramento, California, and Dallas, Texas. In January 1997,
the Company, through its wholly owned subsidiary, Ultra Acquisition Corporation,
a Nevada corporation, purchased from MAI certain assets, including equipment and
inventory, of MAI's Ultra Kustom Cycles and Ultra Kustom Parts divisions that
had been used in connection with the manufacture, distribution and sale of
motorcycles and motorcycle parts and accessories.
Prior to January 31, 2000, the Company operated in two divisions: Motorcycle
Manufacturing and Distribution ("Motorcycle"), and retail stores (the "Retail
Division"). On January 31, 2000, the Company sold to V-Twin Holdings, Inc. the
assets related to the operation of the Retail Division. The Retail Division sold
motorcycles, after-market parts and accessories and performed service work on
motorcycles at five Superstores in Santa Ana, Sacramento and San Diego,
California, Dallas, Texas, and Conover, North Carolina, licensed the Company's
intellectual property and use of its business model and operating manuals to
approximately 16 independently owned Bikers Dream Superstores, and operated an
e-commerce site for the sale of motorcycle parts, accessories and apparel. The
assets sold included all fixed assets, inventory and equipment used in the
Retail Division, the right to operate the Retail Division under the assumed name
"Bikers Dream", all intellectual property assets relating to the Retail
Division, the right to use the domain name "bikers-dream.com", all rights under
license agreements with independently owned Bikers Dream Superstores, and rights
under real property leases and equipment leases.
The sale of the Retail Division has enabled the Company to focus on
strengthening its core motorcycle manufacturing business. Since the sale on
January 31, 2000, the Company has been focused on restructuring to meet the
needs of a manufacturer of motorcycles, including the development of a
profitable and stable dealer base. During the past year, the Company has also
focused on implementation of better internal controls, reduction of expenses,
and improvements in purchasing, cash management and inventory control. In 2000,
the Company introduced several new highly styled performance motorcycle models
that have been well received at dealer trade shows. As of mid-March 2001, the
Company had approximately $3,600,000 in back orders on these new models.
As of December 31, 2000, the Company's current liabilities exceed its
current assets by $1,489,979. On March 28, 2001, FINOVA Mezzanine Capital, Inc.
("FINOVA") notified the Company that FINOVA has elected to accelerate the
maturity of, and declare immediately due and payable in full, all amounts of
principal and interest owing by the Company to FINOVA under a $4,500,000 note as
a result of the Company's non-payment of approximately $136,000 in interest due
on March 1, 2001. If it so chooses, FINOVA is entitled to exercise its remedies
under the loan documents, including foreclosure on the Company's assets. As of
the date of the filing of this report, FINOVA has not notified the Company of
its intention to exercise its remedies under the loan documents and is
continuing to communicate regularly with the Company regarding the possibility
of a workout while reserving its right to enforce its remedies under the loan
documents at any time. FINOVA has informed the Company that it would be willing
to consider discounting the note, although no specific amount has been agreed
upon. FINOVA has also informed the Company's management that FINOVA is actively
seeking to sell the note to a third party and that FINOVA has received inquiries
from potential purchasers.
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To date, the Company has been unable to refinance the FINOVA indebtedness
and will not have the resources to repay the FINOVA indebtedness unless new
financing is obtained. As a result of the foregoing, Company's independent
auditors, in their report dated March 5, 2001, state that there is substantial
doubt about the Company's ability to continue as a going concern. The Company is
actively seeking new financing to refinance FINOVA's loan. However, there are
no assurances that the Company will be successful. If the Company is not
successful in refinancing the FINOVA loan, FINOVA may choose to exercise its
remedies under its loan documents.
BUSINESS OF ULTRA MOTORCYCLE COMPANY
After the sale of the Retail Division as described above under the caption
"General Business Development", the Company's business consists solely of the
Company's Motorcycle Manufacturing and Distribution division. The Company
designs and manufactures "V-twin" powered heavyweight cruiser motorcycles at an
assembly facility in Mira Loma, California. Marketing, sales and administrative
offices are also located in Mira Loma, California.
The Company currently offers eleven models under the Ultra Cycles name: the
"Groundpounder", the "Jackhammer ST", the "Wide Series" I & II, the
"Groundpounder ST", the "Avenger," the "Fatpounder," the "Fatpounder ST," the
"Sledgehammer," the "Titanium Series 1," and the "Titanium Series 2." All Ultra
Cycles models emphasize customized features, including polished or painted 113
cubic inch high performance S&S motors, custom gas tanks, fenders and paint
schemes, and chrome and billet aluminum accessories, as standard equipment.
Additional product differentiation is added through the use of popular colors
and designs. These features and benefits all combine to present an image that
differentiates the rider from the Harley-Davidson consumer. The Company
introduced a four-year, unlimited mileage protection program for all models on
April 1, 1998.
The Company also sells under its Ultra Kustom Parts label a variety of
customized parts, replacement parts and motorcycle accessories, as well as
apparel and novelty items. These product categories are continually being
developed and enhanced.
Distribution of Products; Dealer Network. The Company distributes
motorcycles, Ultra Kustom Parts and its other products through a distribution
network of approximately 94 independent licensed Ultra motorcycles dealer
locations as of March 23, 2001. The Company's Ultra motorcycles dealers include
three of the five Bikers Dream Superstores formerly owned by the Company which
were sold to V-Twin Holdings, Inc. in connection with the sale of the Retail
Division in January 2000. The Company markets its dealer programs primarily at
trade shows and consumer-directed gatherings and rallies. The Company provides
dealers with product training and other operational assistance. The Company is
focusing on the addition of dealers in geographic regions of the country with
year-round riding seasons, concentrating on states such as California, Texas,
Florida, and Arizona, to help mitigate the financial impact of seasonality on
its business. See also Part I, Item 6, entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Seasonality."
As of December 31, 2000, dealerships operated by V-Twin Holdings, Inc.
accounted for approximately 6% of the Company's accounts receivable balance. The
Company does not view itself as being dependent upon V-Twin as a customer and
believes that there is sufficient demand for its products such that any
reduction in orders by V-Twin could be made up by sales to other dealers.
Market for Company's Products. The Company competes in the "on-highway"
segment of the motorcycle market, which comprises the largest segment of the
total motorcycle market. Within the on-highway segment are four categories:
cruiser, standard, sportbike and touring. The Company's motorcycles fall within
the "cruiser" category, which is also referred to by the Motorcycle Industry
Council as the "heavy cruiser" or "cruiser over 900 cc" category. The Company
competes in a niche of the "cruiser" segment where Harley-Davidson is the market
leader.
The Company's marketing efforts are focused on dealer promotions and
cooperative programs with Ultra Cycles dealers. The Company participates in
special promotional events and in most major motorcycle consumer shows and
rallies. In addition to expanding brand awareness through direct consumer
contact, the Company also seeks to stimulate consumer demand for its high-style,
high-performance motorcycles through regional and national magazine advertising
and promotion of the newly-formed Ultra Motorcycle Riders Association, a club
for Ultra motorcycle owners. The club has grown to approximately 2,000 members
and provides a forum for Ultra owners to participate in riding events and to
exchange information.
The Company is currently in the process of redesigning its e-commerce web
site at "ultracycles.com" which provides information about the Company and its
operations, dealer locations, and the Company's Ultra motorcycles, Ultra Kustom
Parts and other accessories. The completed site will enable consumers to make
purchases of Ultra Kustom Parts and other accessories over the Internet. In
addition, Ultra motorcycle dealers are able to view and purchase motorcycles
online. However, the web site is not
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currently advertised and the amount of revenue and profits derived from sales on
the site during the 2000 fiscal year were not material in amount.
Competition. The U.S. heavyweight cruiser motorcycle market is highly
competitive and dominated by competitors that are larger than the Company. These
larger competitors generally have substantially greater financial and marketing
resources than those of the Company. Many of the Company's principal competitors
have greater sales volume than the Company, have a larger number of distribution
outlets and dealers, and are more diversified than the Company.
The Company seeks to avoid direct competition with Harley-Davidson, the
largest seller of heavyweight cruiser motorcycles, by operating within a
specialized niche of the heavyweight market. Within this niche, the Company
competes on the basis of product performance and style, pricing, service and
warranties. This competitive strategy includes offering certain customized
features (such as polished or painted high-performance engines) at no additional
charge over base prices, as well as a four-year, unlimited mileage protection
program for all models.
Within the Company's market niche, there are other competitors which are
larger than the Company, well financed and have a growing number of dealers.
These competitors offer a product that is traditional or nostalgic in style.
Other competitors within the Company's market niche are the same size or smaller
than the Company and offer products that are similar to the "cutting
edge"/chopper style used by the Company. These competitors generally have lower
production levels and higher selling prices than the Company. Some of the
Company's competitors recently have filed for bankruptcy protection, and
consequently have reduced their production levels. The Company has been
endeavoring to fill the void in the marketplace by directing its marketing
efforts at dealers who are looking for alternative sources of product.
There can be no assurance that the Company's competitors within the
Company's market niche will not expand their product lines or manufacturing
operations, or that other motorcycle manufacturers will not enter this market.
Status of New Products. The Company began accepting orders on its new
Fatpounder ST model during the last quarter of 2000 and began shipping during
the first quarter of 2001. In December 2000 and February 2001, the Company
introduced the Titanium Series 1 and the Titanium Series 2, respectively. The
"Titanium Series 1" and "Titanium Series 2" share the following features: a
rubber-mounted drive train, a 113 cubic inch S&S Cycle engine, five-speed
transmission and inverted front-end. The "Titanium Series 2" includes 6-gallon
stretched gas tanks, cruiser-style handlebar, 18-inch front tire and wheel and
uniquely styled longer rear fender with distinctive flip. Both "Titanium"models
have been well received by dealers at recent industry shows, and accounted for
about 12% of the motorcycle orders placed during the first quarter of 2001.
During the first quarter of 2001, the Company also debuted a limited-edition
Ground Pounder ST, featuring customized paint and graphics and inverted
front-end. Production of this model will be limited to 100 units, each
individually numbered on a specially designed billet aluminum plaque mounted to
the air-cleaner cover, and allocated one per dealer. As of March 31, 2001,
dealers have placed orders for 40 of the limited edition models.
During the last quarter of 2000, one of the Company's suppliers failed
to deliver frames as promised which were to be used by the Company in the
manufacture of several models, including the new models described above.
Consequently, as of mid-March 2001, 179 units (with a wholesale value of
approximately $3,700,000) were on backorder. The Company anticipates that it
will be able to fill the orders by July 2001.
MATERIALS AND SUPPLIERS
The principal suppliers of the Company, and the parts purchased from these
suppliers are identified in the table below:
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VENDOR CITY AND STATE PRODUCT PURCHASED
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S & S Cycle, Inc. Viola, WI Motors
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Custom Chrome, Inc. Morgan Hill, CA Frames, wheels, oil tanks and
miscellaneous parts
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American Made Rancho Cucamonga, CA Front ends, wheels, and
miscellaneous parts
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Ultra Sharp Eye Enterprises Downey, CA Transmissions
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Primo Belt Drives Whittier, CA Primary belt drives
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</TABLE>
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The Company operates primarily as an assembler and relies heavily on a
number of major component manufacturers to supply it with almost all of its
parts. The Company can obtain components from vendors other than those listed
above, in some cases at a substantial increase in cost to the Company. However,
increased competition in the industry has allowed new vendors to enter the
market and therefore has helped in keeping costs fixed. The Company is
constantly pursuing expansion of its vendor base and is constantly seeking to
improve the quality and lower the cost of its product.
Any significant adverse variation in quantity, quality or cost of
components would adversely affect the Company's volume and cost of production
until alternative sources of supply could be identified. For example, during the
fourth quarter of 2000, one of the Company's suppliers of frames failed to
timely deliver product as promised. Consequently, the Company was unable to meet
its production schedule, resulting in a loss of revenue for the fourth quarter
of approximately $1,500,000. See Part II, Item 6, Management's Discussion and
Analysis of Financial Condition and Results of Operations, Certain Trends and
Uncertainties -- "The Company relies heavily on third party parts suppliers and
any significant adverse variation in quantity, quality or cost would negatively
affect the Company's operations."
RESEARCH AND DEVELOPMENT
The Company has not expended a material amount during each of the past two
fiscal years on research and development efforts. The Company expended
approximately $23,700 and $54,742 in 1999 and 2000, respectively, on materials
used in research and development efforts. The Company also relies on skilled
in-house technicians to develop new products and utilizes outside consultants
from time to time.
PATENTS, LICENSES AND TRADEMARKS
The Company has no patents. In connection with the sale of the Retail
Division in January 2000, the Company assigned to V-Twin Holdings, Inc. the
Company's rights to the registered service mark "Bikers Dream", as well as the
Company's rights under license agreements with operators of approximately 16
independently owned Bikers Dream Superstores. The Company actively promotes
national brand recognition for the Ultra Motorcycle Company name by entering
into strategic marketing and promotional agreements. The Company has also
assisted suppliers with the development of products for use by the Company and
has entered into cooperative advertising programs with some of its suppliers.
REGULATION
The Company's operations are subject to regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations. Federal and state authorities have various environmental control
requirements relating to air and noise pollution which affect the business and
operations of the Company. The Company's motorcycles are subject to
certification by the U.S. EPA for compliance with applicable emissions and noise
standards and by the state of California Air Resources Board with respect to
more stringent emissions standards. The Company's motorcycle products also must
comply with the National Highway Traffic Safety Administration's standards.
Management believes that it maintains all requisite licenses and permits and
currently is in compliance with all applicable federal, state and local laws and
regulations. As the Company generally utilizes in the manufacture of its
motorcycles components which have already been designed by third-party vendors,
management believes that the cost of compliance with environmental regulations
is already factored into the cost of such components. Therefore, the Company's
internal cost of compliance with environmental regulations is not material in
amount.
The Company has been charged by the State of California Air Resources Board
with alleged violations of California's motor vehicle air pollution control laws
in connection with past retail sales of motorcycles. See Part I, Item 3,
entitled, "Legal Proceedings," for a more detailed description of this lawsuit.
EMPLOYEES
As of April 1, 2001, the Company has 79 employees, 78 of which are full
time.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's motorcycle assembly operations and executive offices are
located in a 56,200 square foot facility in Mira Loma, California. The Company
leases the premises at a monthly rent of $21,356 per month commencing March
2001. The lease expires in 2004. The Company has the option to extend the lease
for an additional five year term, subject to annual rent increases of up to 3%
of the prior year's rent. In the opinion of the Company's management, the
facilities are adequately covered by insurance.
As of December 31, 1999, the Company also leased properties at various
locations, including those listed below, in connection with the operation of the
Company's Retail Division. In connection with the sale of its Retail Division on
January 31, 2000, the Company assigned its interest in these leases to V-Twin
Holdings, Inc. However, the Company remains liable on the leases until their
expiration.
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SQUARE LEASE APPROXIMATE
LOCATION PRIMARY FUNCTION FEET EXPIRES MONTHLY RENT
-------- ---------------- --------- ---------- -------------
<S> <C> <C> <C> <C>
San Diego, CA................... Retail Superstore 6,935 12/31/01 $ 6,166
Santa Ana, CA................... Retail Superstore 12,107 8/31/03 $ 13,900(1)
Conover, NC..................... Retail Superstore 7,000 8/31/01 $ 2,300
</TABLE>
(1) The rent on this lease increases to $14,968 per month commencing
September 1, 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising out of its
operations in the normal course of business. As of the date of this report,
except as set forth below, in the opinion of the Company's management,
liability, if any, under these actions is adequately covered by insurance or
will not have a material effect on the Company's financial position or results
of operations.
In November 2000, the Company was served with a complaint filed on or about
September 7, 2000 in a civil action styled People of the State of California ex
rel. State Air Resources Board v. Ultra Acquisition Corporation, Ultra
Acquisition Corporation dba Ultra Cycles/Bikers Dream, Bikers Dream of Santa
Ana, Bikers Dream of San Diego, Bikers Dream of Sacramento, Herm Rosenman, Hal
Collins and Does 1 through 50, inclusive, in the Superior Court of the State of
California, County of Orange, Case No. OOCC10745. The complaint alleges
violations of California's motor vehicle air pollution control laws in
connection with the retail sale of motorcycles allegedly lacking the required
certification by the California State Air Resources Board ("ARB"). The action
seeks to enjoin any further violations and to recover a civil penalty. The
Company has initiated settlement discussions with the ARB with the intention of
obtaining a prompt resolution of this matter on terms which will not materially
impair the Company's financial condition. The Company does not have sufficient
information regarding the claims which are the subject of the complaint to
assess the likely outcome of this matter. Accordingly, no assurance can be given
as to the ultimate outcome of this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on December 15, 2000.
The shareholders took the following actions at the meeting:
1. Elected Harold L. Collins, John Russell, Humbert Powell, III and
Kenneth Schwartz to the Company's Board of Directors by the votes
in favor and the number of votes abstaining as set forth below,
with no broker non-votes:
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Name In Favor Abstaining
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<S> <C> <C>
Harold L. Collins 7,972,407 346,044
John Russell 8,007,503 310,948
Humbert Powell 8,008,638 309,813
Kenneth Schwartz 8,004,942 313,509
</TABLE>
2. Approved, by the vote of 8,274,226 in favor and 25,281 against,
with 18,944 abstaining and 0 broker non-votes, the amendment of
the Articles of Incorporation of the Company to change the name
of the Company from "Bikers Dream, Inc." to "Ultra Motorcycle
Company."
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3. Approved, by the vote of 2,270,283 in favor and 483,291 against,
with 35,026 abstaining and 5,529,851 broker non-votes, the Ultra
Motorcycle Company 2000 Stock Option Plan.
4. Ratified the selection by the Company's Board of Directors of
Singer, Lewak, Greenbaum, and Goldstein as the Company's
Independent auditors for the fiscal year 2000 by the vote of
6,855,755 in favor and 1,440,335 against, with 22,361 abstaining
and 0 broker non-votes.
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
From July 30, 1998 to October 17, 2000, the Company's Common Stock was
traded on The Nasdaq SmallCap Market under the symbol "BIKR." Effective October
18, 2000, the Company's Common Stock was delisted from The NASDAQ SmallCap
Market due to the failure of the Company to evidence a closing bid price of at
least $1.00 per share since April 2000, as well as the failure of the Company to
comply with at least one of the following requirements for continued listing:
maintaining net tangible assets of at least $2,000,000, maintaining market
capitalization of at least $35,000,000 or demonstrating net income of at least
$500,000 in the latest fiscal year. From October 18, 2000 to the present, the
Company's Common Stock has been traded on the National Association of Securities
Dealers Electronic Bulletin Board ("OTC Bulletin Board"), initially under the
symbol "BIKR," and commencing February 12, 2001, under the symbol "UMCC." The
following table reflects the high and low sales prices of the Company's Common
Stock, as reported by The Nasdaq Smallcap Market, from January 1, 2000 through
October 17, 2000 and the high and low bid prices of the Company's Common Stock,
as reported by the OTC Bulletin Board, from October 18, 2000 through December
31, 2000. The bid prices shown in the following table are inter-dealer
quotations without retail mark-ups, mark-downs or commissions, and may not
represent actual transactions.
<TABLE>
<CAPTION>
1999 LOW HIGH
---- ------- -------
<S> <C> <C>
First Quarter ............. $2.8125 $4.9062
Second Quarter ............ $ 2.25 $ 3.625
Third Quarter ............. $ 1.50 $2.9688
Fourth Quarter ............ $ 0.50 $ 2.00
2000 LOW HIGH
---- ------- -------
First Quarter ............. $0.5312 $ 1.75
Second Quarter ............ $ 0.375 $ 1.50
Third Quarter ............. $0.3438 $0.7812
Fourth Quarter ............ $0.0469 $ 0.50
</TABLE>
To date, the Company has not paid any cash dividends on its Common Stock and
does not expect to pay any dividends in the foreseeable future.
The estimated number of beneficial owners of the Company's Common Stock is
approximately 3,070 and the number of stockholders of record as of March 27,
2001 was 1,295.
The Company believes that the transactions described below in which
securities were sold were exempt from registration under the Securities Act of
1933 by virtue of Section 4(2) thereof as transactions not involving any public
offerings. In each transaction, the number of investors was limited, the
investors were provided with information about the Company and/or access to such
information, and restrictions were placed on resales of the securities.
<TABLE>
<CAPTION>
DATE TITLE AMOUNT CONSIDERATION PURCHASER
---- ----- ------ ------------- ---------
<S> <C> <C> <C> <C>
12/22/00 Options to Purchase 300,000(1) Services Directors
Common Stock
12/22/00 Options to Purchase 50,000(2) Services Employee
Common Stock
</TABLE>
(1) On December 22, 2000, the Company issued to each of its three outside
directors -- John Russell, Humbert Powell, III and Kenneth Schwartz --
options to purchase 100,000 shares of Common Stock under the Ultra
Motorcycle Company 2000 Stock Option Plan at an exercise price of $.28
per share. These options vested immediately upon grant and expire on
December 21, 2007.
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(2) On December 22, 2000, the Company issued to Harold Collins, its
President and Chief Executive Officer, options to purchase Common Stock
under the Ultra Motorcycle Company 2000 Stock Option Plan at an
exercise price of $.28 per share. These options vested immediately upon
grant and expire on December 21, 2007.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed in this Annual Report on Form 10-KSB are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects," "estimates," or words of similar meaning. Similarly,
references to the Company's future plans, objectives or goals are
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and under the heading "Certain Trends and Uncertainties," below.
These risks and uncertainties could cause actual results to differ materially
from those anticipated as of the date of this report. Shareholders, potential
investors, and other readers are urged to consider these factors in evaluating
the forward-looking statements, and are cautioned not to rely on such
forward-looking statements. The forward-looking statements included herein are
only made as of the date of this report and the Company undertakes no obligation
to publicly update such forward-looking statements to reflect subsequent events
or circumstances.
GENERAL
From 1990 until 1996, the Company operated primarily as a motorcycle
superstore retailer. Prior to 1997 the Company was attempting to establish a
network of franchised Bikers Dream stores, but suspended such efforts at the end
of 1996. In 1997 the Company established its Motorcycle Manufacturing and
Distribution ("Motorcycle") division by completing the acquisition of the
motorcycle and parts manufacturing assets of Ultra Kustom Cycles (see Item 1 --
"Description of Business -- General Business Development"). Since the
acquisition of the Motorcycle Division, the Company has devoted a significant
amount of resources to restructuring and repositioning the Company from a
retailer to a premier custom motorcycle manufacturer and distributor.
Between 1997 and 1999, the Company operated two divisions: Motorcycle and
Retail Stores (the "Retail Division"). The Retail Division sold motorcycles,
after-market parts and accessories and performed service work on motorcycles at
five Superstores in Santa Ana, Sacramento and San Diego, California, Farmers
Branch, Texas, and Conover, North Carolina, licensed the Company's intellectual
property and use of its business model and operating manuals to approximately 16
independently owned Bikers Dream Superstores, and operated an e-commerce site
for the sale of motorcycle parts, accessories and apparel. On January 31, 2000,
the Company sold to V-Twin Holdings, Inc. ("V-Twin") the assets related to the
operation of the Retail Division. The assets sold included all fixed assets,
inventory and equipment used in the Retail Division, the right to operate the
Retail Division under the assumed name "Bikers Dream", all intellectual property
assets relating to the Retail Division, the right to use the domain name
"bikers-dream.com", all rights under license agreements with independently owned
Bikers Dream Superstores, and rights under real property leases and equipment
leases.
The sale of the Retail Division has enabled the Company to focus on
strengthening its core motorcycle manufacturing business. Since the sale on
January 31, 2000, the Company has been focused on restructuring the Company to
meet the needs of a manufacturer of motorcycles, including the development of a
profitable and stable dealer base. During the past year, the Company has also
focused on implementation of better internal controls, reduction of expenses,
and improvements in purchasing, cash management an inventory control. In 2000,
the Company introduced several new highly stylized performance motorcycle models
that have been well received at dealer trade shows. As of March 2001, the
Company had approximately $3,600,000 in back orders on these new models.
The Company seeks to expand its market share by continuing the development
and introduction of new highly styled performance motorcycle models and the
addition of dealers in geographic regions of the country with longer riding
seasons, concentrating on states such as California, Texas, Florida and Arizona.
In addition to emphasizing quality control of its manufactured product, the
Company is continuing to develop its customer service infrastructure and has
recently introduced the Ultra Motorcycle Riders Association, an Ultra motorcycle
owners club and is redesigning its web site "www.ultracycles.com". The club
provides a forum for Ultra owners to participate in riding events and to
exchange information.
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RESULTS OF OPERATIONS
During 1999, the Company conducted its operations through two operating
divisions: Motorcycle and Retail. The Motorcycle division manufactures large
displacement "V-twin" powered heavyweight cruiser motorcycles at the Company's
Mira Loma, California facility. Prior to its sale in January 2000, the Retail
Division sold new and used motorcycles, parts and accessories through the
Company's five owned Superstores.
Generally, the Company is subject to seasonal fluctuations, as dealer demand
for motorcycles tends to increase in the second and third quarters as motorcycle
sales are greatest in the spring and summer months. Consequently, the Company
historically has experienced the highest revenues during the second and third
quarters.
As noted above, in January 2000, the Company sold to V-Twin Holdings, Inc.
the assets related to the operation of the Retail Division. The results of
operations of the Retail Division have been reclassified as discontinued
operations.
COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 31, 2000 AND 1999
REVENUES. Total revenues for the fiscal year ended December 31, 2000,
were $27,614,231 as compared to $22,308,983 for the same period in 1999,
representing an increase of $5,305,248 or 23.8%. In 2000, the Company sold 1,445
motorcycles that it manufactured, to unaffiliated customers, representing an
increase of 192 units, or 15.3%, from the prior year of 1,253. However, the
Company experienced lower revenues than projected during the fourth quarter of
2000 attributable, in part, to customary seasonal fluctuations, and in
particular, the failure of one of the Company's suppliers to deliver frames in a
timely fashion as promised. The resultant production delay caused a loss of
revenue in the fourth quarter of approximately $1,500,000.
In addition to the unit sales increase in 2000 over the prior fiscal
year, revenues increased as a result of a shift in the mix of units produced and
sold to higher priced models. Although priced higher than some of the other
models in the Company's lineup, the popular "Fat Pounder," "Sledgehammer" and
"Groundpounder ST" models represented about 69% of sales. The Company also
implemented select price increases throughout 2000, contributing to higher
average revenue per unit.
Currently, the Company has the capability to assemble up to 185 units
per month without additional capital expenditures or implementing a second
shift.
COST OF GOODS SOLD/GROSS PROFIT. Cost of goods sold for the fiscal year
ended December 31, 2000, was $22,764,832, or 82.4% of revenues, compared to
$18,251,001, or 81.8% of revenues, for the comparable period a year earlier,
representing an increase of $4,513,831 or 24.7%. The Company's gross profit
improved by $791,417, to $4,849,399 for the fiscal year ended December 31, 2000,
from $4,057,982 for the comparable period a year earlier, representing an
increase of 19.5%.
Cost of goods sold for the fiscal year ended December 31, 2000 include
direct and indirect manufacturing costs, warranty costs, and costs related to
the assembly of motorcycles. During the course of fiscal year 2000, the Company
made design changes and component upgrades to its lineup, resulting in a higher
per unit production cost as compared to the prior year.
Offsetting the higher per unit production costs, the Company
experienced a significant decrease in warranty costs from $1,795,048 for the
fiscal year ended December 31, 1999 to $796,404 for the fiscal year ended
December 31, 2000, representing a decrease of $998,644 or approximately 56%.
While the Company has implemented procedures to assure quality of the product,
no assurances can be given that product warranty problems will not occur in the
future.
EXPENSES. Selling, general and administrative expenses were $4,226,923
(i.e., 15.3% of total revenues), for the fiscal year ended December 31, 2000,
compared to $5,289,597 (i.e., 23.7% of total revenues, for the fiscal year ended
December 31, 1999, representing a decrease of $1,062,674, or 20%.
Selling, general, and administrative expenses consist primarily of
corporate operating expenses, professional fees, and salaries. The significant
reduction in 2000 over the prior fiscal year was largely attributable to reduced
consulting and professional fees, reductions in administrative salary expense,
and reductions of marketing and advertising expense.
Depreciation and amortization expense for the fiscal year ended
December 31, 2000, totaled $550,709 compared to $508,816 for the same period in
1999, representing an increase of $41,893, or 8.2%.
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As a consequence of the foregoing, the Company's operating income was
$71,767 for the fiscal year ended December 31, 2000, as compared to an operating
loss of $1,740,431 for the comparable period a year earlier.
OTHER INCOME (EXPENSE). Interest expense decreased by $112,688 from
$796,639 for the fiscal year ended December 31, 1999, to $683,951 for the fiscal
year ended December 31, 2000. The decrease is attributable to the Company's
reduction of outstanding debt during the year, in addition to satisfying the
capital lease obligations on certain equipment.
Interest income increased to $98,339 for the fiscal year ended December
31, 2000, from $0 for the comparable period a year earlier. The increase in
interest income was due primarily to the recognition of interest earned on a
note receivable from V-Twin Holdings, Inc.
Other income includes $623,000 under the line item entitled "Other
income from litigation and settlements," of which $613,000 represents a
reduction of liabilities recorded on December 31, 1999 for the negotiated
settlement of the Kinnicutt lawsuit. In addition to the foregoing, other income
also includes a gain on the sale of technology in the amount of $96,000,
representing the excess of a $300,000 note payable to the Company over $204,000,
which last amount represents payment to the Company for the repurchase of the
Company's ownership interest in certain proprietary technology. See Note 8 to
the financial statements filed as part of this Annual Report on Form 10-KSB.
As described in Note 2 to the financial statements filed as part of
this Annual Report on Form 10-KSB, the Company received 83,333 shares of common
stock of V-Twin Holdings, Inc. in connection with the sale by the Company to
V-Twin of the Company's Retail Division in January 2000. The Company initially
recorded the carrying value of the V-Twin common stock at $500,000, which figure
was based upon the price at which V-Twin could repurchase the shares, at
V-Twin's option, under the asset purchase agreement between V-Twin and the
Company, and was lower than the common stock's market value based on
then-current trading prices. Subsequent to the fiscal year ending December 31,
2000, the market value of the V-Twin's common stock dropped significantly.
Accordingly, the Company recorded a charge of $234,000 in the fourth quarter of
2000 to recognize the impairment loss on the V-Twin common stock asset. See Note
6 to the financial statements filed as part of this Annual Report on Form
10-KSB.
In 2000, the Company recorded a provision for income taxes for $4,800,
as compared to $800 for the comparable period a year earlier. The Company has
fully reserved for the deferred tax asset related to its net operating loss
carry-forwards beginning in the second quarter of 1995. The Company's management
has concluded that, based upon its assessment of all available evidence, the
future benefit of this asset cannot be projected accurately at this time.
LOSS BEFORE DISCONTINUED OPERATIONS, EXTRAORDINARY ITEM AND BENEFICIAL
CONVERSION ON PREFERRED STOCK. For the fiscal year ended December 31, 2000 the
Company reported a loss before discontinued operations, extraordinary item and
beneficial conversion of $23,741, as compared to a loss of $3,345,139 for the
fiscal period ending December 31, 1999, representing a decrease in loss of
$3,321,398.
LOSS ON DISCONTINUED OPERATIONS. In accordance with Accounting
Principles Bulletin Opinion No. 30, as of December 31, 1999, the Company
included in its loss of $1,782,144 on the disposal of the discontinued Retail
Division an estimate of the operating loss of the discontinued Retail Division
from the measurement date, which was October 1, 1999, through the date of
disposal, which was January 31, 2000. As of December 31, 1999, the Company also
recognized a loss on operations of the Retail Division of $532,000 for the
period from January 1, 1999 through September 30, 1999.
Any costs subsequent to the disposal date of January 31, 2000 were
estimated and included in the loss on the disposal of the discontinued Retail
Division. During the year ended December 31, 2000, the Company recognized an
additional $268,824 loss on discontinued operations. This figure represents the
difference between the actual loss from the discontinued Retail division
subsequent to December 31, 1999 and the amount of the loss that was originally
estimated and recorded as part of the loss on the disposal of the discontinued
Retail Division that was recorded in the year ended December 31, 1999.
EXTRAORDINARY ITEM. $366,000 under the line item entitled
"Extraordinary item -- Gain on extinguishment of debt - related party"
represents the negotiated reduction of notes payable held by w3 Holdings,
including accrued interest payable. See also the discussion below under
"Payments to Settle Outstanding Debt and Litigation Matters During the Fiscal
Year Ended December 31, 2000."
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NET INCOME (LOSS). For the fiscal year ended December 31, 2000, the Company
reported a net income of $73,435 available to common shareholders, compared to a
net loss of $6,054,187 for the comparable period a year earlier. The increased
profitability of $6,127,622 is attributable in significant part to the disposal
of the Retail Division, an increase of approximately $1,400,000 from the prior
year under the line item "Other income (expense) from litigation and
settlements" attributable to a $613,000 reduction of liabilities in 2000 as a
result of the negotiated settlement of the Kinnicutt lawsuit, recognition of
$366,000 under the line item "Extraordinary item" in connection with reaching a
settlement on payment of debt held by w3 Holdings, Inc., reduced selling,
general and administrative costs, and reduced warranty costs.
CONSOLIDATED STATEMENT OF CASH FLOWS. Net cash used in operating activities
totaled $812,631 for the fiscal year ended December 31, 2000, as compared to net
cash used in operating activities of $1,237,450 for the same period in 1999. The
net cash used in operating activities of $812,631 consisted of net cash used in
discontinued operating activities of $301,122 and net cash used in continuing
operating activities of $511,509. Significant working capital changes included a
decrease in accounts payable of $1,436,635, offset, in part, by a decrease in
accounts receivable of $1,134,647 as a result of improved collections.
Net cash used in investing activities totaled $12,733 during the fiscal year
ended December 31, 2000, as compared to net cash used in investing activities of
$437,163 during the prior year's period. The net cash used in investing
activities of $12,733 consisted of net cash used in discontinued investing
activities of $0 and net cash used in continuing investing activities of
$12,733. The net cash used in investing activities consists of $56,833 invested
in property and equipment during the year, offset, in part, by $16,000 received
from the sale of property and equipment during the year, and $28,100 received as
payment on notes receivable.
Net cash used in financing activities totaled $490,517 for the fiscal year
ended December 31, 2000, as compared to net cash provided by financing
activities of $2,419,715 during the fiscal year ended December 31, 1999. Net
cash used in discontinued financing activities was $0, while net cash used in
continuing financing activities totaled $490,517. Cash payments were made on
notes payable of $152,676, on capital leases of $91,954 and payment on advances
on financing agreements with related parties of $50,887. Additionally, the
Company made cash payments on notes payable to a related party in the amount of
$195,000.
GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES. The Company finances
the manufacture of its motorcycles from proceeds of sales. Most of the Company's
vendors require payment terms of 30 days or less. Other than for certain
extraordinary liabilities or potential liabilities as described below under the
caption entitled "Ability of the Company to Continue as a Going Concern,"
management believes that the Company can, at its current level of operations,
adequately meet its liabilities, including liabilities to vendors, by using
available internal cash.
In the past, the Company has also looked to outside funding sources to
address its liquidity and working capital needs. These include private equity
placements and secured debt-financing arrangements with lenders.
In June 1998, the Company obtained a three-year senior secured loan in the
amount of $4.5 million from Tandem Capital of Nashville, Tennessee. Tandem
subsequently assigned the loan to FINOVA Mezzanine Capital, Inc. The loan bears
interest at 12% per annum and stipulates quarterly interest payments. The FINOVA
loan is secured by a first lien on substantially all of the Company's assets.
FINOVA received warrants to purchase a total of 457,500 shares of the Company's
Common Stock, after giving effect to the Company's 5-for-1 reverse stock split
effective on February 5, 1998. 87,500 of these warrants are exercisable at a
price of $5 per share and expire in November 2002. The remaining 370,000
warrants are exercisable at an initial exercise price equal to $4 1/16 payable
in cash or in-kind by debt cancellation and expire in June 2003. The exercise
price of the 370,000 warrants was reset on the first anniversary of the closing
of the loan at $2.91 per share, representing the lesser of (i) $4 1/16 and (ii)
the average closing bid price of the Company's Common Stock for the 20 trading
days immediately preceding such anniversary. In addition, under the FINOVA loan
agreement, the Company is obligated to issue to FINOVA on each anniversary of
the closing date of the loan, until the loan is paid in full, a warrant to
purchase 200,000 additional shares of Common Stock at an exercise price equal to
the greater of (i) $4.00, or (ii) 80% of the average closing bid price of the
Company's Common Stock for the 20 days preceding such anniversary date. Each
such warrant shall be exercisable for five years from the date of issue. The
proceeds of the FINOVA loan were used to repay $2.5 million of then-existing
long-term debt, with the remaining $2 million used to expand the Company's
motorcycle manufacturing operations. Since June 1998, the Company became
obligated to issue a warrant to purchase 400,000 additional shares of Common
Stock in accordance with the terms of the FINOVA loan agreement as set forth
above.
Prior to the quarter ended June 30, 2000, the Company's indebtedness to
FINOVA in the amount of $4,500,000 had been classified as a non-current
liability on the Company's consolidated balance sheet. As of June 30, 2000 the
FINOVA note is required to be shown as a current liability.
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On March 28, 2001, FINOVA notified the Company that FINOVA has elected to
accelerate the maturity of, and declare immediately due and payable in full, all
amounts of principal and interest owing by the Company to FINOVA as a result of
the Company's non-payment of approximately $136,000 in interest due on March 1,
2001. If it so chooses, FINOVA is entitled to exercise its remedies under the
loan documents, including foreclosure on the Company's assets. However, as of
the date of the filing of this report, FINOVA has not notified the Company of
its intention to exercise its remedies under the loan documents and is
continuing to communicate regularly with the Company regarding the possibility
of a workout while reserving its right to enforce its remedies under the loan
documents at any time. FINOVA has informed the Company that it would be willing
to consider discounting the note, although no specific amount has been agreed
upon. FINOVA has also informed the Company's management that FINOVA is actively
seeking to sell the note to a third party and that FINOVA has received inquiries
from potential purchasers. To date, the Company has been unable to refinance the
FINOVA indebtedness and will not have the resources to repay the FINOVA
indebtedness unless new financing is obtained.
As a result of the foregoing, Company's independent auditors, in their
report dated March 5, 2001, state that there is substantial doubt about the
Company's ability to continue as a going concern. The Company is actively
seeking new financing to refinance FINOVA's loan. However, there are no
assurances that the Company will be successful. If the Company is not successful
in refinancing the FINOVA loan, FINOVA may choose to exercise its remedies under
its loan documents. See the discussion below under "Outlook and Ability of
Company to Continue as a Going Concern" and "Certain Trends and Uncertainties--
FINOVA may choose to foreclose on the Company's assets if the Company cannot
obtain refinancing."
In February 1999 and October 1999, the Company received an aggregate of
$2,000,000, before issuance costs, upon the issuance of 2,060 shares of Series D
Convertible Preferred Stock, each share having a stated value of $1,000. (60 out
of the 2,060 shares were issued in payment of placement agent fees, and
therefore the Company did not receive cash for those shares.) As of March 10,
2000, all issued and outstanding shares of Series D Convertible Preferred Stock,
having an aggregate stated value of $2,060,000, plus accrued and unpaid
dividends on such shares, had been converted into a total of 3,728,452 shares of
Common Stock. The number of shares of Common Stock issued upon the conversion of
each share of Series D Convertible Preferred Stock was calculated by adding
$1,000 to the amount of accrued and unpaid dividends on such share and dividing
the resulting sum by the conversion price. The conversion price is equal to the
lesser of (i) 110% of the closing bid price of the Common Stock on the last
trading day before the date of issuance of the share of Series D Preferred Stock
being converted, or (ii) 90% of the average of the four lowest closing bid
prices of the Common Stock during the last 22 trading days before the date of
conversion.
In November 1999, the Company obtained a loan in the amount of $300,000 from
William Whalen, a former shareholder of the Company. The loan originally was
evidenced by two promissory notes in the principal amounts of $200,000 and
$100,000 respectively, each bearing interest at a rate of 12% per annum and
maturing on March 31, 2000. In January 2000, the notes, on which there had
accrued $6,638 in interest, were replaced by two amended and restated promissory
notes in the principal amounts of $156,638 and $150,000, respectively, both
bearing interest at a rate of 12% per annum and maturing on March 31, 2000. Mr.
Whalen subsequently assigned the amended and restated $150,000 note to an entity
called w3 Holdings, Inc. while continuing to hold the amended and restated note
in the amount of $156,638. (As described below under the caption "Payments to
settle outstanding debt and litigation matters during the fiscal year ended
December 31, 2000," in July 2000, the Company entered into a settlement
agreement with w3 Holdings, Inc. pursuant to which the Company satisfied its
obligations under the amended and restated $150,000 note.) Mr. Whalen has
extended to March 2001 the maturity date of the $156,638 note, on which there
was accrued approximately $22,350 in interest as of March 31, 2001. The Company
is continuing to negotiate with Mr. Whalen to obtain an additional extension of
the maturity date of the $156,638 note to an as of yet undetermined date.
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PAYMENTS TO SETTLE OUTSTANDING DEBT AND LITIGATION MATTERS DURING THE FISCAL
YEAR ENDED DECEMBER 31, 2000
During the fiscal year ended December 31, 2000, the Company agreed to make
cash payments totaling approximately $262,000 to settle or discharge liabilities
totaling approximately $1,400,000. This $262,000 amount includes $195,000 paid
by the Company on July 20, 2000 to extinguish principal and interest in the
combined approximate amount of $561,000 owing on two promissory notes in the
principal amounts of $300,000 and $150,000 held by w3 Holdings, Inc. The
$262,000 amount also includes approximately $67,000 payable by the Company to
its insurance carrier under an interest-free promissory note which the Company
executed in connection with the settlement in June, 2000 of a judgment in the
amount of $837,601 against the Company obtained by James and Susan Kinnicutt.
The note is required to be repaid at the rate of $2,000 per month. As of March
31, 2001, approximately $55,000 remained outstanding on the note. The Kinnicutt
settlement is described in detail in Part II, Item I of the Company's report on
Form 10-QSB for the quarter ended June 30, 2000. The Company recognized income
of $613,000 and $366,000, respectively, in connection with the settlement of the
Kinnicutt and w3 Holdings matters. See discussion above under "Comparison of the
Fiscal Years Ended December 31, 2000 and 1999 -- Other Income (Expense) and
Extraordinary item--gain on extinguishments of debt -- related party.".
In July 2000, the Company successfully reached a global settlement
agreement with Bruce Scott, a former director of the Company, Cana Capital
Corporation, a company owned by Mr. Scott, and several other companies
affiliated with Mr. Scott, regarding several disputes, including a dispute over
a balance as of June 30, 2000 in the approximate amount of $235,000 owed by the
Company on floor financing obtained from Cana Capital. On July 28, 2000, the
Company fulfilled its obligations under the settlement agreement by transferring
title of motorcycles with an approximate aggregate fair value of $258,200. In
exchange for the payment, Cana Capital agreed to provide the Company the
original title to motorcycles financed under the Cana Capital floor line and has
dismissed its suits with prejudice. The global settlement also included a
general release of claims by the lessor of the Daytona Beach property which the
Company had subleased to Mr. Scott's dealership. The Cana Capital settlement is
described in detail in Part II, Item I of the Company's report on Form 10QSB for
the quarter ended June 30, 2000.
OUTLOOK AND ABILITY OF COMPANY TO CONTINUE AS A GOING CONCERN
In their independent accountants' report which appears in the Company's
audited financial statements included in this Annual Report for the fiscal year
ended December 31, 2000 on Form 10-KSB, the Company's independent auditors
express substantial doubt about the Company's ability to continue as a going
concern. Discussed below are certain existing or potential liabilities that are
of primary concern to the Company.
REPAYMENT OF FINOVA LOAN. The most significant liability of the Company is
the Company's obligation to repay its $4,500,000 secured loan from FINOVA
Mezzanine Capital, Inc., which originally was scheduled to mature on June 22,
2001. As discussed above under the caption "Liquidity and Capital Resources," on
March 28, 2001, FINOVA notified the Company that FINOVA has elected to
accelerate the maturity of, and declare immediately due and payable in full, all
amounts of principal and interest owing by the Company to FINOVA under its
$4,500,000 note as a result of the Company's non-payment of approximately
$136,000 in interest due on March 1, 2001. If it so chooses, FINOVA is entitled
to exercise its remedies under the loan documents, including foreclosure on the
Company's assets. However, as of the date of the filing of this report, FINOVA
has not notified the Company of its intention to exercise its remedies under the
loan documents and is continuing to communicate regularly with the Company
regarding the possibility of a workout while reserving its right to enforce its
remedies under the loan documents at any time. FINOVA has informed the Company
that it would be willing to consider discounting the note, although no specific
amount has been agreed upon. FINOVA has also informed the Company's management
that FINOVA is actively seeking to sell the note to a third party and that
FINOVA has received inquiries from potential purchasers. To date, the Company
has been unable to refinance the FINOVA indebtedness and will not have the
resources to repay the FINOVA indebtedness unless new financing is obtained.
The Company is actively seeking new financing to refinance FINOVA's loan.
However, there are no assurances that the Company will be successful. If the
Company is not successful in refinancing the FINOVA loan, FINOVA may choose to
exercise its remedies under its loan documents. See the discussion below under
"Outlook and Ability of Company to Continue as a Going Concern" and "Certain
Trends and Uncertainties-- FINOVA may choose to foreclose on the Company's
assets if the Company cannot obtain refinancing."
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The ability of the Company to refinance the FINOVA loan will be affected
by, among other factors, the ability of the Company to demonstrate to potential
lenders that it can continue to sustain profitability. While the Company had net
income of approximately $73,000 for the year ended December 31, 2000, the
Company has a prior history of operating losses and accumulated deficit. The
Company had operating net losses of approximately $6.1 million and $5.7 million
for the fiscal years ended December 31, 1999 and 1998, respectively. See
discussion below under the caption entitled, "Certain Trends and Uncertainties
-- The Company may not be able to implement the changes necessary to sustain
profitability in future periods." There can be no assurance that the Company
will be able to sustain profitability in future periods.
The ability of the Company to continue generating a profit is paramount to
resolving its working capital issues and to refinance the FINOVA loan. The
Company's ability to sustain profitability in future periods will depend upon a
number of factors, including the ability of the Company to introduce new
products, increase sales, and maintain a level of production which is responsive
to seasonal demands. Management believes that several steps can be taken to
sustain profitability. These include implementation of better internal controls,
reduction of expenses, improvements in purchasing, cash management, and
inventory control. In addition, the Company plans to increase consumer awareness
of its products through effective advertising and improved customer relations by
increasing its dealer network. However, there can be no assurance that the
Company will be able to successfully implement any of the changes described
above, or that the Company will in fact sustain profitability in future periods.
Any equity financing which the Company may obtain in the future may be
dilutive to shareholders, and any new debt financing may impose substantial
restrictions on the ability of the Company to operate and raise additional
funds.
REPAYMENT OF WHALEN NOTE. As described above under the caption entitled
"Liquidity and Capital Resources--Existing Financing Arrangements", the Company
became obligated on March 31, 2001 to repay a note held by William Whalen, a
former shareholder of the Company, in the approximate principal amount of
$156,638. Accrued and unpaid interest under the note as of March 31, 2001 is
approximately $22,350. The Company currently does not have the resources to
repay this note. The Company is negotiating with Mr. Whalen to extend the term
of the note to an as of yet undetermined date. However, there can be no
assurances that these negotiations will be successful. If the Company is
required to repay the note immediately, this will have a material adverse effect
on the Company's financial condition.
POTENTIAL JUDGMENT IN ARB LITIGATION. As described in Part I, Item 3,
"Legal Proceedings," in November 2000, the Company was served with a complaint
filed on or about September 7, 2000 in a civil action styled People of the State
of California ex rel. State Air Resources Board v. Ultra Acquisition
Corporation, Ultra Acquisition Corporation dba Ultra Cycles/Bikers Dream, Bikers
Dream of Santa Ana, Bikers Dream of San Diego, Bikers Dream of Sacramento, Herm
Rosenman, Hal Collins and Does 1 through 50, inclusive, in the Superior Court of
the State of California, County of Orange, Case No. OOCC10745. The complaint
alleges violations of California's motor vehicle air pollution control laws in
connection with the retail sale of motorcycles allegedly lacking the required
certification by the California State Air Resources Board ("ARB"). The action
seeks to enjoin any further violations and to recover a civil penalty. The
Company has initiated settlement discussions with the ARB with the intention of
obtaining a prompt resolution of this matter on terms which will not materially
impair the Company's financial condition. The Company does not have sufficient
information regarding the claims which are the subject of the complaint to
assess the likely outcome of this matter. Accordingly, no assurance can be given
as to the ultimate outcome of this matter.
SEASONALITY
Generally, the Company is subject to seasonal fluctuations, as dealer
demand for motorcycles tends to increase in the second and third quarters as
motorcycle sales are greatest in the spring and summer months. Consequently, the
Company historically has experienced the highest revenues during the second and
third quarters.
INFLATION
While the Company does not expect inflation to have a material impact upon
its operating results, there can be no assurance that inflation will not affect
the Company's business in the future.
CERTAIN TRENDS AND UNCERTAINTIES
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important risk factors that could cause the Company's
actual results to differ materially from those projected in forward-looking
statements of the Company made by or on behalf of the Company.
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The Company wishes to caution readers that these factors, among others,
could cause the Company's actual results to differ materially from those
expressed in any projected, estimated or forward-looking statements relating to
the Company. The following factors should be considered in conjunction with any
discussion of operations or results by the Company or its representatives,
including any forward-looking discussion, as well as comments contained in press
releases, presentations to securities analysts or investors, or other
communications by the Company.
In making these statements, the Company is not undertaking to address or
update each factor in future filings or communications regarding the Company's
business or results, and is not undertaking to address how any of these factors
may have caused changes to discussions or information contained in previous
filings or communications. In addition, certain of these matters may have
affected the Company's past results and may affect future results.
THE COMPANY MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT THE CHANGES NECESSARY
FOR THE COMPANY TO REMAIN A GOING CONCERN. As of December 31, 2000, the
Company's current liabilities exceeded its current assets by approximately
$1,500,000. Due to , among other reasons, the Company's working capital
deficiency, as well as the decision of the Company's lender to accelerate
payment of all principal and interest owing on its $4,500,000 promissory note,
Singer Lewak Greenbaum & Goldstein LLP, the Company's auditors, have included an
explanatory paragraph in their report to the Company's consolidated financial
statements for the year ended December 31, 2000 that expresses substantial doubt
as to the Company's ability to continue as a going concern. There can be no
assurances that the Company will be able to successfully implement the changes
necessary for the Company to remain a going concern. See also paragraphs below
entitled, "FINOVA may choose to foreclose on the Company's assets if the Company
cannot obtain refinancing," and "The Company may not be able to implement the
changes necessary to sustain profitability in future periods."
FINOVA MAY CHOOSE TO FORECLOSE ON THE COMPANY'S ASSETS IF THE COMPANY CANNOT
OBTAIN REFINANCING. Due to the Company's failure to make an interest payment in
the approximate amount of $136,000 on March 1, 2001, FINOVA Mezzanine Capital,
Inc. has accelerated the maturity of, and declared immediately due and payable,
the Company's $4.5 million secured term loan. See discussion in Part II, Item 6,
of this report, entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations - General Discussion of Liquidity and
Capital Resources." As of the date of the filing of this report, FINOVA has not
notified the Company of its intention to exercise its remedies under the loan
documents and is continuing to communicate regularly with the Company regarding
the possibility of a workout while reserving its right to enforce its remedies
under the loan documents at any time. To date, the Company has been unable to
refinance the FINOVA indebtedness and will not have the resources to repay the
FINOVA indebtedness unless new financing is obtained. The Company is actively
seeking alternative forms of financing to take out the FINOVA loan. There is no
assurance that the Company will be successful in its efforts. If the Company is
unable to refinance the FINOVA loan, FINOVA may choose to foreclose on the
Company's assets.
The ability of the Company to refinance the FINOVA loan will be affected by,
among other factors, the ability of the Company to demonstrate to potential
lenders that it can sustain profitability. See discussion below under the
caption entitled, "The Company may not be able to implement the changes
necessary to sustain profitability in future periods." There can be no
assurances that the Company will be able to sustain profitability in future
periods.
Any equity financing which the Company may obtain in the future may be
dilutive to shareholders, and any new debt financing may impose substantial
restrictions on the ability of the Company to operate and raise additional
funds.
THE COMPANY MAY NOT BE ABLE TO IMPLEMENT THE CHANGES NECESSARY TO SUSTAIN
PROFITABILITY IN FUTURE PERIODS. While the Company had net income of
approximately $73,000 for the fiscal year ended December 31, 2000, the Company
has a prior history of operating losses and accumulated deficits. The Company
had operating net losses of approximately $6.1 million and $5.7 million for the
fiscal years ended December 31, 1999 and 1998, respectively. As of December 31,
2000, the Company's accumulated deficit was approximately $23,798,000. The
Company's ability to sustain profitability in future periods will depend upon a
number of factors, including the ability of the Company to add reliable vendors
to its list of suppliers, introduce new products, increase sales, and maintain a
level of production which is responsive to seasonal demands. Management believes
that several steps can be taken to sustain profitability. These include
implementation of better internal controls, reduction of expenses, improvements
in purchasing, cash management, inventory control, and the evaluation of
suppliers' abilities to meet the Company's demand for parts. See also the risk
factor below entitled, "The Company relies heavily on third party parts
suppliers and any significant adverse variation in quantity, quality or cost
would negatively affect our operations." In addition, the Company plans to
increase consumer awareness of its products through effective advertising and
improved customer relations by increasing its dealer network. However, there can
be no assurance that the Company will be able to successfully implement any of
the changes described above, or that the Company will in fact sustain
profitability in future periods.
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THE COMPANY RELIES HEAVILY ON THIRD PARTY PARTS SUPPLIERS AND ANY
SIGNIFICANT ADVERSE VARIATION IN QUANTITY, QUALITY OR COST WOULD NEGATIVELY
AFFECT THE COMPANY'S OPERATIONS. The Company operates primarily as an assembler
and relies heavily on a number of major component manufacturers to supply it
with almost all of its parts. Any significant adverse variation in quantity,
quality or cost would adversely affect the Company's volume and cost of
production until it could identify alternative sources of supply. For example,
during the fourth quarter of 2000, one of the Company's suppliers of frames
failed to timely deliver product as promised. Consequently, the Company was
unable to meet its production schedule, resulting in a loss of revenue for the
fourth quarter in the approximate amount of $1,500,000.
THE COMPANY MAY NOT HAVE THE RESOURCES TO PAY A CIVIL PENALTY IF ONE IS
IMPOSED BY THE CALIFORNIA STATE AIR RESOURCES BOARD. As described in Part I,
Item 3, "Legal Proceedings," in November 2000, the Company became aware of a
complaint filed on or about September 7, 2000 in a civil action styled People of
the State of California ex rel. State Air Resources Board v. Ultra Acquisition
Corporation, Ultra Acquisition Corporation dba Ultra Cycles/Bikers Dream, Bikers
Dream of Santa Ana, Bikers Dream of San Diego, Bikers Dream of Sacramento, Herm
Rosenman, Hal Collins and Does 1 through 50, inclusive, in the Superior Court of
the State of California, County of Orange, Case No. OOCC10745. The complaint
alleges violations of California's motor vehicle air pollution control laws in
connection with the retail sale of motorcycles allegedly lacking the required
certification by the California State Air Resources Board ("ARB"). The action
seeks to enjoin any further violations and to recover a civil penalty. The
Company has initiated settlement discussions with the ARB with the intention of
obtaining a prompt resolution of this matter on terms which will not materially
impair the Company's financial condition. However, there is no assurance that
the Company will be successful in its settlement negotiations.
THE COMPANY IS SUBJECT TO CONTINGENT LIABILITIES UNDER A DEALER FLOOR PLAN
FINANCING PROGRAM WHICH COULD EXPOSE IT TO SIGNIFICANT FINANCIAL OBLIGATIONS.
Approximately 55% of the Company's dealers receive floor plan financing for its
products through Transamerica. The dealers are the obligors under these floor
plan agreements and are responsible for all principal and interest payments.
However, the Company is subject to a standard repurchase agreement which
requires it to buy back its motorcycles at the wholesale price if the dealer
defaults and the motorcycles are repossessed by the lender. Since August 1997,
the Company has repurchased approximately thirteen new motorcycles for
approximately $230,000. Most of the expense was recaptured through the
subsequent resale of these motorcycles. The Company has estimated that its
contingent liability under the repurchase agreement to be approximately
$5,363,000 as of December 31, 2000. The Company's profitability would be
significantly negatively impacted if it were forced to repurchase a large number
of these motorcycles.
THE COMPANY'S COMMON STOCK WAS DELISTED FROM THE NASDAQ SMALLCAP MARKET
EFFECTIVE OCTOBER 18, 2000, WHICH MAY MAKE IT DIFFICULT FOR THE COMPANY'S
SHAREHOLDERS TO BUY, SELL AND OBTAIN PRICING INFORMATION ABOUT THE COMPANY'S
COMMON STOCK. Effective October 18, 2000, the Company's Common Stock was
delisted from The NASDAQ SmallCap Market due to the failure of the Company to
evidence a closing bid price of at least $1.00 per share since April 2000, as
well as the failure of the Company to comply with at least one of the following
requirements for continued listing: maintaining net tangible assets of at least
$2,000,000, maintaining market capitalization of at least $35,000,000 or
demonstrating net income of at least $500,000 in the latest fiscal year. The
Company's Common Stock previously had been listed on The Nasdaq SmallCap Market
since June 1998 under the symbol "BIKR." The Company's Common Stock is currently
trading on the OTC Bulletin Board under the symbol "UMCC."
The delisting could have an adverse effect on the Company's business
prospects. The Nasdaq market system provides brokers and others with immediate
access to the best bid and asked prices, as well as other information, about the
Company's common stock. With the loss of the designation, shareholders may find
it more difficult to buy, sell and obtain pricing information about our common
stock. The Company no longer qualifies as a "margin security" as defined by the
Federal Reserve Board and is subject to the SEC's "penny stock" rules thereby
reducing the attractiveness of the Company's stock as an investment vehicle and
making it more difficult for the investor to purchase and sell the Company's
stock.
THE COMPANY HAS LIMITED EXPERIENCE WITH MANUFACTURING OPERATIONS. The
Company entered the motorcycle manufacturing business in 1997. Previously, the
Company's operations had involved only the operation of retail stores selling
new and used motorcycles and motorcycle parts and accessories. Although the
Company has acquired considerable manufacturing experience since it entered the
business in 1997, that experience is more limited than that of other motorcycle
manufacturers who have been in operation for a longer period of time.
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THE COMPANY'S PRODUCTS COULD CONTAIN DEFECTS CREATING PRODUCT RECALLS AND
WARRANTY CLAIMS WHICH COULD MATERIALLY ADVERSELY AFFECT THE COMPANY'S FUTURE
SALES AND PROFITABILITY. The Company's products could contain unforeseen
defects. These defects could give rise to product recalls and warranty claims. A
product recall could delay or even halt production until the Company is able to
address the reason for any defects. Recalls may also have a materially negative
effect on the brand image and public perception of the Company's motorcycles.
This could materially adversely affect the Company's future sales. Recalls or
other defects would be costly and could require substantial expenditures.
Unanticipated defects could also result in litigation against the Company. Given
the nature of its products, the Company expects that it will be subject to
potential product liability claims that could, in the absence of sufficient
insurance coverage, have a material adverse impact on the Company. Although the
Company believes that it maintains adequate liability insurance, the Company
cannot provide assurances that it will be able to secure or maintain adequate
liability insurance to cover all product liability claims. Any large product
liability claim could materially adversely affect the Company's ability to
market its motorcycles and could have a material adverse impact on the Company's
business, operating results and financial condition.
THE COMPANY MAY NOT BE ABLE TO MAINTAIN OR INCREASE ITS CURRENT LEVEL OF
SALES IF CHANGES IN POPULAR TRENDS OR ECONOMIC CONDITIONS CAUSE A DECLINE IN
MARKET DEMAND FOR HEAVYWEIGHT CRUISER MOTORCYCLES. The base retail price of one
of the Company's heavyweight cruiser motorcycles ranges from approximately
$20,000 to $27,000. Motorcycles within this price range are luxury goods.
Therefore, market demand for heavyweight cruisers such as those manufactured by
the Company may be particularly susceptible to changes in popular trends and
economic conditions. These economic factors include, among others:
- employment levels;
- business conditions;
- interest rates;
- general level of inflation; and
- taxation rates.
If such changes cause a decline in market demand for heavyweight cruiser
motorcycles, the Company may not be able to maintain or increase its current
level of sales.
THE COMPANY MAY NOT BE ABLE TO MAINTAIN OR INCREASE ITS CURRENT LEVEL OF
SALES IF IT DOES NOT CONTINUE TO EXPAND ITS DEALER NETWORK. Motorcycles
manufactured by the Company are sold through approximately 94 independent Ultra
motorcycle dealer locations as of March 23, 2001. The Company may not be able to
maintain or increase its current level of sales if it does not continue to
expand its dealer network, and there is no assurance that the Company will be
able to do so.
THE COMPANY'S COMPETITIVE POSITION WITHIN ITS NICHE OF THE HEAVYWEIGHT
CRUISER MOTORCYCLE MARKET COULD SUFFER IF EXISTING COMPETITORS EXPAND OPERATIONS
OR OTHER MOTORCYCLE MANUFACTURERS INSTITUTE SIMILAR PRODUCT OFFERINGS. The
Company seeks to avoid direct competition with Harley-Davidson, which has the
largest share of the heavyweight cruiser motorcycle market, by competing within
a specialized niche. The Company's competitive strategy focuses on product
performance and style, pricing and service. For example, the Company offers on
all models, at no additional charge over base prices, customized features like
polished or painted high-performance engines and a four-year, unlimited mileage
protection plan. These features and benefits all combine to present an image
that differentiate the rider from the Harley-Davidson consumer. The Company's
main competitors within this niche of the heavyweight cruiser motorcycle market
are Big Dog Motorcycles, Indian and American Iron Horse. In the event that the
Company's existing competitors expand their manufacturing operations, or other
motorcycle manufacturers institute product offerings on terms similar to those
offered by the Company, the Company's competitive position within its niche of
the heavyweight cruiser motorcycle market could suffer.
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19
THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK UNDERLYING OPTIONS AND
WARRANTS MAY CAUSE SIGNIFICANT DILUTION OF EXISTING SHAREHOLDERS' INTERESTS. As
of December 31, 2000, 1,490,583 warrants (including 400,000 warrants issued to
FINOVA as described below) and 1,078,041 options were outstanding, of which
1,051,891 were fully vested. Under the terms of the agreement governing its $4.5
million term loan from FINOVA Mezzanine Capital, the Company is obligated to
issue to FINOVA on each anniversary of the closing date of the term loan, until
such loan is paid in full, a warrant to purchase 200,000 additional shares of
common stock at an exercise price equal to the greater of (1) $4.00, or (2) 80%
of the average closing bid price of the common stock for the 20 days preceding
such anniversary date. Since June 1998, the date of the FINOVA loan, the Company
became obligated to issue a warrant to purchase 400,000 additional shares of
Common Stock pursuant to the foregoing provision. The issuance in June 2000 of
200,000 warrants and the issue of 200,000 warrants in June 1999 brings the total
warrants issued to FINOVA to 857,500 as of December 31, 2000. The issuance of
additional shares of common stock upon exercise of the warrants and options
described in this paragraph could result in significant dilution to existing
security holders of the Company.
THE POSSIBLE ISSUANCE OF ADDITIONAL PREFERRED STOCK MAY ADVERSELY AFFECT
RIGHTS OF HOLDERS OF COMMON STOCK AND MAY RENDER MORE DIFFICULT CERTAIN
UNSOLICITED TAKEOVER PROPOSALS WHICH WOULD BE IN THE BEST INTEREST OF
SHAREHOLDERS. As of the date of this report, the Company has 702,194 shares of
preferred stock outstanding. The Articles of Incorporation of the Company permit
the Board of Directors to designate the terms of, and issue, up to 9,297,806
additional shares of preferred stock without further shareholder approval. The
issuance of additional shares of preferred stock could adversely affect the
rights of holders of common stock by, among other things, establishing
preferential dividends, liquidation rights and voting power. In addition, the
issuance of preferred stock might render more difficult, and therefore
discourage, certain unsolicited takeover proposals which would be in the best
interest of shareholders, such as a tender offer, proxy contest or removal of
incumbent management.
THE COMPANY'S FAILURE TO COMPLY WITH VARIOUS REGULATORY APPROVALS AND
GOVERNMENTAL REGULATIONS COULD NEGATIVELY IMPACT ITS OPERATIONS. The Company's
motorcycles must comply with certain governmental approvals and certifications
regarding noise, emissions and safety characteristics. The Company's failure to
comply with these requirements could prevent it or delay it from selling its
products which would have a significant negative impact on the Company's
operations. See also the caption above entitled, "The Company may not have the
resources to pay a civil penalty if one is imposed by the California State Air
Resources Board."
THE COMPANY'S QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY WHICH MAY
RESULT IN THE VOLATILITY OF ITS STOCK PRICE. The Company's quarterly operating
results may fluctuate significantly as a result of a variety of factors, many of
which are outside of its control. These factors include:
- the amount and timing of orders from dealers;
- disruptions in the supply of key components and parts;
- seasonal variations in the sale of our products; and
- general economic conditions.
For example, as discussed above under the risk factor entitled, "The
Company relies heavily on third party parts suppliers and any significant
adverse variation in quantity, quality or cost would negatively affect our
operations," during the fourth quarter of 2000, one of the Company's suppliers
of frames failed to timely deliver product as promised. Consequently, the
Company was unable to meet its production schedule, resulting in a loss of
revenue for the fourth quarter in the approximate amount of $1,500,000.
Other important risk factors that could cause the Company's actual results
to differ materially from those expressed or implied by the Company or on behalf
of the Company are discussed elsewhere within this report on Form 10-KSB in Item
1 -- "Description of Business," and Item 6 - - "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 7. FINANCIAL STATEMENTS
See financial statements appended to the back of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers consist of the following
persons:
<TABLE>
<CAPTION>
NAME OFFICE
---- ------
<S> <C>
Harold L. Collins............................... President and Chief Executive Officer; Director
John K. Russell................................. Chairman of the Board; Director
Humbert Powell.................................. Director
Kenneth Schwartz................................ Director
Anne Todd....................................... Controller and Secretary
</TABLE>
Set forth below is certain biographical information, present occupation and
business experience for the past five years of each director and executive
officer of the Company. Officers of the Company are elected by the Board of
Directors and hold office until their successors are chosen and qualified, until
their death or until they resign or have been removed from office. All corporate
officers serve at the discretion of the Board of Directors.
HAROLD L. COLLINS, age 50, joined the Company in November 1998 as general
counsel. In April 1999, the board of directors appointed Mr. Collins as a vice
president of the Company. In February, 2000, the Board of Directors appointed
Mr. Collins as a director to fill a vacancy on the board of directors, and in
April 2000 the Board appointed Mr. Collins as interim Chief Operating Officer
upon the resignation of Herm Rosenman, former President and CEO of the Company.
In May 2000, the Board of Directors appointed Mr. Collins as the Chief Operating
Officer of the Company, and on November 1, 2000, the Board appointed Mr. Collins
as President and Chief Executive Officer. From 1977 until the time he joined the
Company, Mr. Collins maintained a private law practice. His areas of practice
included business litigation, consumer warranty litigation, personal injury
litigation, family law and adversary proceedings in bankruptcy.
JOHN K. RUSSELL, age 50, has been a director since May 1997. Mr. Russell is
President of the Antique Dealers Association of America, Inc. and owns and
operates a fine arts business. Mr. Russell has over twenty years of retail
experience and an extensive background managing, supervising and consulting in
motorcycle related businesses. Mr. Russell was appointed as Chairman of the
Board in May 2000.
HUMBERT POWELL, III, age 62, has been a director since December 1995. Mr.
Powell has been an associate with Sanders, Morris and Harris, an investment
banker and broker/dealer, since December 1996. Prior to joining Sanders, Morris
and Mundy, Mr. Powell held a variety of positions in corporate finance and
investment banking, including Chairman of Marleau, Lemire USA from 1995 to
November 1996 and Senior Managing Director of Bear Stearns & Co. from 1984 to
1994. Mr. Powell also serves on the Board of Directors of Aperian, Inc.
KENNETH SCHWARTZ, age 65, was appointed as a director in April 2000 to fill
a vacancy on the board of directors. From 1990 to 1998, Mr. Schwartz served as a
director of Deloitte & Touche LLP, an accounting and consulting firm. Mr.
Schwartz is also a director of Prospect Medical Holdings, Inc., a company which
manages and administers physician organizations.
ANNE TODD, age 33, was named Controller and appointed corporate secretary in
1997. Ms. Todd was previously assistant controller for the Company from 1995 to
1997. Prior to joining the Company she was assistant controller for American
Standard from 1993 to 1995.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities ("reporting
persons"), to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Reporting persons
are required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
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21
To the Company's knowledge, based solely on a review of the copies of
reports and amendments thereto on Forms 3, 4 and 5 furnished to the Company by
reporting persons during, and with respect to, its fiscal year ended December
31, 2000, and on a review of written representations from reporting persons to
the Company that no other reports were required to be filed for such fiscal
year, all Section 16(a) filing requirements applicable to the Company's
directors, executive officers and greater than ten percent beneficial owners
during such period were satisfied in a timely manner.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid by the Company for services rendered in all capacities during
the fiscal years ended December 31, 2000, 1999 and 1998, respectively, to the
Company's chief executive officer during the fiscal year ended December 31,
2000. No other executive officer earned salary and bonus in excess of $100,000
during the fiscal year ended December 31, 2000. Where applicable, the figures
set forth below have been adjusted to reflect the Company's reverse stock split
effected as of February 5, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION SECURITIES
-------------------------------- RESTRICTED UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS OPTIONS/SARS
--------------------------- ------ --------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Harold L. Collins, President and 2000 $182,644 $ 0 $ 0 50,000(2)
Chief Executive Officer(1) 1999 $150,000 $ 0 $ 0 0
1998 $ 12,500 $ 0 $ 0 30,000(3)
</TABLE>
------------
(1) Harold L. Collins was appointed Vice President in April 1999. On April 3,
2000, the Board of Directors appointed Mr. Collins as interim Chief
Operating Officer. In May 2000, the Board of Directors appointed Mr.
Collins as the Chief Operating Officer of the Company and increased Mr.
Collins' salary to $180,000 per annum, retroactive to April 1, 2000. In
November 2000, the Board appointed Mr. Collins as President and Chief
Executive Officer and increased his salary to $225,000 per annum, effective
November 1, 2000. The Board also extended the term of Mr. Collins'
employment agreement to October 31, 2002.
(2) In December 2000, the Company granted to Mr. Collins options to purchase
50,000 shares of the Company's Common Stock under the Ultra Motorcycle
Company 2000 Stock Option Plan at an exercise price of $.28 per share.
These options are immediately exercisable and expire in December 2007.
(3) In November 1998, the Company granted to Mr. Collins options to purchase
30,000 shares of the Company's common stock at an exercise price of $3.63
per share. 20,000 of these options have vested and the remaining 10,000
will become exercisable on November 15, 2001. All of the options expire in
November 2003.
STOCK OPTIONS
The following table sets forth certain information with respect to stock
options granted to Harold Collins, President and Chief Executive Officer of the
Company, during the fiscal year ended December 31, 2000. No other executive
officer was awarded stock options during the year.
OPTION GRANTS IN THE FISCAL YEAR
ENDED DECEMBER 31, 2000
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE
NAME GRANTED 2000 ($/SHARE) EXPIRATION DATE
---- --------------- ------------------ ------------ ----------------
<S> <C> <C> <C> <C>
Harold L. Collins.................... 50,000(1) 100% $ .28 12/21/07
</TABLE>
------------
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The following table sets forth certain information as to the fiscal year-end
value of unexercised options of Harold L. Collins, the Company's President and
Chief Executive Officer. Mr. Collins did not exercise any options during the
fiscal year ended December 31, 2000.
AGGREGATE OPTION EXERCISES IN
FISCAL YEAR ENDED DECEMBER 31, 2000 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 12/31/00 AT 12/31/00(1)
ACQUIRED ON VALUE -------------------------------------- -----------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ------------------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Harold L. Collins..... 0 -- 70,000 10,000 0 0
</TABLE>
----------
(1) The value of the Company's Common Stock for the purposes of the
calculation was based upon the closing sales price for the Company's
Common Stock on December 31, 2000, as reported by The OTC Bulletin Board,
minus the exercise price.
EMPLOYMENT AGREEMENTS
In November 1998, the Company entered into a three year employment agreement
with Harold L. Collins, pursuant to which Mr. Collins originally was employed as
the Company's general counsel at an initial annual salary of $150,000. Mr.
Collins' salary is adjusted annually based on a review of his performance and
the Company's financial condition at the time of such adjustment. The employment
agreement provides that Mr. Collins shall be eligible to participate in such
bonus plans, stock grant and stock option plans applicable to executive officers
of the Company as may be established by the Board of Directors from time to
time, pursuant to the terms of such plans. Upon termination upon a change of
control, Mr. Collins is entitled to payment equal to six months salary, based on
his then current rate of compensation. If he is terminated for any other reason,
he is entitled to receive six months of severance pay if he has been employed
for one year or less, and one year of severance pay if he has been employed for
more than one year. In November 1998, the Company granted to Mr. Collins options
to purchase 30,000 shares of the Company's common stock at an exercise price of
$3.63 per share. 20,000 of these options have vested and the remaining 10,000
will become exercisable on November 15, 2001. All 30,000 options expire in
November 2003. On April 3, 2000, the Board of Directors appointed Mr. Collins as
interim Chief Operating Officer. In May 2000, the Board of Directors appointed
Mr. Collins as the Chief Operating Officer of the Company and increased Mr.
Collins' salary to $180,000 per annum, retroactive to April 1, 2000. In November
2000, the Board appointed Mr. Collins as President and Chief Executive Officer
and increased his salary to $225,000 per annum, effective November 1, 2000. The
Board also extended the term of Mr. Collins' employment agreement to October 31,
2002. In December 2000, the Board of Directors awarded Mr. Collins under the
Company's Ultra Motorcycle Company 2000 Stock Option Plan, options to purchase
50,000 shares of Common Stock at an exercise price of $.28 per share. These
options are immediately exercisable and expire in December 2007.
COMPENSATION OF DIRECTORS
In May 2000, the Board of Directors decided to award $2,500 per quarter,
payable mid-period, to each of the Company's three outside directors: John
Russell, Humbert Powell and Kenneth Schwartz. The directors also decided to
grant an additional $1,000 per quarter to Mr. Russell in consideration of his
services as Chairman of the Board. In addition, the Board decided to award $500
per meeting to members of the Audit Committee. Consistent with the foregoing
payment schedule, Mr. Russell received a total of $7,000 in 2000 (consisting of
two quarterly payments of $2,500 and $1,000, respectively) and has received
$3,500 (consisting of one quarterly payment of $2,500 and $1,000, respectively)
to date in 2001; Mr. Powell received a total of $5,000 in 2000 (consisting of
two quarterly payments of $2,500) and has received $2,500 to date in 2001; and
Mr. Schwartz received a total of $6,000 in 2000 (consisting of two quarterly
payments of $2,500 and two $500 payments for attendance at audit committee
meetings) and has received $2,500 to date in 2001;
In October 2000, the directors awarded Mr. Russell an Ultra motorcycle as
additional compensation for his past services as a member of the Board of
Directors. The manufacturer's suggested retail price of this motorcycle was
$24,500.
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23
In December 2000, the Company's shareholders approved the Ultra Motorcycle
Company 2000 Stock Option Plan (the "2000 Plan") that authorized incentive stock
options for employees (including officers and directors who are also employees)
and non-qualified stock options for employees, officers, directors, consultants,
independent contractors and advisers. A total of 1,000,000 shares were reserved
for issuance under the 2000 Plan.
In December 2000, the Company's outside directors -- John Russell, Humbert
Powell and Kenneth Schwartz -- were each awarded under the 2000 Plan options to
purchase 100,000 shares of Common Stock at an exercise price of $.28 per share.
These options are immediately exercisable and expire in December 2007.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of
the Company's voting securities, which include its Common Stock and Series B
Preferred Stock, as of March 27, 2001, by each director of the Company, the
chief executive officer of the Company, each person known by the Company to be
the beneficial owner of more than five percent of any class of the Company's
voting securities, and all of the directors and the chief executive officer of
the Company as a group, excluding in each case rights under options or warrants
not exercisable within 60 days. All persons named have sole voting power and
investment power over their shares except as otherwise noted. The figures set
forth below have been adjusted to reflect the Company's reverse stock split as
of February 5, 1998.
<TABLE>
<CAPTION>
AMOUNT AND
NAME OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS(3)
-------------- -------------------------------------- ---------------- -------------
<S> <C> <C> <C>
Common Stock Humbert Powell, III(1) 117,000(2) 1.3%
712 Fifth Avenue, 11th Floor
New York, NY 10019
Common Stock John K. Russell(4) 117,000(2) 1.3%
3810 Wacker Drive
Mira Loma, CA 91752
Common Stock Harold L. Collins (5) 70,000(2) *
3810 Wacker Drive
Mira Loma, CA 91752
Common Stock Kenneth Schwartz(6) 100,000(2) 1.1%
3810 Wacker Drive
Mira Loma, CA 91752
Common Stock Austost Anstalt Schaan 694,263(7) 7.8%
7440 Fuerstentum
Lichenstein, Landstrasse 163
Common Stock Tusk Investments Inc. 609,295(8) 6.8%
P.O. Box 4603
Zurich, Switzerland
Common Stock Directors and Officers as a Group 404,000 4.3%
Series B Pfd. Stock Mull Acres Investments, Inc. 600,000 85.4%(9)(10)
c/o Furman Selz
230 Park Avenue
New York, NY 10169
Series B Pfd. Stock Len Lichter 102,194 14.6%(11)(10)
405 Park Avenue
New York, NY 10022
Series B Pfd. Stock Directors and Officers as a Group 0 0%(11)
</TABLE>
23
24
------------
* Represents less than 1% of the outstanding shares of Common Stock of the
Company as of March 27, 2001.
(1) Mr. Powell is a director of the Company.
(2) Issuable upon exercise of currently exercisable options.
(3) Percent of class calculation based on 8,920,946 shares of Common Stock
outstanding as of March 27, 2001, plus number of shares of Common Stock,
if any, issuable to the named securityholders upon conversion of preferred
stock and/or exercise of options and warrants exercisable within 60 days.
(4) Mr. Russell is a director and Chairman of the Board of the Company.
(5) Mr. Collins is a director, President and Chief Executive Officer of the
Company.
(6) Mr. Schwartz is a director of the Company.
(7) Based on Amendment No. 2 to Schedule 13G dated March 27, 1999 filed by
Austost Anstalt Schaan on April 7, 2000.
(7) Based on Amendment No. 1 to Schedule 13G dated October 31, 2000 filed by
Tusk Investments Inc. on November 9, 2000.
(9) Represents 1.3% of the outstanding Common Stock of the Company as of
February 23, 2001, assuming conversion of said 600,000 shares of Series B
Preferred Stock to Common Stock on such date.
(10) Percent of class calculation based on 702,194 shares of Series B Preferred
Stock outstanding as of March 27, 2001.
(11) Represents less than 1% of the outstanding Common Stock of the Company as
of March 27, 2001, assuming conversion of said 102,194 shares of Series B
Preferred Stock to Common Stock on such date.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 1, 1998, Meyer, Duffy & Associates, Inc. ("Meyer Duffy"), a firm
affiliated with Don Duffy, a former director of the Company, entered into a
Consulting Agreement with the Company pursuant to the terms of which Meyer,
Duffy agreed to provide the Company consulting services with respect to capital
raising and providing industry research in exchange for a fee of $117,600
(payable in monthly installments of $4,900 over a period of two years) and
warrants to purchase 25,000 shares of Common Stock of the Company with an
exercise price of $4.00 per share. The Company made payments totaling $67,691
under the Consulting Agreement through August 1999. The Company ceased making
payments under the agreement after August 1999 and the agreement was
subsequently terminated.
In November 1999, the Company obtained a loan in the amount of $300,000 from
William Whalen, a former shareholder of the Company. The loan originally was
evidenced by two promissory notes in the principal amounts of $200,000 and
$100,000 respectively, each bearing interest at a rate of 12% per annum, and
maturing on March 31, 2000. In January 2000, the notes were replaced by two
amended and restated promissory notes in the principal amounts of $156,638 and
$150,000, respectively. The amended and restated $156,638 note evidences
$150,000 of the principal amount of the original $200,000 note, $4,338 of
accrued interest on the original $200,000 note and $2,300 of accrued interest on
the original $100,000 note. The amended and restated $150,000 note evidences the
entire principal amount of the original $100,000 note, plus $43,362 of the
original principal amount of the $200,000 note. Both the $156,638 and $150,000
amended and restated notes bore interest at a rate of 12% per annum and were
scheduled to mature on March 31, 2000. Mr. Whalen subsequently assigned the
amended and restated note in the amount of $150,000 to an entity called w3
Holdings, Inc. while continuing to hold the amended and restated $156,638 note.
As described in detail in the Company's report on Form 10-QSB for the quarter
ended September 30, 2000, in July 2000, the Company paid $195,000 in settlement
of its obligations to pay principal and interest owing on the $150,000 note and
on another $300,000 note held by w3 Holdings. Mr. Whalen has extended to March
2001 the maturity date of the $156,638 note, on which there was accrued
approximately $22,350 in interest as of March 31, 2001. The Company is
continuing to negotiate with Mr. Whalen to obtain an additional extension of the
maturity date to an as of yet undetermined date.
24
25
In May 1998, the Company entered into an agreement with Cana Capital
Corporation, a company owned by Bruce Scott, a former director of the Company,
pursuant to which Cana Capital would provide $1.5 million in floor financing for
the Company's motorcycles. In April 1999, Cana Capital elected to terminate the
flooring agreement. Thereafter, Cana Capital allowed the Company several months
to pay off the balance on the floor financing. In approximately August 1999, a
dispute arose between Cana Capital and the Company as to claims the Company had
against Cana Capital, which offset part of the balance remaining on the floor
financing. Cana Capital subsequently filed suit against the Company in the
Circuit Court for the Fourth Judicial Circuit, Duval County, Florida. The
Company defended the action and cross-complained against Cana Capital to offset
the balance owed on the floor financing, which, according to the Company's
records, was approximately $235,000 as of June 30, 2000. Advances under the Cana
Capital line of credit had an interest rate of 2% over the prime rate if used to
finance the acquisition of new vehicles, and 5% over the prime rate if used to
finance the acquisition of used vehicles. As described in the Company's
quarterly report for the quarter ended June 30, 2000, in July 2000 the Company
successfully reached a global settlement agreement with Cana Capital, Mr. Scott
and other companies affiliated with Mr. Scott which required payment by the
Company to Cana Capital by July 31, 2000. On July 28, 2000, the Company
fulfilled its obligations under the settlement agreement. In exchange for the
payment, Cana Capital agreed to provide the Company the original title to
motorcycles financed under the Cana Capital floor line and has dismissed its
suits with prejudice. The global settlement agreement encompassed settlement of
all disputes then existing between the Company and Mr. Scott's affiliated
companies, including a dispute relating to a sublease agreement between the
Company, as sublessor, and Big Bike of Daytona, Inc., as sublessee, with respect
to premises used by Big Bike for the operation of an independent motorcycle
retail business.
In February 1999, the Company issued 16,000 shares of Common Stock to Mr.
Scott in connection with the settlement of a dispute over the licensing of the
Company's name in connection with the sale of apparel and accessories.
The Company has entered into an employment agreement with Harold L. Collins,
President and Chief Executive Officer of the Company. See Part III, Item 10 --
"Executive Compensation."
In November 1999, the Company issued Mr. Duffy the compensation due to him
for time served as co-CEO in 1997. Mr. Duffy was entitled to receive a
motorcycle valued at $20,000. In lieu of a motorcycle Mr. Duffy received a Cobra
replica sports car that was exchanged for three motorcycles valued on the
Company's books at approximately $26,000. The Company incurred the expense of
$500 for the transportation of the motor vehicle to Mr. Duffy.
In January 2000, the Company provided Herm Rosenman, the former President
and Chief Executive Officer of the Company, with a non-bearing interest loan for
$60,000. The loan was repaid in March 2000.
During the fiscal year ended 1999, certain managers were awarded a
motorcycle as additional compensation for 1998.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
a. LIST OF EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreement and Plan of Reorganization dated August 4, 1994 among
HDL Communications Inc., Biker Dream, Inc. and the stockholders
of HDL Communications, Inc., as amended by agreements dated
November 11, 1994, February 3, 1995 and February 20, 1995.(1)
2.2 Asset Purchase Agreement dated January 18, 2000 between Bikers
Dream, Inc. and V-Twin Holdings, Inc.(12)
2.3 Asset Purchase Agreement dated January 30, 1997 among the
Company, Ultra Acquisition Corporation and Mull Acres
Investments, Inc.(3)
3.1 Articles of Incorporation, as amended, of the Company (formerly
known as HDL Communications).(1)
3.1.1 Certificate of Amendment of Articles of Incorporation dated June
21, 1996.(4)
3.1.2 Certificate of Correction of Certificate of Amendment of
Articles of Incorporation dated July 25, 1997.(5)
3.1.3 Certificate of Ownership of HDL Communications (now known as
Ultra Motorcycle Company).(1)
3.1.4 Certificate of Amendment of Articles of Incorporation dated
January 15, 2001.
3.1.5 Certificate of Determination of Series B Convertible Preferred
Stock.(5)
3.1.6 Certificate of Determination of Series C Convertible Preferred
Stock.(7)
</TABLE>
25
26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1.7 Certificate of Determination of Series D Convertible Preferred
Stock.(10)
3.2 Bylaws, as amended, of the Company.(1)
4.1 Form of Certificate of Common Stock of the Company.(11)
4.2 Articles of Incorporation of Company, as amended (included as
Exhibits 3.1, 3.1.1, 3.1.2, 3.1.4, 3.1.5, 3.1.6 and 3.1.7).
4.3 Bylaws, as amended, of the Company (included as Exhibit 3.2).
4.4 Loan Agreement dated June 22, 1998 between Sirrom Capital
Corporation d/b/a/ Tandem Capital (predecessor-in-interest to
FINOVA Mezzanine Capital, Inc.) and the Company and Ultra
Acquisition Corporation as Borrowers (included as Exhibit
10.14).
4.5 First Amendment to Loan Agreement and Loan Documents dated as of
January 31, 2000 between FINOVA Mezzanine Capital Inc. and the
Company and Ultra Motorcycle Company (f/k/a Ultra Acquisition
Corporation) as Borrowers (included as Exhibit 10.15).
10.1 Lease dated August 5, 1993 between the Company and McFadden
Plaza.(1)
10.2 Lease dated November 1, 1994 between the Company and Valley View
Partnership.(1)
10.3 Lease dated February 8, 1995 between the Lily Company and Jim
Kinnicutt and Susan Rasmussen d/b/a Bikers Dream of
Sacramento.(4)
10.4 Lease dated October 30, 1996 between the Company and Inland
Industries.(4).
10.5 The 1995 Incentive Stock Option Plan of the Company, as
amended.(2)+
10.6 The 1995 Non-Qualified Stock Option Plan of the Company, as
amended.(2)+
10.7 The 1995 Non-Qualified Directors' Stock Option Plan of the
Company, as amended.(2)+
10.8 1998 Stock Compensation Plan.(9)+
10.9 Bikers Dream, Inc. 1998 Stock Option Plan.(8)+ 10.10 Lease dated
February 12, 1996 between Mull Acres Investments, Inc. and
Lincoln Riverside Business Center.(4)
10.11 Lease dated October 11, 1996 between Mull Acres Investments,
Inc. and Lincoln Riverside Business Center.(4)
10.12 Employment Agreement, dated as of November 1, 1998 between the
Company and Harold L. Collins.(15)
10.13 Form of Amendment to Employment Agreement dated November 1, 2000
between the Company and Harold Collins.
10.14 Loan Agreement dated June 22, 1998 between Sirrom Capital
Corporation d/b/a Tandem Capital (predecessor-in-interest to
FINOVA Mezzanine Capital, Inc.) and the Company and Ultra
Acquisition Corporation as Borrowers.(11)
10.15 First Amendment to Loan Agreement and Loan Documents dated as of
January 31, 2000 between FINOVA Mezzanine Capital Inc. and the
Company and Ultra Motorcycle Company (f/k/a/ Ultra Acquisition
Corporation) as Borrower.(15)
10.16 12% Secured Promissory Note Due June 22, 2001 by the Company and
Ultra Acquisition Corporation payable to the order of Sirrom
Capital Corporation d/b/a Tandem Capital (now known as FINOVA
Mezzanine Capital, Inc.).(11)
10.17 Stock Purchase Warrant by the Company dated June 22, 1998 issued
by the Company to Sirrom Capital Corporation d/b/a Tandem
Capital (now known as FINOVA Mezzanine Capital, Inc.).(11)
10.18 Registration Rights Agreement dated as of June 22, 1998 between
the Company and Sirrom Capital Corporation d/b/a Tandem Capital
(now known as FINOVA Mezzanine Capital, Inc.) (11)
10.19 Stock Purchase Warrant by Bikers Dream, Inc. dated November 17,
1997 issued by the Company to Sirrom Capital Corporation d/b/a
Tandem Capital (now known as FINOVA Mezzanine Capital,
Inc.).(11)
10.20 Registration Rights Agreement dated as of November 17, 1997
between the Company and Sirrom Capital Corporation d/b/a Tandem
Capital (now known as FINOVA Mezzanine Capital, Inc.).(11)
10.21 Collateral Assignment of Promissory Note dated as of January 31,
2000 between Bikers Dream, Inc. and FINOVA Mezzanine Capital
Inc.(15)
10.22 Pledge and Security Agreement dated as of January 31, 2000
between Bikers Dream, Inc. and FINOVA Mezzanine Capital Inc.(15)
10.23 Lease dated as of January 15, 1999 between LDT Company, Carol M.
Carson, David Carson and Tim Carson as
</TABLE>
26
27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
Partners and Bikers Dream International, together with addendum
(relating to Mira Loma facilities).(11)
10.24 Sublease dated as of January 15, 1999 between PrimeLine Products
Company and Bikers Dream International and LDT Company, Carol M.
Carson, David Carson and Tim Carson, together with addendum
(relating to Mira Loma facilities).(11)
10.25 Amended and Restated Promissory Note dated January 27, 2000 in
the principal amount of $156,638 payable to Bill Whalen.(15)
10.26 Form of Settlement Agreement and Release effective as of June 1,
2000, by and between Bikers Dream, Inc. and w3 Holdings,
Inc.(16)
10.27 Form of Memorandum of Settlement Terms regarding action in
Sacramento County Superior Court captioned James Kinnicutt, et
al. v. Bikers Dream Inc.(16)
10.28 Form of Settlement Agreement and General Release between James
Kinnicutt, Susan Kinnicutt, Bikers Dream of Sacramento, Bikers
Dream, Inc. and William Gresher.(16)
10.29 Form of Settlement Agreement and General Release between TIG
Insurance Company, Bikers Dream, Inc. and William and Sandra
Gresher.(16)
10.30 Form of Promissory Note dated July 20, 2000 by Bikers Dream,
Inc. in favor of TIG Insurance Company in the principal sum of
$67,062.(16)
10.31 Form of Settlement Agreement as of July 2000 between Cana
Capital Corporation, Bruce A. Scott and affiliated companies, on
the one hand, and Bikers Dream, Inc., and Ultra Acquisition
Corporation on the other hand and General Releases between the
parties.(16)
10.32 Ultra Motorcycle Company 2000 Stock Option Plan.(17)
10.33 Extension dated December 19, 2000 of Maturity Date of Amended
and Restated Promissory Note held by William Whalen.
10.34 Settlement and Mutual General Release Agreement made and entered
into on January 18, 2001 by and among Mull Acres Investments,
Inc., Jeffrey H. Silvers, William Alden and Carl Vincent "Vini"
Bergeman ("Cross-Defendants"), on the one hand, and Ultra
Motorcycle Company, f/k/a Bikers Dream, Inc.
("Cross-Complainant") on the other hand.
21.1 List of subsidiaries.(2)
23.1 Consent of Independent Certified Public Accountants.
</TABLE>
------------
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (Registration No. 33-92294) filed with the Commission on
May 31, 1995 and Amendment No. 1 thereto filed with the Commission on
October 16, 1995.
(2) Previously filed as an exhibit to the Company's Form 10-KSB dated April
12, 1996 for the fiscal year ended December 31, 1995 filed with the
Commission on April 15, 1996.
(3) Previously filed as an exhibit to the Company's Form 8-K dated January
30, 1997 filed with the Commission on February 14, 1997.
(4) Previously filed as an exhibit to the Company's Form 10-KSB for the
fiscal year ended December 31, 1996 filed with the Commission on April
15, 1997.
(5) Previously filed as an exhibit to the Company's Form 10-QSB for the
fiscal quarter ended September 30, 1997 filed with the Commission on
November 14, 1997.
(6) Previously filed as an exhibit to the Company's Form 10-KSB for the
fiscal year ended December 31, 1997 filed with the Commission on April
15, 1998.
(7) Previously filed as an exhibit to the Company's Form 10-QSB for the
fiscal quarter ended March 31, 1998 filed with the Commission on May 15,
1998.
27
28
(8) Previously filed as an exhibit to the Company's proxy statement filed
with the Commission on July 8, 1998.
(9) Previously filed as an exhibit to the Company's registration statement
on Form S-8 filed with the Commission on December 15, 1998.
(10) Previously filed as an exhibit to the Company's registration statement
on Form S-3 filed with the Commission on February 11, 1999.
(11) Previously filed as an exhibit to the Company's Form 10-KSB dated April
15, 1999 for the fiscal year ended December 31, 1998, filed with the
Commission on April 15, 1999.
(12) Previously filed as an exhibit to the Company's Form 8-K dated January
18, 2000 filed with the Commission on January 26, 2000.
(13) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 filed with the Commission on November 12, 1999.
(14) Previously filed as an exhibit to the Company's Form 10-QSB for the
fiscal quarter ended September 30, 1999 filed with the Commission on
November 22, 1999.
(15) Previously filed as an exhibit to the Company's Form 10-KSB dated April
14, 2000 for the fiscal year ended December 31, 1999 filed with the
Commission on April 14, 2000.
(16) Previously filed as an exhibit to the Company's report on Form 10-QSB
for the fiscal quarter ended June 30, 2000 filed with the Commission on
August 14, 2000.
(17) Previously filed as Appendix B to the Company's definitive proxy
statement in connection with the Company's annual meeting of
shareholders held on December 15, 2000 filed with the Commission on
November 9, 2000.
+ A compensatory plan or arrangement.
b. REPORTS ON FORM 8-K.
(1) Not applicable.
28
29
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.
ULTRA MOTORCYCLE COMPANY
Dated: April 17, 2001 By: /s/ Harold L. Collins
-------------------------------------
Harold L. Collins, President and
Chief Executive 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 dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Harold L. Collins President and Chief Executive Officer, April 17, 2001
----------------------------------------------------- and Director (Principal Executive Officer)
Harold L. Collins
/s/ Anne Todd Controller April 17, 2001
----------------------------------------------------- (Principal Financial and Accounting Officer)
Anne Todd
/s/ John Russell April 17, 2001
-----------------------------------------------------
John Russell
/s/ Humbert Powell Director April 17, 2001
-----------------------------------------------------
Humbert Powell
/s/ Kenneth Schwartz Director April 17, 2001
-----------------------------------------------------
Kenneth Schwartz
</TABLE>
29
30
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Agreement and Plan of Reorganization dated August 4, 1994 among
HDL Communications Inc., Biker Dream, Inc. and the stockholders
of HDL Communications, Inc., as amended by agreements dated
November 11, 1994, February 3, 1995 and February 20, 1995.(1)
2.2 Asset Purchase Agreement dated January 18, 2000 between Bikers
Dream, Inc. and V-Twin Holdings, Inc.(12)
2.3 Asset Purchase Agreement dated January 30, 1997 among the
Company, Ultra Acquisition Corporation and Mull Acres
Investments, Inc.(3)
3.1 Articles of Incorporation, as amended, of the Company (formerly
known as HDL Communications).(1)
3.1.1 Certificate of Amendment of Articles of Incorporation dated June
21, 1996.(4)
3.1.2 Certificate of Correction of Certificate of Amendment of
Articles of Incorporation dated July 25, 1997.(5)
3.1.3 Certificate of Ownership of HDL Communications (now known as
Ultra Motorcycle Company).(1)
3.1.4 Certificate of Amendment of Articles of Incorporation dated
January 15, 2001.
3.1.5 Certificate of Determination of Series B Convertible Preferred
Stock.(5)
3.1.6 Certificate of Determination of Series C Convertible Preferred
Stock.(7)
3.1.7 Certificate of Determination of Series D Convertible Preferred
Stock.(10)
3.2 Bylaws, as amended, of the Company.(1)
4.1 Form of Certificate of Common Stock of the Company.(11)
4.2 Articles of Incorporation of Company, as amended (included as
Exhibits 3.1, 3.1.1, 3.1.2, 3.1.4, 3.1.5, 3.1.6 and 3.1.7).
4.3 Bylaws, as amended, of the Company (included as Exhibit 3.2).
4.4 Loan Agreement dated June 22, 1998 between Sirrom Capital
Corporation d/b/a/ Tandem Capital (predecessor-in-interest to
FINOVA Mezzanine Capital, Inc.) and the Company and Ultra
Acquisition Corporation as Borrowers (included as Exhibit
10.14).
4.5 First Amendment to Loan Agreement and Loan Documents dated as of
January 31, 2000 between FINOVA Mezzanine Capital Inc. and the
Company and Ultra Motorcycle Company (f/k/a Ultra Acquisition
Corporation) as Borrowers (included as Exhibit 10.15).
10.1 Lease dated August 5, 1993 between the Company and McFadden
Plaza.(1)
10.2 Lease dated November 1, 1994 between the Company and Valley View
Partnership.(1)
10.3 Lease dated February 8, 1995 between the Lily Company and Jim
Kinnicutt and Susan Rasmussen d/b/a Bikers Dream of
Sacramento.(4)
10.4 Lease dated October 30, 1996 between the Company and Inland
Industries.(4).
10.5 The 1995 Incentive Stock Option Plan of the Company, as
amended.(2)+
10.6 The 1995 Non-Qualified Stock Option Plan of the Company, as
amended.(2)+
10.7 The 1995 Non-Qualified Directors' Stock Option Plan of the
Company, as amended.(2)+
10.8 1998 Stock Compensation Plan.(9)+
10.9 Bikers Dream, Inc. 1998 Stock Option Plan.(8)+
10.10 Lease dated February 12, 1996 between Mull Acres Investments,
Inc. and Lincoln Riverside Business Center.(4)
10.11 Lease dated October 11, 1996 between Mull Acres Investments,
Inc. and Lincoln Riverside Business Center.(4)
10.12 Employment Agreement, dated as of November 1, 1998 between the
Company and Harold L. Collins.(15)
10.13 Form of Amendment to Employment Agreement dated November 1, 2000
between the Company and Harold Collins.
10.14 Loan Agreement dated June 22, 1998 between Sirrom Capital
Corporation d/b/a Tandem Capital (predecessor-in-interest to
FINOVA Mezzanine Capital, Inc.) and the Company and Ultra
Acquisition Corporation as Borrowers.(11)
10.15 First Amendment to Loan Agreement and Loan Documents dated as of
January 31, 2000 between FINOVA Mezzanine Capital Inc. and the
Company and Ultra Motorcycle Company (f/k/a/ Ultra Acquisition
Corporation)
</TABLE>
30
31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
as Borrower.(15)
10.16 12% Secured Promissory Note Due June 22, 2001 by the Company and
Ultra Acquisition Corporation payable to the order of Sirrom
Capital Corporation d/b/a Tandem Capital (now known as FINOVA
Mezzanine Capital, Inc.).(11)
10.17 Stock Purchase Warrant by the Company dated June 22, 1998 issued
by the Company to Sirrom Capital Corporation d/b/a Tandem
Capital (now known as FINOVA Mezzanine Capital, Inc.).(11)
10.18 Registration Rights Agreement dated as of June 22, 1998 between
the Company and Sirrom Capital Corporation d/b/a Tandem Capital
(now known as FINOVA Mezzanine Capital, Inc.) (11)
10.19 Stock Purchase Warrant by Bikers Dream, Inc. dated November 17,
1997 issued by the Company to Sirrom Capital Corporation d/b/a
Tandem Capital (now known as FINOVA Mezzanine Capital,
Inc.).(11)
10.20 Registration Rights Agreement dated as of November 17, 1997
between the Company and Sirrom Capital Corporation d/b/a Tandem
Capital (now known as FINOVA Mezzanine Capital, Inc.).(11)
10.21 Collateral Assignment of Promissory Note dated as of January 31,
2000 between Bikers Dream, Inc. and FINOVA Mezzanine Capital
Inc.(15)
10.22 Pledge and Security Agreement dated as of January 31, 2000
between Bikers Dream, Inc. and FINOVA Mezzanine Capital Inc.(15)
10.23 Lease dated as of January 15, 1999 between LDT Company, Carol M.
Carson, David Carson and Tim Carson as Partners and Bikers Dream
International, together with addendum (relating to Mira Loma
facilities).(11)
10.24 Sublease dated as of January 15, 1999 between PrimeLine Products
Company and Bikers Dream International and LDT Company, Carol M.
Carson, David Carson and Tim Carson, together with addendum
(relating to Mira Loma facilities).(11)
10.25 Amended and Restated Promissory Note dated January 27, 2000 in
the principal amount of $156,638 payable to Bill Whalen.(15)
10.26 Form of Settlement Agreement and Release effective as of June 1,
2000, by and between Bikers Dream, Inc. and w3 Holdings,
Inc.(16)
10.27 Form of Memorandum of Settlement Terms regarding action in
Sacramento County Superior Court captioned James Kinnicutt, et
al. v. Bikers Dream Inc.(16)
10.28 Form of Settlement Agreement and General Release between James
Kinnicutt, Susan Kinnicutt, Bikers Dream of Sacramento, Bikers
Dream, Inc. and William Gresher.(16)
10.29 Form of Settlement Agreement and General Release between TIG
Insurance Company, Bikers Dream, Inc. and William and Sandra
Gresher.(16)
10.30 Form of Promissory Note dated July 20, 2000 by Bikers Dream,
Inc. in favor of TIG Insurance Company in the principal sum of
$67,062.(16)
10.31 Form of Settlement Agreement as of July 2000 between Cana
Capital Corporation, Bruce A. Scott and affiliated companies, on
the one hand, and Bikers Dream, Inc., and Ultra Acquisition
Corporation on the other hand and General Releases between the
parties.(16)
10.32 Ultra Motorcycle Company 2000 Stock Option Plan.(17)
10.33 Extension dated December 19, 2000 of Maturity Date of Amended
and Restated Promissory Note held by William Whalen.
10.34 Settlement and Mutual General Release Agreement made and entered
into on January 18, 2001 by and among Mull Acres Investments,
Inc., Jeffrey H. Silvers, William Alden and Carl Vincent "Vini"
Bergeman ("Cross-Defendants"), on the one hand, and Ultra
Motorcycle Company, f/k/a Bikers Dream, Inc.
("Cross-Complainant") on the other hand.
21.1 List of subsidiaries.(2)
23.1 Consent of Independent Certified Public Accountants.
</TABLE>
------------
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (Registration No. 33-92294) filed with the Commission on
May 31, 1995 and Amendment No. 1 thereto filed with the Commission on
October 16, 1995.
31
32
(2) Previously filed as an exhibit to the Company's Form 10-KSB dated April
12, 1996 for the fiscal year ended December 31, 1995 filed with the
Commission on April 15, 1996.
(3) Previously filed as an exhibit to the Company's Form 8-K dated January
30, 1997 filed with the Commission on February 14, 1997.
(4) Previously filed as an exhibit to the Company's Form 10-KSB for the
fiscal year ended December 31, 1996 filed with the Commission on April
15, 1997.
(5) Previously filed as an exhibit to the Company's Form 10-QSB for the
fiscal quarter ended September 30, 1997 filed with the Commission on
November 14, 1997.
(6) Previously filed as an exhibit to the Company's Form 10-KSB for the
fiscal year ended December 31, 1997 filed with the Commission on April
15, 1998.
(7) Previously filed as an exhibit to the Company's Form 10-QSB for the
fiscal quarter ended March 31, 1998 filed with the Commission on May 15,
1998.
(8) Previously filed as an exhibit to the Company's proxy statement filed
with the Commission on July 8, 1998.
(9) Previously filed as an exhibit to the Company's registration statement
on Form S-8 filed with the Commission on December 15, 1998.
(10) Previously filed as an exhibit to the Company's registration statement
on Form S-3 filed with the Commission on February 11, 1999.
(11) Previously filed as an exhibit to the Company's Form 10-KSB dated April
15, 1999 for the fiscal year ended December 31, 1998, filed with the
Commission on April 15, 1999.
(12) Previously filed as an exhibit to the Company's Form 8-K dated January
18, 2000 filed with the Commission on January 26, 2000.
(13) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3 filed with the Commission on November 12, 1999.
(18) Previously filed as an exhibit to the Company's Form 10-QSB for the
fiscal quarter ended September 30, 1999 filed with the Commission on
November 22, 1999.
(19) Previously filed as an exhibit to the Company's Form 10-KSB dated April
14, 2000 for the fiscal year ended December 31, 1999 filed with the
Commission on April 14, 2000.
(20) Previously filed as an exhibit to the Company's report on Form 10-QSB
for the fiscal quarter ended June 30, 2000 filed with the Commission on
August 14, 2000.
(21) Previously filed as Appendix B to the Company's definitive proxy
statement in connection with the Company's annual meeting of
shareholders held on December 15, 2000 filed with the Commission on
November 9, 2000.
+ A compensatory plan or arrangement.
32
33
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
33
34
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONTENTS
DECEMBER 31, 2000
================================================================================
<TABLE>
<CAPTION>
Page
-------
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet 2 - 3
Consolidated Statements of Operations 4 - 5
Consolidated Statements of Shareholders' Equity 6 - 7
Consolidated Statements of Cash Flows 8 - 10
Notes to Consolidated Financial Statements 11 - 44
</TABLE>
34
35
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Ultra Motorcycle Company
(formerly Bikers Dream, Inc.)
We have audited the accompanying consolidated balance sheet of Ultra Motorcycle
Company (formerly Bikers Dream, Inc.) and subsidiaries as of December 31, 2000,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the two years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 Ultra Motorcycle
Company (formerly Bikers Dream, Inc.) and subsidiaries as of December 31, 2000,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 2000 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, several matters affecting the
Company raise substantial doubt about the Company's ability to continue as a
going concern. As of December 31, 2000, the Company's current liabilities
exceeded its current assets by $1,489,979. In addition, as described in Note 10,
on March 28, 2001, the maturity of the Company's $4,500,000 note payable was
accelerated, and the note became due and payable in full. The maturity date of
the note payable was accelerated as a result of the Company not making a
required interest payment of approximately $136,000 that was due March 1, 2001.
As of March 28, 2001, the Company has been unable to refinance the note payable
and will not have the resources to repay the note unless additional debt or
equity financing is obtained. Further, as described in Note 8, the Company has a
pending lawsuit with the California State Air Resources Board, which management
believes the range of loss in connection with the lawsuit to be uncertain.
Management's plans in regard to these matters are described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 5, 2001, except for
Notes 10 and 16, as to which the date is March 28, 2001.
35
36
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
================================================================================
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 118,900
Accounts receivable, net of allowance for doubtful accounts of $3,620 1,116,292
Other receivables, net of allowance for doubtful accounts of $37,980 49,867
Note receivable 122,425
Current portion of note receivable - related party 187,500
Inventories 3,870,601
Marketable securities - related party, net of impairment loss of $234,000 266,000
Prepaid expenses and other current assets 150,767
----------
Total current assets 5,882,352
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $817,531 712,605
NOTE RECEIVABLE - RELATED PARTY, net of current portion and unamortized
discount of $101,198 711,302
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of accumulated
amortization of $813,468 2,205,887
DEBT ISSUANCE COSTS 26,963
DEPOSITS AND OTHER ASSETS 175,000
----------
TOTAL ASSETS $9,714,109
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
37
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
================================================================================
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Note payable - related party $ 156,638
Current portion of notes payable 4,529,267
Current portion of capital lease obligations 47,238
Accounts payable 1,090,832
Accrued liabilities 1,086,662
Accrued warranty reserves 461,694
------------
Total current liabilities 7,372,331
NOTES PAYABLE, less current portion 36,500
CAPITAL LEASE OBLIGATIONS, less current portion 65,127
------------
Total liabilities 7,473,958
------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Series A convertible preferred stock, no par value
Aggregate liquidation preference of $175,000
30 shares authorized
no shares issued and outstanding --
Series B convertible preferred stock, no par value
Cumulative dividends, aggregate liquidation preference of
$702,194 per share; 8,000,000 shares authorized
702,194 shares issued and outstanding 702,194
Series C convertible preferred stock, no par value
Cumulative dividends, aggregate liquidation preference of $25,000
300 shares authorized
no shares issued and outstanding --
Series D convertible preferred stock, $0.01 par value and stated value
of $1,000
Cumulative dividends, aggregate liquidation preference of $1,780,000
3,500 shares authorized
no shares issued and outstanding --
Common stock, no par value
25,000,000 shares authorized
8,925,782 issued and outstanding 25,335,964
Accumulated deficit (23,798,007)
------------
Total shareholders' equity 2,240,151
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,714,109
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
38
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000
================================================================================
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
REVENUES $ 27,614,231 $ 22,308,983
COST OF GOODS SOLD 22,764,832 18,251,001
------------ ------------
GROSS PROFIT 4,849,399 4,057,982
------------ ------------
EXPENSES
Selling, general, and administrative expenses 4,226,923 5,289,597
Depreciation and amortization 550,709 508,816
------------ ------------
Total expenses 4,777,632 5,798,413
------------ ------------
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS 71,767 (1,740,431)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (683,951) (796,639)
Interest income 98,339 --
Other income (expense) from litigation and settlements 623,000 (813,000)
Gain on sale of technology 96,000 --
Impairment loss on marketable securities - related party (234,000) --
Gain on disposal of property and equipment 3,802 --
Other income, net 6,102 5,731
------------ ------------
Total other income (expense) (90,708) (1,603,908)
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES, DISCONTINUED
OPERATIONS, EXTRAORDINARY ITEM, AND BENEFICIAL
CONVERSION ON PREFERRED STOCK (18,941) (3,344,339)
PROVISION FOR INCOME TAXES 4,800 800
------------ ------------
LOSS BEFORE DISCONTINUED OPERATIONS, EXTRAORDINARY ITEM,
AND BENEFICIAL CONVERSION ON PREFERRED STOCK (23,741) (3,345,139)
LOSS ON DISCONTINUED OPERATIONS
Loss on discontinued operations, net of provision for income
taxes of $0 and $0 (268,824) (532,050)
Loss on disposal of Retail Division, net of provision for income
taxes of $0 -- (1,782,144)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
39
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000
================================================================================
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
LOSS BEFORE EXTRAORDINARY ITEM AND BENEFICIAL CONVERSION
ON PREFERRED STOCK $ (292,565) $ (5,659,333)
EXTRAORDINARY ITEM
Gain on extinguishment of debt - related party, net of income
taxes of $0 366,000 --
------------ ------------
INCOME (LOSS) BEFORE BENEFICIAL CONVERSION 73,435 (5,659,333)
BENEFICIAL CONVERSION FEATURE GRANTED ON PREFERRED STOCK -- (394,854)
------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 73,435 $ (6,054,187)
============ ============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
From continuing operations $ -- $ (0.72)
From discontinued operations (0.03) (0.45)
From extraordinary item 0.04 --
------------ ------------
TOTAL BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ 0.01 $ (1.17)
============ ============
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING $ 8,457,167 $ 5,183,186
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
40
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000
================================================================================
<TABLE>
<CAPTION>
Additional
Series A, B, C, and D Paid-In
Convertible Preferred Capital
Stock Series D Common Stock
--------------------- Preferred ---------------------- Subscriptions Accumulated
Shares Amount Stock Shares Amount Receivable Deficit Total
---------- --------- --------- --------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 702,195 $ 859,694 $ -- 5,112,926 $22,642,205 $ (90,000) $(17,594,705) $5,817,194
CASH RECEIVED ON
SUBSCRIPTIONS RECEIVABLE 90,000 90,000
PRIVATE PLACEMENTS, net of
offering costs 2,060 21 1,664,811 1,664,832
ACCRUED LIABILITIES
CONVERTED TO EQUITY 16,000 60,000 60,000
CONVERSION OF SERIES A
PREFERRED STOCK (1) (157,500) 23,334 157,500 --
CONVERSION OF SERIES A
PREFERRED STOCK DIVIDEND 12,570 52,500 52,500
CONVERSION OF SERIES D
PREFERRED STOCK (280) (3) (226,285) 508,457 226,288 --
CONVERSION OF SERIES D
PREFERRED STOCK DIVIDEND 20,109 11,301 11,301
EXERCISE OF SERIES C WARRANTS
FOR CASH, net of costs 25,000 117,000 117,000
EXERCISE OF SERIES E WARRANTS
FOR CASH 1,000 5,000 5,000
EXERCISE OF SERIES F WARRANTS
FOR CASH 7,500 37,500 37,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
41
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000
================================================================================
<TABLE>
<CAPTION>
Additional
Series A, B, C, and D Paid-In
Convertible Preferred Capital
Stock Series D Common Stock
--------------------- Preferred ---------------------- Subscriptions Accumulated
Shares Amount Stock Shares Amount Receivable Deficit Total
---------- --------- ---------- --------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CANCELLATION OF COMMON
SHARES $ $ (1,000) $ (5,000) $ $ $ (5,000)
ISSUANCE OF 100,000 STOCK
OPTIONS FOR CONSULTING
SERVICES RENDERED 25,000 25,000
CONTRIBUTED CAPITAL BY A
RELATED PARTY 107,656 107,656
ISSUANCE OF PREFERRED
STOCK WITH A BENEFICIAL
CONVERSION FEATURE 394,854 (394,854) --
DIVIDENDS ACCRUED ON
PREFERRED STOCK (149,226) (149,226)
NET LOSS (5,659,333) (5,659,333)
---------- -------- ---------- --------- ----------- ---------- ------------ ----------
BALANCE, DECEMBER 31, 1999 703,974 702,212 1,438,526 5,725,896 23,831,804 -- (23,798,118) 2,174,424
CONVERSION OF SERIES D
PREFERRED STOCK (1,780) (18) (1,438,526) 3,085,892 1,438,544 --
CONVERSION OF SERIES D
PREFERRED STOCK DIVIDEND 113,994 65,616 65,616
DIVIDENDS ACCRUED ON
PREFERRED STOCK (73,324) (73,324)
NET INCOME 73,435 73,435
---------- --------- ---------- --------- ----------- ---------- ------------ ----------
BALANCE, DECEMBER 31, 2000 702,194 $702,194 $ -- 8,925,782 $25,335,964 $ -- $(23,798,007) $2,240,151
========== ======== ========== ========= =========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
42
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000
================================================================================
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 73,435 $ (5,659,333)
Deduct loss on discontinued operations and loss on disposal
of Retail Division 268,824 2,314,194
------------ ------------
Net income (loss) from continuing operations 342,259 (3,345,139)
Adjustments to reconcile net income (loss) from continuing
operations to net cash used in operating activities
Gain on sale of equipment (3,802) --
Depreciation and amortization 550,709 508,816
Amortization of discount on note receivable (78,416) --
Accrued interest income on note receivable (8,682) --
Amortization of loan costs 53,925 --
Issuance of common stock for services rendered -- 25,000
Extinguishment of debt - related party (366,000) --
Other income (expense) from litigation and settlements (623,000) 813,000
Gain on sale of technology (96,000) --
Impairment loss on marketable securities 234,000 --
(Increase) decrease in
Accounts receivable 1,134,647 384,510
Other receivables 4,308 (11,077)
Inventories 185,393 (464,108)
Prepaid expenses and other current assets 109,512 (19,183)
Deposits and other assets (32,587) (122,560)
Increase (decrease) in
Accounts payable (1,436,635) 602,286
Accrued liabilities (259,351) 675,204
Accrued warranty reserves (31,789) 276,849
Accrued legal and settlement costs (190,000) --
------------ ------------
Net cash used in continuing operating activities (511,509) (676,402)
Net cash used in discontinued operating activities (301,122) (561,048)
------------ ------------
Net cash used in operating activities (812,631) (1,237,450)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
43
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000
================================================================================
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received on note receivable $ 28,100 $ --
Purchase of property and equipment (56,833) (430,893)
Cash received upon sale of property and equipment 16,000 --
Sale of marketable securities -- 200,634
Other -- 4,978
------------ ------------
Net cash used in continuing investing activities (12,733) (225,281)
Net cash used in discontinued investing activities -- (211,882)
------------ ------------
Net cash used in investing activities (12,733) (437,163)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (152,676) (174,297)
Payments on capital lease obligations (91,954) (66,929)
Proceeds from notes payable - related parties -- 300,000
Payments on notes payable - related parties (195,000) --
Payments on financing agreements - related party, net (50,887) (1,177,087)
Debt issuance costs -- 88,645
Exercise of Series C warrants -- 112,000
Exercise of Series E warrants -- 5,000
Exercise of Series F warrants -- 37,500
Additional paid-in capital received from related parties -- 107,656
Payment on subscriptions receivable -- 90,000
Private placements, net of offering costs -- 1,664,832
------------ ------------
Net cash provided by (used in) continuing financing activities (490,517) 987,320
Net cash provided by discontinued financing activities -- 1,432,395
------------ ------------
Net cash provided by (used in) financing activities (490,517) 2,419,715
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,315,881) 745,102
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,434,781 689,679
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 118,900 $ 1,434,781
============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For the years ended December 31, 2000 and 1999, approximately $632,000 and
$747,000, respectively, of cash was paid for interest expense.
The accompanying notes are an integral part of these financial statements.
43
44
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000
================================================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 2000, as part of the consideration of the
sale of its Retail Division, the Company received a note receivable $820,386,
net of its discount, and marketable securities of $500,000.
During the year ended December 31, 2000, the Company extinguished notes payable
to a related party of $450,000 and accrued interest thereon of $111,000 with a
$195,000 cash payment, thereby recognizing $366,000 of income from the
extinguishment of debt, which is treated as an extraordinary item.
During the year ended December 31, 2000, the Company received a $300,000 note
receivable in connection with an agreement related to the reimbursement of
advances of $204,000 and the sale of rights of certain technology. In addition
to cash payments made on the note, the note was also reduced by $158,157 for
payments in trade.
During the years ended December 31, 2000 and 1999, the Company paid dividends of
$65,616 and $63,801, respectively, by issuing 113,994 and 32,679 shares,
respectively, of common stock.
During the years ended December 31, 2000 and 1999, the Company entered into
capital lease obligations of $81,341 and $163,198, respectively.
During the years ended December 31, 2000 and 1999, the Company converted 1,780
and 280 shares of Series D convertible preferred stock, respectively, into
3,085,892 and 508,457 shares of common stock, respectively.
During the year ended December 31, 2000, the Company disposed of property and
equipment in exchange for prepaid assets of $20,000 and an assumption of a
capital lease obligation of $29,930.
During the year ended December 31, 2000, pursuant to the terms of a settlement
agreement, the Company transferred title of motorcycles with an approximate
aggregate fair value of $258,200 as repayment for the outstanding advances owed
on a financing agreement with a related party.
During the year ended December 31 1999, the Company converted accrued
liabilities of $60,000 into 16,000 shares of common stock.
During the year ended December 31, 1999, the Company converted one share of
Series A convertible preferred stock into 23,334 shares of common stock.
During the year ended December 31, 1999, the Company transferred an automobile
with a net book value of $34,929 to a related party who also assumed the lease
obligation of
The accompanying notes are an integral part of these financial statements.
44
45
approximately the same amount.
The accompanying notes are an integral part of these financial statements.
45
46
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION
Line of Business and Business Change
Ultra Motorcycle Company ("UMC") (formerly Bikers Dream, Inc.)
manufactures and sells heavyweight cruiser motorcycles to dealerships
throughout the United States. UMC also operated a Retail Division
from 1990 to January 2000 that sold motorcycles, parts and
accessories, and services to consumers through company-owned retail
stores. However, as discussed in Note 2, the Retail Division was sold
on January 31, 2000. Effective January 17, 2001, UMC's name was
changed from Bikers Dream, Inc. to Ultra Motorcycle Company.
Organization
On March 13, 1995, UMC acquired a publicly-traded dormant entity
formerly known as HDL Communications ("HDL"), which was incorporated
in California in October 1985. After the acquisition, UMC was merged
into HDL, and HDL changed its name to Bikers Dream, Inc. At the time
of the acquisition, there was no active trading market for UMC's
stock, and management of UMC and HDL determined in an arm's length
negotiation that the market value of the combined entities was
approximately $4,000,000 (or approximately $5 per share), which was
evidenced by the number of shares issued (820,000) in connection with
the acquisition as follows:
- 660,000 shares to former UMC shareholders
- 60,000 shares to former HDL shareholders
- 100,000 shares to holders of $500,000 of convertible notes of
HDL, who converted them into shares of UMC at a price of $5 per
share immediately prior to the closing of the acquisition
At the time of the merger, HDL's assets and liabilities consisted of
a note receivable of $500,000 from UMC and notes payable in the
amount of $500,000. As the notes were converted into shares
concurrent with the acquisition, the 60,000 shares issued to former
HDL shareholders were issued in consideration for the public entity
HDL. The substance of the transaction was a recapitalization of UMC's
shares for those of HDL's shares.
In September 1996, UMC entered into an agreement with Mull Acres
Investments, Inc. ("Mull Acres") to become a member of Ultra Bikers,
LLC, a newly-formed California limited liability company (the "LLC").
UMC contributed $1,525,000 in cash for a 49% interest in the LLC, and
Mull Acres received a 51% interest for its expertise in the business
of manufacturing, distributing, and selling custom motorcycles.
46
47
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION (CONTINUED)
Organization (Continued)
UMC's investment in the LLC was loaned to the Ultra Kustom Cycles
division ("UKC") of Mull Acres to be used to manufacture motorcycles
and related parts and accessories. UKC sold the motorcycles and
related parts and accessories to the LLC at cost, and the LLC then
sold the motorcycles to UMC and unrelated parties. The operations of
UKC began substantially on September 19, 1996 after receiving the
necessary capital from the LLC to fund its production activities.
On January 30, 1997, through its newly-created subsidiary, Ultra
Acquisition Corporation, UMC entered into an Asset Purchase Agreement
with Mull Acres to purchase the net assets, which included the
employee base and manufacturing expertise, of UKC for $3,800,000,
which consisted of $1,100,000 in cash and a note payable of
$2,700,000. After the close of the transaction, the LLC was
dissolved, and UMC owned all of the assets of UKC. The acquisition of
UKC was accounted for by the purchase method of accounting, and
accordingly, the purchase price has been allocated to the assets
acquired based on the estimated fair values at the date of the
acquisition.
The estimated fair value of the assets purchased and liabilities
assumed at the acquisition date is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment $ 310,270
Other assets 108,928
Excess cost over fair value of net assets acquired 3,749,355
Other liabilities (368,553)
-----------
PURCHASE PRICE $ 3,800,000
===========
</TABLE>
On June 30, 1997, UMC and Mull Acres entered into an agreement (the
"Note Conversion Agreement"). Under the terms of the Note Conversion
Agreement, Mull Acres agreed to exercise 274,000 of its then
outstanding stock options to purchase UMC's common stock in
satisfaction of $1,370,000 of the note payable and to accept
1,330,000 of UMC's Series B convertible preferred stock in
satisfaction of the remaining principal balance due under the note
payable.
47
48
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION (CONTINUED)
Organization (Continued)
In addition, on October 7, 1997, UMC, Mull Acres, and several
individuals affiliated with Mull Acres entered into another agreement
(the "Mutual Release and Settlement Agreement"). Under the terms of
the Mutual Release and Settlement Agreement, certain terms of the
Asset Purchase Agreement and Note Conversion Agreement were clarified
and modified. Some of the terms that were clarified and modified
related to non-competition, non-solicitation of customers, and
non-interference with UMC's employees by Mull Acres and certain
specified individuals affiliated with Mull Acres. To secure Mull
Acres and the individuals affiliated with Mull Acres performance
under the Mutual Release and Settlement Agreement, 730,000 shares of
Series B convertible preferred stock were retained by UMC in escrow.
Upon the completion of the Mutual Release and Settlement Agreement,
UMC reduced the excess cost over fair market value by $730,000, the
book value of the preferred shares, and effectively retired the
preferred shares.
In April 1998, management of UMC and its legal counsel concluded that
the individuals affiliated with Mull Acres violated the terms of the
Mutual Release and Settlement Agreement sufficiently enough to allow
UMC to reacquire the 730,000 shares of Series B convertible preferred
stock that were retained in escrow. In January 2001, UMC, Mull Acres,
and several individuals affiliated with Mull Acres entered into a
settlement agreement to resolve certain disputes between them. As
part of this settlement agreement, Mull Acres relinquished and
disclaimed any rights to the 730,000 shares of Series B convertible
preferred stock that were reacquired by UMC.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Ultra
Motorcycle Company and all of its wholly owned subsidiaries,
including the accounts of Ultra Motorcycle Corporation, Ultra
Motorcycle Company (a Nevada corporation), Bikers Dream
International, Inc., Bikers Dream Distribution, Inc., Bikers Dream
Management Services, Inc., and Bikers Dream Eagle Enterprises
(collectively, the "Company"). All significant intercompany accounts
and transactions are eliminated in consolidation.
48
49
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going Concern and Basis of Presentation
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. However, several
matters affecting the Company raise substantial doubt about the
Company's ability to continue as a going concern. As of December 31,
2000, the Company's current liabilities exceeded its current assets
by $1,489,979. In addition, as described in Note 10, on March 28,
2001, the maturity of the Company's $4,500,000 note payable was
accelerated, and the note became due and payable in full. The
maturity date of the note payable was accelerated as a result of the
Company not making a required interest payment of approximately
$136,000 that was due March 1, 2001. The note is secured by a first
lien on all of the Company's assets, and the creditor has remedies
for non-payment under the note agreement, which include foreclosure
on the Company's assets. As of March 28, 2001, the Company has been
unable to refinance the note payable and will not have the resources
to repay the note unless additional debt or equity financing is
obtained. Further, as described in Note 8, the Company has a pending
lawsuit with the California State Air Resources Board, which
management believes the range of loss in connection with the lawsuit
to be uncertain.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or amounts and classifications of liabilities that might be
necessary should the Company be unable to continue its existence. The
recovery of the Company's assets is dependent upon continued
operations of the Company.
Management plans to maintain the Company as a going concern by
obtaining additional debt financing or equity financing. There is no
certainty whether management of the Company will be successful in
achieving this plan.
Revenue Recognition
Revenue from the sale of motorcycles is recognized upon shipment to
the customer.
Advertising Costs
Costs associated with the placement of advertisements in various
periodicals are expensed when the advertisement is run. Advertising
costs for the years ended December 31, 2000 and 1999 were $367,958
and $651,134, respectively.
49
50
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company utilizes Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years
of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted
tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. The provision for
income taxes represents the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Net Earnings (Loss) Per Share
The Company utilizes SFAS No. 128, "Earnings per Share." Basic
earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of common shares available.
Diluted earnings (loss) per share is computed similar to basic
earnings (loss) per share except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the
additional common shares were dilutive.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers
all highly liquid investments purchased with original maturities of
three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the specific identification method for finished
motorcycles and work-in-process inventories and the first-in,
first-out method for parts inventories. Finished goods include
capitalized overhead costs, which include primarily labor.
50
51
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Marketable Securities - Related Party
Marketable securities are accounted for in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company's marketable securities at December 31, 2000
consisted of equity securities that were acquired in connection with
the sale of its Retail Division. Management has classified these
marketable securities as available-for-sale under the provisions of
SFAS No. 115. Accordingly, these marketable securities are stated at
market value as determined by the lower of the repurchase price of
the securities or the market value as determined by the most recently
traded price of each security at the balance sheet date. Any
unrealized gains and losses on the marketable securities classified
as available-for-sale are reported as a separate component of
shareholders' equity, net of tax. When an other-than-temporary
impairment loss on an individual security classified as an
available-for-sale security is considered to have occurred, the cost
basis of the individual security is written down, and such a
write-down is recorded in earnings.
Property and Equipment
Property and equipment, including capitalized leases, are stated at
cost less accumulated depreciation and amortization. The Company
provides for depreciation and amortization using the straight-line
method over the estimated useful lives or the term of the lease,
whichever is less, as follows:
<TABLE>
<S> <C>
Furniture and fixtures 7 years
Equipment 7 years
Computers 5 years
Autos and trucks 7 years
Leasehold improvements 7 years
</TABLE>
Concentrations with Vendors
For the years ended December 31, 2000 and 1999, the Company purchased
certain motorcycle parts primarily from a single vendor. There could
be a negative economic impact to the Company if conditions arise so
that the Company could no longer purchase the certain parts from the
vendor.
Financial Instruments with Concentrations of Credit or Market Risk
Financial instruments that potentially subject the Company to
concentrations of credit or market risk are as follows:
Cash and Cash Equivalents
The Company maintains cash at several banks, and at times deposits
will be in excess of the $100,000 limit insured by the Federal
Deposit Insurance Corporation.
51
52
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments with Concentrations of Credit or Market Risk
(Continued)
Receivables
The Company sells to dealers throughout the United States. However,
at December 31, 2000, one dealer accounted for 20% of the Company's
accounts receivable balance. Allowances are maintained for potential
credit losses, and such losses have been within management's
expectations.
Marketable Securities - Related Party and Note Receivable - Related
Party At December 31, 2000, the Company had 83,333 shares of V-Twin
Holdings, Inc. ("V-Twin")'s common stock, which had a carrying value
of $266,000, net of an impairment reserve of $234,000, and a
$1,000,000 note receivable from V-Twin, which had a carrying value of
$898,802, net of the unamortized discount. Full realization of the
V-Twin common stock is dependent upon V-Twin's stock price
maintaining above at least $6 per share. Subsequent to December 31,
2000, the per share price of the V-Twin common stock significantly
decreased. As described in Note 6, an impairment loss on the V-Twin
common stock was recognized as of December 31, 2000. Full realization
of the $1,000,000 note receivable is dependent upon V-Twin's ability
to make the scheduled payments. However, management believes there
are no issues concerning V-Twin's ability to make the scheduled
payments, and that the security agreement that the Company has with
V-Twin reduces any such credit risk. As such, an impairment loss has
not been recognized on the note receivable as of December 31, 2000.
Financial Instruments with Off-Balance-Sheet Risk
Most of the Company's dealers have floor plan agreements through one
lending institution for the motorcycles purchased from the Company.
The dealers are obligors of these floor plan agreements and are
responsible for all principal and interest of the floor plan
agreements. However, the Company has entered into a standard
repurchase agreement with the lending institution of these floor plan
agreements that requires the Company to repurchase the motorcycles at
the wholesale prices in the event that the dealer defaults on its
floor plan agreement and the motorcycles purchased under the floor
plan agreement are repossessed by the lender. Since August 1997, the
Company has only repurchased 13 motorcycles under these agreements.
Management of the Company has estimated that its contingent liability
under these repurchase agreements to be approximately $5,363,000 as
of December 31, 2000.
52
53
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenue and expenses during the reported period. Actual results
could differ from those estimates.
Warranty Expenses
Estimated future warranty obligations related to motorcycles and
parts are provided by charges to operations in the period in which
the related revenue from the sales of motorcycles or parts is
recognized.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles. For certain
of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued
liabilities, and capital lease obligations, the carrying amounts
approximate fair value due to their short maturities. The amounts
shown for notes payable also approximate fair value because current
interest rates offered to the Company for debt of similar maturities
are substantially the same.
Excess of Cost over Fair Value of Net Assets Acquired
The excess of the purchase price over the estimated fair value of the
assets acquired has been recorded as excess cost over fair value of
net assets acquired, which is being amortized on a straight-line
basis over 15 years. For the years ended December 31, 2000 and 1999,
amortization expense was $199,020 and $184,494, respectively. When
events and circumstances so indicate, all long-term assets, including
the excess cost over fair value of net assets acquired, are assessed
for recoverability based upon cash flow forecasts. As of December 31,
2000, the Company has not recognized any impairment losses.
Comprehensive Income
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting comprehensive
income and its components in a financial statement. Comprehensive
income as defined includes all changes in equity (net assets) during
a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gains and
losses on available-for-sale securities. Comprehensive income is not
presented in the Company's financial statements since the Company did
not have any of the items of comprehensive income in any period
presented.
53
54
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements
In December 1999, the Securities and Exchange Commission staff
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition," to provide guidance on the recognition, presentation,
and disclosure of revenue in financial statements. Changes in
accounting to apply the guidance in SAB No. 101 may be accounted for
as a change in accounting principle effective January 1, 2000.
Management has not yet determined the complete impact of SAB No. 101
on the Company; however, management does not expect that application
of SAB No. 101 will have a material effect on the Company's revenue
recognition and results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation," (an Interpretation of
Accounting Principles Bulletin Opinion No. 25 ("APB 25")) ("FIN 44").
FIN 44 provides guidance on the application of APB 25, particularly
as it relates to options. The effective date of FIN 44 is July 1,
2000, and the Company has adopted FIN 44 as of that date.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Instruments and Certain Hedging Activities." This statement is not
applicable to the Company.
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB
Statement No. 53 and Amendments to Statements No. 63, 89, and 121."
This statement is not applicable to the Company.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, a replacement of FASB Statement No. 125." This statement
is not applicable to the Company.
Discontinued Operations
On January 31, 2000, the Company completed the sale of the assets of
its Retail Division to V-Twin, which is a publicly traded company
that is a consolidator of independent motorcycle dealerships. The
assets of the Retail Division included the five Company-owned stores
located in California, Texas, and North Carolina, substantially all
of the property and equipment and inventories at the retail stores,
certain intellectual property assets including the trade name "Bikers
Dream," and the domain name "bikers-dream.com." In exchange for the
sale of the assets, the Company received the following consideration:
- 83,333 shares of common stock of V-Twin, which, as part of the
sale agreement, V-Twin retained certain rights to call and
repurchase (See Note 6)
54
55
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Discontinued Operations (Continued)
- a $1,000,000 note receivable, which the Company discounted to
$820,386 upon issuance because of the low interest terms of the
note (See Note 6)
- assumption by V-Twin of the outstanding balance of the Company's
line of credit of $1,432,395 with an affiliate of V-Twin
- assumption by V-Twin of other liabilities of the retail stores,
which included the facility leases of the five retail stores
At December 31, 1999, the Company estimated the loss on the disposal
of the Retail Division to be $1,782,144, which included an operating
loss from the Retail Division of $1,683,113 for the period as of the
measurement date, October 1, 1999, through December 31, 1999, and an
estimated operating loss of the Retail Division for the period from
January 1, 2000 through January 31, 2000 of $211,700.
The operating results of the discontinued Retail Division for the
year ended December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 11,628,569
Costs and expenses (12,075,594)
Other expense (85,025)
------------
Loss from operations (532,050)
Estimated loss on disposal, net of provision of
income taxes of $0 (1,782,144)
------------
TOTAL LOSS ON DISCONTINUED OPERATIONS $ (2,314,194)
============
</TABLE>
During the year ended December 31, 2000, the Company recognized an
additional $268,824 in costs related to the discontinued operations.
Approximately $147,000 of these costs related to the net loss for the
period from January 31, 2000 being greater than what was originally
estimated. At December 31, 2000, the Company did not have any
remaining assets and liabilities related to its discontinued Retail
Division.
55
56
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 3 - INVENTORIES
Inventories at December 31, 2000 consisted of the following
<TABLE>
<CAPTION>
<S> <C>
Parts, net of a reserve of $317,578 for obsolescence $3,178,134
Work-in-process 149,651
Finished motorcycles 542,816
----------
TOTAL $3,870,601
==========
</TABLE>
NOTE 4 - NOTE RECEIVABLE
In July 2000, the Company received a $300,000 note receivable in
connection with an informal agreement with KT Components, Inc. ("KT
Components"). The note accrues interest at 10% per annum and is
payable in monthly payments of $38,750, with a minimum of $27,000
payable in trade and the balance payable in cash. As described in
Note 8, during 2000, a dispute arose between the Company and KT
Components related to certain payments in trade on the note
receivable. The note receivable balance as of December 31, 2000 as
reflected on the Company's financial statements was $122,425.
NOTE 5 - NOTE RECEIVABLE - RELATED PARTY
As described in Note 2, as part of the consideration for the sale of
its Retail Division in January 2000, the Company received a note
receivable of $1,000,000 from V-Twin. The note receivable accrues
interest at 5% per annum beginning on February 1, 2001 and requires
quarterly principal payments beginning on May 1, 2001 of $62,500,
with the final payment due on February 1, 2005. Upon issuance of the
note, because of the reduced interest terms on the note, the future
payments on the note have been discounted based upon an imputed rate
of 10% to better reflect the present value of the note receivable.
The difference between the face amount of the note and its present
value at the time of issuance represents a discount. This discount is
amortized over the life of the note. The agreement related to the
sale of the Retail Division provides that the note receivable be
secured by all personal property of V-Twin.
56
57
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 5 - NOTE RECEIVABLE - RELATED PARTY (CONTINUED)
At December 31, 2000, the note receivable is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Principal balance $1,000,000
Less unamortized discount 101,198
----------
Principal balance, net of unamortized discount 898,802
Less current portion 187,500
----------
LONG-TERM PORTION $ 711,302
==========
</TABLE>
NOTE 6 - MARKETABLE SECURITIES - RELATED PARTY
As discussed in Note 2, in January 2000, the Company acquired 83,333
shares of V-Twin's common stock in connection with the sale of its
Retail Division. The terms of the sale agreement provide V-Twin with
the right to call and repurchase all or a portion of the common
shares issued to the Company at a price of $6 per share within two
years after the date of the sale, at a price of $7 per share within
three years after the date of the sale, and at a price of $8 per
share within four years after the date of the sale. In addition,
before any of the V-Twin shares can be sold by the Company, the
Company must give written notice to V-Twin of its intent to sell such
shares. Thereupon, V-Twin has the option to repurchase the common
shares at the above stated prices. Because of these repurchase
provisions, the common shares are carried at the lower of V-Twin's
repurchase price or their fair market value on an open market.
Upon acquisition, the Company recorded the carrying value of the
V-Twin common stock at $500,000, which was based upon V-Twin's
repurchase price at that time and which was lower than its market
value based upon recently traded prices. However, subsequent to
December 31, 2000, the market value of the V-Twin common stock
significantly decreased. As such, an impairment loss has been
recognized on the V-Twin common stock of $234,000 for the year ended
December 31, 2000.
57
58
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 consisted of the
following:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures $ 173,693
Equipment 321,268
Computers 203,488
Autos and trucks 535,008
Leasehold improvements 296,679
----------
1,530,136
Less accumulated depreciation and amortization 817,531
----------
TOTAL $ 712,605
==========
</TABLE>
Included in the above are $225,816 of assets acquired through capital
leases, which is net of accumulated amortization of $389,565.
Depreciation and amortization expense was $550,709 and $508,816 for
the years ended December 31, 2000 and 1999, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating and Capital Leases
The Company leases a facility in Mira Loma, California which serves
as its administrative and corporate office and as its manufacturing
facility. The lease is scheduled to expire in February 2004, but the
Company has the option to extend the lease for an additional five
years. Total rent expense incurred for the years ended December 31,
2000 and 1999 was $236,040 and $229,773, respectively.
The Company also has four capital leases with several finance
companies for computer equipment, vehicles, and other equipment. The
capital leases have been discounted to the present value of the
future minimum lease payments at rates between 13% and 16%. The
monthly lease payments range between $392 to $2,493 per month and
terminate through March 2005.
58
59
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Operating and Capital Leases (Continued)
The future minimum lease payments under operating and capital leases
were as follows:
<TABLE>
<CAPTION>
Year Ending Operating Capital
December 31, Lease Leases
------------ ---------- -----------
<S> <C> <C>
2001 $ 252,900 $ 59,487
2002 256,272 29,743
2003 256,272 21,480
2004 42,712 21,480
2005 -- 5,370
---------- ----------
Total minimum lease payments $ 808,156 137,560
==========
Less amounts representing interest 25,195
----------
112,365
Less current portion 47,238
----------
LONG-TERM LEASE OBLIGATIONS $ 65,127
==========
</TABLE>
In addition, as part of the sale of its Retail Division, the Company
assigned five lease agreements for the facilities of the retail
stores to V-Twin, of which three expired during the year ended
December 31, 2000. The Company will continue to remain liable with
the lessor for the two leases that have not yet expired should V-Twin
discontinue making payments on the leases. The leases expire at
various times through 2003, and the monthly lease payments under the
lease agreements range from $6,166 to $14,968. At December 31, 2000,
the future minimum lease payments under these leases aggregated to
$539,672.
Litigation
As of December 1999, the Company was a defendant in a lawsuit
involving the former owners of its retail store in Sacramento,
California. In 1994, the Company sold a "Bikers Dream" franchise to
two individuals and did not strictly comply with the Franchise
Investment Law of California. Thereafter, the two individuals elected
to rescind the franchise agreement with the Company, and the parties
entered into an agreement in which the Company would repurchase the
franchise and assets of the store, retain the two individuals as
managers of the store, assume the store's lease, and pay off the
Small Business Administration ("SBA") loan that the two individuals
had in connection with the retail store. Afterward, the Company
continued to make monthly payments on the SBA loan in accordance with
the loan agreement, but did not fully pay off the loan under the
terms of the purchase agreement.
59
60
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation (Continued)
In addition, the Company failed to assume the store's lease. In 1997,
the two individuals were terminated as managers of the store.
Thereafter, they filed a lawsuit against the Company for breach of
the asset purchase agreement, fraud, slander, gender discrimination,
and wrongful termination. Trial for the lawsuit commenced in December
1999. As of December 31, 1999, the Company accrued $613,000 in
estimated damages to be paid on the lawsuit, which was in addition to
the SBA loan of $70,642 already recorded on the books of the Company.
In January 2000, the trial concluded, and a verdict was rendered
against the Company on the breach of contract and the fraud causes of
action. The jury awarded the plaintiff compensatory damages of
$283,000 and punitive damages of $400,000. In March 2000, the court
ordered a judgment against the Company of approximately $683,000, and
in a subsequent post-trial motion, the court awarded the plaintiffs
an additional $154,000 for attorney fees. In July 2000, the Company
finalized a settlement agreement with the plaintiffs. The settlement
agreement provided that the plaintiffs be paid $190,000 and that the
remaining balance on the SBA loan immediately be paid in full.
Concurrently, the Company entered into an ancillary agreement with
its insurer, which initially refused to cover any losses in
connection with the lawsuit. The ancillary agreement provided 1) that
the insurer pay the Company's liability owed to the former store
managers of $190,000, 2) that the insurer immediately pay the
remaining liability of approximately $67,000 on the SBA loan, and 3)
that the Company repay its insurer $67,000 for the pay-off on the SBA
loan at a rate of $2,000 per month without interest.
Since the Company had accrued $613,000 for its estimated loss on the
lawsuit as of December 31, 1999, and since the settlement agreements
did not result in a loss to the Company, the Company recognized other
income from litigation of $613,000 in connection with the settlement
agreements.
In July 1998, the Company signed a lease agreement for a commercial
building to be used as its corporate office and manufacturing
facility. In October 1998, before the Company took possession of the
building, the Company discovered what it believed to be a number of
structural deficiencies in the building. As a result, the Company
rescinded the lease agreement and then leased another facility to be
used as its corporate office and manufacturing facility. As a result
of the Company's repudiation of the lease, the lessor filed a lawsuit
against the Company, seeking damages for lost rents, late charges,
interest, attorneys' fees, and the costs of re-leasing the building,
which was still on the market for lease as of December 31, 1999. As
of December 31, 1999, the Company accrued $150,000 related to the
lawsuit. In April 2000, the Company entered into a settlement and
mutual release agreement with the lessor. The settlement agreement
provided that the Company compensate the lessor $140,000.
60
61
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation (Continued)
As a result of the above, the Company recognized other income from
litigation related to the above settlement agreement of $10,000 which
represents the difference between the actual settlement amount and
the estimated amount that was accrued as of December 31, 2000.
In September 2000, the California State Air Resources Board ("ARB")
filed a lawsuit against the Company, its Chief Executive Officer, and
its former Chief Executive Officer. The lawsuit alleges that the
Company violated California's motor vehicle air pollution control
laws in connection with the sale of motorcycles that did not have the
required emission control equipment installed. These alleged
violations related to new and used motorcycles of various makes,
including Ultra Motorcycles. The lawsuit seeks to enjoin any further
violations and to impose a financial penalty on the Company.
Subsequent to the filing of the lawsuit, the Company initiated and
began discussions with the ARB with the intention of obtaining a
mutual resolution based on terms that will not materially impair the
Company's financial condition. Management believes that the range of
any loss, if any, in connection with the lawsuit, is uncertain.
Accordingly, no loss has been accrued in connection with the lawsuit
as of December 31, 2000.
During August 1998, the Company signed a letter of intent with two
individuals to purchase technology that would be used by the Company
for the enhancement and development of proprietary parts. A formal
definitive agreement was never completed. However, under the terms of
the letter of intent, the Company would purchase the technology for a
total of $1,100,000, with $1,000,000 to be paid over three years. In
addition, the letter of intent provided that in the event the Company
discontinues use of the technology either because it fails to
continue to perform as represented or does not achieve reasonable
acceptance in the market, the Company would have the right to
discontinue payments on the purchase of the technology and share
ownership of the technology on a pro rata basis with the individuals.
During 1999, the Company advanced the two individuals an aggregate of
$204,000 for the development of the technology. In June 2000, because
of problems of reaching a definitive agreement, difficulties in
building prototype engines with this technology, and representation
on behalf of the two individuals that the technology may not be able
to be patented, management decided not to further pursue the
development of the technology.
61
62
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation (Continued)
In July 2000, the two individuals purportedly assigned their rights
in the letter of intent to KT Components, a business affiliated with
one of the individuals, that was also a vendor of the Company. In
conjunction therewith, the Company entered into an informal agreement
with KT Components, whereby KT Components would owe the Company a
$300,000 note, which represented repayment of the $204,000 that was
advanced to the two individuals and consideration for the repurchase
any of the Company's ownership interest in the technology. Further,
the agreement provided monthly payments of $38,750 on note with a
minimum of $27,000 payable in trade and the balance payable in cash.
During 2000, a dispute arose between the Company and KT Components in
which the Company refused to accept certain payments in trade due to
quality issues.
As of December 31, 2000, the Company's financial statements reflected
a balance on the note receivable of $122,425. KT Components has
disputed this balance because of the shipments of trade that the
Company refused to accept. In late December 2000, KT Components
offered to settle the matter in full with a cash payment of $71,319.
However, the Company has refused this offer. In January 2001, KT
Components filed suit against the Company and its Chief Executive
Officer, alleging breach of contract and fraud related to the
technology repurchase agreement. The Company does not feel that this
suit has any merit, and accordingly, has not accrued any loss or
reduced the note receivable balance.
The Company is also subject to various employee, warranty and other
claims, and proceedings which arise in the ordinary course of its
business. Although occasional adverse decisions (or settlements) may
occur, the Company believes that the final disposition of such
matters will not have a material adverse effect on the financial
position or results of operations of the Company.
Employment Agreements
The Company has entered into an employment agreement with its Chief
Executive Officer/President that expires in October 2002. Future
compensation under the agreement as of December 31, 2000 was as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2001 $225,000
2002 187,500
--------
TOTAL $412,500
========
</TABLE>
62
63
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Other Commitments and Contingencies
As of December 31, 2000, the Company had not yet obtained the proper
resale sales tax exemption certificates for the inventories that were
sold to V-Twin as part of the sale of the Retail Division described
in Note 2. If the Company fails to obtain the necessary resale sales
tax exemption certificates, it could be liable to pay sales tax of
approximately $250,000 in connection with the sale.
For financial instruments with concentrations of credit or market
risk, see Note 2.
NOTE 9 - NOTE PAYABLE - RELATED PARTY
At December 31, 2000, the Company maintained a note payable to a
shareholder that had a balance of $156,638. The note bears interest
at a rate of 12% per annum and is due in full on March 31, 2001.
NOTE 10 - NOTES PAYABLE
Notes payable at December 31, 2000 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable to bank. The note was issued in June 1998 and
carries interest at 12% per annum. The note originally
required quarterly interest payments and was to mature
in June 2001. However, on March 1, 2001, the Company
did not make a required interest payment on the note
of approximately $136,000, and as a result, on March
28, 2001, the bank elected to accelerate the maturity
date of the note payable, which made the note and all
accrued interest become immediately due and payable.
The note is secured by a first lien on all of the
Company's assets, and the creditor has remedies for
non-payment under the note agreement, which include
foreclosure on the Company's assets. $4,500,000
Note payable to a finance company collateralized by a
truck, requiring principal and interest payments of
$612 per month, with interest at 11% per annum
through August 2001. 5,267
</TABLE>
63
64
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 10 - NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Note payable to insurer issued in connection with
settlement, unsecured, requiring principal payments of
$2,000 per month, non-interest-bearing through May 2003 $ 60,500
----------
4,565,767
Less current portion 4,529,267
----------
LONG-TERM PORTION $ 36,500
==========
</TABLE>
Future maturities of notes payable at December 31, 2000 were as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2001 $4,529,267
2002 24,000
2003 12,500
----------
TOTAL $4,565,767
===========
</TABLE>
NOTE 11 - EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT - RELATED PARTY
In October 1998, the Company received a bridge loan in the amount of
$300,000 from MD Strategic, L.P. ("MD Strategic"), a partnership in
which the Company's former co-Chairman of the Board was a principal.
In November 1999, the Company received a second bridge loan of
$300,000 from another shareholder who was affiliated with w3
Holdings, Inc. ("w3"). In January 2000, the note issued by MD
Strategic and accrued interest thereon of $82,200 were assigned to
w3. In addition, in January 2000, a $150,000 note related to the
second bridge loan was also assigned to w3. In June 2000, the Company
and w3 reached an agreement, whereby the notes held by w3 of $450,000
and accrued interest thereon of approximately $111,000 were
extinguished in consideration of a $195,000 payment. As a result, the
Company recognized as an extraordinary item a gain of $366,000 on the
extinguishment of debt.
64
65
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 12 - INCOME TAXES
The following table presents the current and deferred income tax
provision for federal and state income taxes for the years ended
December 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Current
Federal $ -- $ --
State 4,800 800
--------- ---------
4,800 800
--------- ---------
Deferred
Federal -- --
State -- --
--------- ---------
-- --
--------- ---------
PROVISION FOR INCOME TAXES $ 4,800 $ 800
========= =========
</TABLE>
The tax effects of temporary differences which give rise to the
deferred tax provision (benefit) for the years ended December 31,
2000 and 1999 consisted of the following:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Note receivable - impairment reserve $ 100,246 $ --
Property and equipment 8,448 36,414
Accrued liabilities (435,460) 377,806
Accounts receivable allowance (116,000) (34,133)
Inventory reserve (171,312) 158,063
Net operating losses 690,715 2,231,836
Other (849) (1,236)
Valuation allowance (75,788) (2,768,750)
----------- -----------
TOTAL $ -- $ --
=========== ===========
</TABLE>
65
66
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 12 - INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount that would
result from applying the federal statutory rate for the years ended
December 31, 2000 and 1999 as follows:
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Statutory regular federal income tax rate (34.0)% (34.0)%
Change in valuation allowance 33.8 33.8
Other 0.2 0.2
------ ------
TOTAL --% --%
====== ======
</TABLE>
The components of the deferred income tax assets (liabilities) as of
December 31, 2000 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Note receivable - impairment reserve $ 100,246
State taxes (280,812)
Property and equipment 194,649
Accrued liabilities 274,359
Accounts receivable allowance 17,821
Inventory reserve 136,051
Net operating loss carryforwards 8,221,490
Other 2,458
-----------
8,666,262
Valuation allowance 8,666,262
-----------
TOTAL $ --
===========
</TABLE>
As of December 31, 2000, the Company had net operating loss
carryforwards for federal and state income tax purposes of
approximately $23,115,000 and $7,919,000, respectively. The net
operating loss carryforward for state income tax purposes began to
expire in 2000, and the net operating loss carryforward for federal
income tax purposes will begin to expire in 2007. The utilization of
net operating loss carryforwards may be limited due to the ownership
change under the provisions of Internal Revenue Code Section 382 and
similar state provisions.
66
67
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue preferred stock in series and to
determine the rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series of preferred
stock and to fix the number of shares and designation of any such
series.
Series A Convertible Preferred Stock
Each share of preferred stock accrues annual dividends of 10% (based
upon a purchase price of $175,000 per unit) and is convertible at the
option of the holder, after the effective date of the Registration
Statement with respect to the common stock, into 10,000 shares of the
Company's common stock at a conversion rate of $17.50 per share. If
at the time of conversion, 75% of the current bid price is less than
$17.50 per share, the holder will receive a greater number of shares,
but in no case will the conversion rate be less than $7.50 per share.
In addition, the Company may call for the conversion of the preferred
stock if the average closing price of the Company's common stock is
$37.50 per share for 10 consecutive trading days or any time after
the third anniversary of the private placement. The preferred stock
has a per share liquidation preference of $175,000.
During the year ended December 31, 1999, the one remaining share of
Series A convertible preferred stock and accrued dividends thereon of
$52,500 were converted into 35,904 shares of common stock.
Series B Convertible Preferred Stock
Each share of Series B preferred stock is convertible at the option
of the holder. The preferred shares may be redeemed by the
corporation at the option of the Board of Directors on a pro rata
basis at any time or from time to time in whole or in part commencing
one year after the date of issuance at a redemption price of $1.125
per share, plus all accumulated and unpaid dividends. Dividends on
the preferred stock are cumulative and accrue whether declared on
each preferred share at the annual rate of $0.0975 per preferred
share. The preferred stock has a per share liquidation preference of
$1 per share, which aggregated to $702,194 at December 31, 2000.
Accrued dividends on Series B preferred shares were $139,781 in the
aggregate at December 31, 2000.
67
68
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
Series C Convertible Preferred Stock
The Company is authorized to issue 300 shares of Series C convertible
preferred stock. Each share is convertible, at the option of the
holder, at any time after the date of issuance (the "Conversion
Date") into shares of the Company's common stock. The price at which
the preferred stock converts into the Company's common stock (the
"Conversion Price") is determined by dividing $25,000 by the greater
of 1) 75% of the average closing price of the Company's common stock
for the 10 trading days immediately preceding the Conversion Date or
2) $2.50, provided, however, that under no circumstances shall the
Conversion Price exceed $4. Under certain circumstances, the
Conversion Price is subject to adjustment. Each share shall be
automatically converted into the Company's common stock in the event
the closing price equals or exceeds $8 per share for any period of 20
consecutive days. Dividends are cumulative and accrue whether
declared on each share of Series C convertible preferred stock at an
annual rate of $2.25 per preferred share.
Series D Convertible Preferred Stock
The Company is authorized to issue 3,500 shares of Series D
cumulative preferred stock. The preferred stock has a par value of
$0.01 per share and a stated value of $1,000 per share. The preferred
stock is convertible, at the option of the holder, at any time after
the date of issuance into shares of the Company's common stock. The
number of shares of common stock that can be issued upon the
conversion of the preferred stock is calculated by adding $1,000 to
the amount of accrued and unpaid dividends on such shares and
dividing the resulting sum by the conversion price. The conversion
price is equal to the lesser of 1) 110% of the closing bid price of
the common stock on the last trading day before the date of issuance
of the share of Series D preferred stock being converted or 2) 90% of
the average of the four lowest closing bid prices of the common stock
during the last 22 trading days before the date of conversion.
The preferred stock has a per share liquidation preference of $1,000,
which aggregated to $1,780,000 at December 31, 2000. Cumulative
dividends accrue on the preferred stock at 5% per annum.
During the year ended December 31, 1999, the Company issued 2,060
shares of Series A convertible preferred stock for $1,664,832, net of
related issuance costs, of which 280 shares and accrued dividends of
$11,301 were converted into 528,566 shares of common stock. During
the year ended December 31, 2000, the remaining 1,780 shares of the
Series D convertible preferred stock and accrued dividends thereon of
$65,616 were converted into 3,199,886 shares of common stock. At the
time of the issuance of the preferred stock, the conversion price of
the preferred stock was less than the fair market value of the common
stock, and since the preferred shares were convertible immediately,
the Company recorded a beneficial conversion feature upon their
issuance of $394,854.
68
69
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
Series D Convertible Preferred Stock (Continued)
As described in Note 13 under "Other Warrants," the Company issued a
total of 83,333 warrants to the purchasers of the Series D preferred
stock.
Common Stock
During the year ended December 31, 1999, the Company converted
accrued liabilities of $60,000 into 16,000 shares of common stock.
During the year ended December 31, 1999, the Company converted one
share of Series A convertible preferred stock into 23,334 shares of
common stock.
During the year ended December 31, 1999, the Company converted 280
shares of Series D convertible preferred stock into 508,457 shares of
common stock.
During the year ended December 31, 1999, Series C, Series E, and
Series F warrants were exercised, whereby 33,500 shares of common
stock were issued in exchange for cash of $159,500, net of issuance
costs.
During the year ended December 31, 1999, the Company converted
accrued dividends on Series A and Series D preferred stock of $52,500
and $20,109, respectively, into 12,570 and 11,301 shares of common
stock, respectively.
During the year ended December 31, 1999, the Company issued 100,000
stock options to a consultant in exchange for services rendered
valued at $25,000, which represents the fair market value of the
services rendered.
During the year ended December 31, 1999, a related party contributed
$107,656 in cash.
During the year ended December 31, 2000, the Company converted 1,780
shares of Series D convertible preferred stock into 3,085,892 shares
of common stock.
During the year ended December 31, 2000, the Company converted
accrued dividends on Series D preferred stock of $65,616 into 113,994
shares of common stock.
69
70
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
Common Stock (Continued)
The following table summarizes the number of common shares reserved
for issuance upon exercise or conversion at December 31, 2000:
<TABLE>
<CAPTION>
<S> <C>
Assuming exercise or conversion of:
1995 Non-Qualified Stock Option Plan 131,000
1995 Non-Qualified Directors' Stock Option Plan 181,000
1998 Stock Option Plan 50,000
Other stock options 609,187
Stock purchase warrants 1,290,583
Convertible preferred stock 140,439
---------
TOTAL 2,402,209
=========
</TABLE>
Stock Purchase Warrants
At December 31, 2000, the Company had the following stock purchase
warrants outstanding:
1) Series C Warrants
In connection with the issuance of $2,210,000 of notes
payable during 1997, the holder of the notes received
221,000 Series C warrants. Each warrant gives the holder
the right to purchase one share of the Company's common
stock at an exercise price of $5. At December 31, 2000,
there were 71,000 Series C warrants outstanding. These
warrants expire in January 2002.
2) Series E Warrants
Under the terms of a series of 9.75% notes payable that
were issued in June 1997 with an aggregate principal of
$2,710,000, investors of the notes received an aggregate of
273,500 Series E warrants to purchase common stock at a
purchase price of $5 per share. At December 31, 2000, there
were 272,500 Series E warrants outstanding. These warrants
expire in June 2002.
3) Series F Warrants
As part of the sale of the 155 shares of convertible Series
C preferred stock sold in April 1998, the Company also
issued an aggregate of 193,750 Series F warrants (1,250
warrants per preferred share). Each warrant entitles the
holder to purchase one share of the Company's stock at a
purchase price of $5 per share. At December 31, 2000, there
were 131,250 Series F warrants outstanding. These warrants
expire in June 2001.
70
71
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Purchase Warrants (Continued)
4) Other Warrants
Under the terms of a $2,500,000 loan agreement during 1997,
the Company issued to the bank an initial stock purchase
warrant to purchase up to 87,500 shares of the Company's
common stock at an exercise price of $5 per share, which is
exercisable on or before November 17, 2002. The warrant was
outstanding at December 31, 2000.
In addition, as part of the above loan agreement, the
Company issued to the bank a stock purchase warrant to
purchase 75,000 shares of the Company's common stock at an
exercise price of $5.25 per share, which is exercisable on
or before June 1, 2003. At December 31, 2000, the warrant
was outstanding.
In connection with a $4,500,000 loan agreement during June
1998, the Company issued to the bank a stock purchase
warrant to purchase up to 370,000 shares of the Company's
common stock at $4.0625 per share at any time during a
five-year period beginning June 15, 1998. Pursuant to the
terms of the warrant agreement, the exercise price of the
warrant was reset to $2.91 per share, which represented the
lesser of 1) $4.0625 per share or 2) the average closing
bid price of the Company's common stock for the 20 trading
days immediately preceding the anniversary date.
In addition, the terms of the loan agreement for the
$4,500,000 note issued in June 1998 provided that the
Company issue to the bank on each anniversary date of the
closing of the loan a stock purchase warrant to purchase up
to 200,000 shares of common stock at an exercise price
equal to the greater of 1) $4 per share or 2) 80% of the
average closing bid price of the Company's common stock for
the 20 trading days preceding the loan's first anniversary
in June 1999. These warrants are exercisable for a
five-year period. Since June 1998, the Company became
obligated to issue warrants to the bank to purchase up to
400,000 shares of common stock.
In connection with 2,060 shares of Series D convertible
preferred stock issued during the year ended December 31,
1999, which netted proceeds of $1,664,832 after costs, the
Company issued a total of 83,333 warrants to the purchasers
of the preferred shares. Of the 83,333 warrants, 60,000 are
exercisable at any time prior to February 5, 2004 at an
exercise price of $4.125 per share, and the remaining
23,333 warrants are exercisable at any time until September
30, 2004 at $1.82 per share.
71
72
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans
The Company has adopted six stock option plans, the 1995 Incentive
Stock Option Plan, the 1995 Non-Qualified Stock Option Plan, the 1995
Non-Qualified Directors' Stock Option Plan, the 1998 Stock Option
Plan, the 1998 Stock Compensation Plan, and the 2000 Stock Option
Plan. The shares issued pursuant to the plans are restricted shares
until or unless registered by the Company. In addition, the Company
from time to time will issue non-qualified stock options outside of
these six plans.
Under the 1995 Incentive Stock Option Plan, options may be granted by
the Compensation Committee to its officers, key employees, and other
employees according to responsibility and length of service. Options
may not be granted to employees owning more than 10% of the total
combined voting power of the stock of the Company. Options granted
under the plan shall be granted within 10 years of the date of the
adoption of the plan and must be exercised within 10 years of the
grant. The aggregate number of shares that may be issued pursuant to
the plan is 100,000 over the life of the plan, and the aggregate fair
market value of the stock for exercise for the first time during any
calendar year is $100,000 per individual. The exercise price of the
options is determined by the Compensation Committee, but in any case,
the exercise price may not be less than 100% of the fair market value
on the date of grant. Options vest pro rata over a four-year period.
The 1995 Non-Qualified Stock Plan provides for incentives to
management, executive personnel of the Company, and others. The plan
limits the number of shares to 200,000, and the aggregate value of
the underlying shares granted in any year for any single employee may
not exceed $100,000 in value. The option price is fixed by the bid
price of the Company's shares as quoted on NASDAQ or the Bulletin
Board at the close of business on the date of the grant. Options must
be exercised within 10 years of the date of grant thereof and shall
vest at such time or times as the Board of Directors shall fix on the
date of grant.
The 1995 Non-Qualified Directors' Stock Option Plan is a
non-qualified plan and provides for 60,000 shares in total, with
10,000 shares to be granted to each director on assuming office. The
underlying share price is determined by the bid price on NASDAQ or
the Bulletin Board on the date of the grant. The options vest over a
five-year period. Options must be exercised within 10 years of the
date of grant. The Company granted more stock options than were
available under this plan.
72
73
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
Under the 1998 Stock Option Plan (the "1998 Plan"), options may be
granted by the Compensation Committee to officers, employees,
directors, and consultants. Options granted under the 1998 Plan may
either be incentive stock options or non-qualified stock options. The
aggregate number of shares that may be issued pursuant to the 1998
Plan is 1,000,000 over the life of the 1998 Plan, of which 50,000
shares shall be issued to directors, 750,000 to employees as
incentive stock options, and 200,000 to non-employees as
non-qualified stock options.
No incentive stock option may be granted to any person who owns more
than 10% ("10% Shareholders") of the total combined voting power of
all classes of the Company's stock, unless the exercise price is at
least equal to 110% of the fair market value on the date of grant.
Options may be granted under the 1998 Plan for terms of up to 10
years, except for incentive stock options granted to 10%
shareholders, which are limited to the five-year terms. No incentive
stock options may be granted to an optionee if the aggregate fair
market value of the stock with respect to which incentive stock
options are exercisable by the optionee in any calendar year under
all such plans of the Company and its affiliates exceeds $100,000.
The 1998 Stock Compensation Plan was adopted to provide the Company
with a means of compensating key employees, including directors and
consultants of the Company, for their services with shares of common
stock. The plan became effective April 1, 1998 and shall terminate on
March 31, 2008. It is administered by the Board of Directors, who is
authorized to award up to 150,000 shares of common stock for a value
of no less than par as consideration for services rendered. As of
December 31, 2000, no options have been granted under the 1998 Stock
Compensation Plan.
Under the 2000 Stock Option Plan (the "2000 Plan"), options may be
granted by the Compensation Committee to officers, employees,
directors, and consultants. Options granted under the 2000 Plan may
either be incentive stock options or non-qualified stock options. The
aggregate number of shares that may be issued pursuant to the 2000
Plan is 1,000,000, provided that the maximum number of shares issued
to these participants, which are subject to Section 162(m) of the
Internal Revenue Code, does not exceed 500,000 shares. Options must
be granted within 10 years of the adoption of the 2000 Plan. No
incentive stock option may be granted to 10% Shareholders of the
total combined voting power of all classes of the Company's stock,
unless the exercise price is at least equal to 110% of the fair
market value on the date of grant.
73
74
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
Options may be granted under the 2000 Plan for terms of up to 10
years, except for incentive stock options granted to 10%
Shareholders, which are limited to five-year terms. No incentive
stock options may be granted to an optionee if the aggregate fair
market value of the stock with respect to which incentive stock
options are exercisable by the optionee in any calendar year under
all such plans of the Company and its affiliates exceeds $100,000.
The exercise price of the options is determined by the Compensation
Committee, but in any case, the exercise price for employees who are
not 10% Shareholders may not be less than the greater of 100% of the
fair market value of the shares on the grant date or the par value of
the shares.
The following summarizes the stock option transactions under the
stock option plans:
<TABLE>
<CAPTION>
Weighted- Weighted-
1995 Average Average
Incentive Exercise Exercise
Stock Price Other Price
Option Plan Per Share Options Per Share
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Outstanding, December
31, 1998 46,200 $ 4.02 519,187 $ 3.45
Granted -- $ -- 100,000 $ 2.63
Canceled (15,000) $ 4.00 -- $ --
------------ ------------
Outstanding, December
31, 1999 31,200 $ 4.03 619,187 $ 3.32
Canceled (31,200) $ 4.03 (253,146) $ 3.19
------------ ------------
OUTSTANDING,
DECEMBER 31, 2000 -- $ -- 366,041 $ 2.84
============ ============
EXERCISABLE AT
DECEMBER 31, 2000 -- $ -- 341,891 $ 3.30
============ ============
</TABLE>
74
75
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
<TABLE>
<CAPTION>
1995
Non- Weighted- 1995 Weighted- Weighted- Weighted-
Qualified Average Non- Average Average Average
Directors' Exercise Qualified Exercise 1998 Exercise 2000 Exercise
Stock Price Stock Price Stock Price Stock Price
Option Per Option Per Option Per Option Per
Plan Share Plan Share Plan Share Plan Share
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding,
December
31, 1998 173,000 $ 7.21 203,000 $ 4.72 30,000 $ 3.63 -- $ --
Granted 8,000 $ 1.75 -- $ -- 212,000 $ 3.13 -- $ --
Canceled -- $ -- -- $ -- (10,000) $ 3.13 -- $ --
---------- ---------- ---------- ----------
Outstanding,
December
31, 1999 181,000 $ 6.97 203,000 $ 4.72 232,000 $ 3.19 -- $ --
Granted -- $ -- -- $ -- -- $ -- 350,000 $ 0.28
Canceled -- $ -- (72,000) $ 4.00 (182,000) $ 3.14 -- $ --
---------- ---------- ---------- ----------
OUTSTANDING,
DECEMBER
31, 2000 181,000 $ 6.97 131,000 $ 5.11 50,000 $ 3.40 350,000 $ 0.28
========== ========== ========== ==========
EXERCISABLE,
DECEMBER
31, 2000 179,000 $ 7.01 131,000 $ 5.11 50,000 $ 3.40 350,000 $ 0.28
========== ========== ========== ==========
</TABLE>
The Company has adopted only the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." It applies Accounting
Principles Bulletin ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for
its plans and does not recognize compensation expense for its
stock-based compensation plans other than for restricted stock and
options issued to outside third parties.
75
76
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
If the Company had elected to recognize compensation expense based
upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed by SFAS No. 123, the
Company's net income (loss) and earnings (loss) per share would be
reduced to the pro forma amounts indicated below for the years ended
December 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Net income (loss) available to common shareholders
As reported $ 73,435 $ (6,054,187)
Pro forma $ (321,699) $ (6,830,370)
Basic and diluted loss per common share
As reported $ 0.01 $ (1.17)
Pro forma $ (0.04) $ (1.32)
</TABLE>
The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 2000
and 1999: dividend yields of 0% and 0%, respectively; expected
volatility of 100% and 100%, respectively; risk-free interest rates
of 5.5% and 6.3%, respectively; and expected lives of three and three
years, respectively. The weighted-average fair value of options
granted during the years ended December 31, 2000 and 1999 was $0.07
and $2, respectively, and the weighted-average exercise price was
$0.28 and $3.08, respectively.
For options granted during the year ended December 31, 2000 where the
exercise price was greater than the stock price at the date of the
grant, the weighted-average fair value of such options was $0.07, and
the weighted-average exercise price of such options was $0.28. No
options were issued during the year ended December 31, 2000 where the
exercise price was equal to or less than the stock price at the date
of grant.
The weighted-average remaining contractual life of the options
outstanding at December 31, 2000 is 3.34 years. The exercise prices
of the options outstanding at December 31, 2000 ranged from $0.28 to
$15.
76
77
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 13 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
Information relating to these options is as follows:
<TABLE>
<CAPTION>
Weighted- Weighted-
Weighted- Average Average
Average Exercise Exercise
Range of Stock Stock Remaining Price of Price of
Exercise Options Options Contractual Options Options
Prices Outstanding Exercisable Life Outstanding Exercisable
------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.10 - 4.00 1,094,000 867,256 3.63 years $ 2.21 $ 1.98
$ 4.01 - 8.00 33,707 23,208 1.94 years $ 5.52 $ 5.49
$8.01 - 15.00 193,480 181,854 1.95 years $ 8.36 $ 8.38
-------------- --------------
1,321,187 1,072,318
============== ==============
</TABLE>
NOTE 14 - RELATED PARTY TRANSACTIONS
During the year ended December 31 1999, under the terms of a two-year
agreement, the Company received consulting, financial advisory, and
investment banking services from Meyer Duffy & Associates ("Meyer
Duffy"). The agreement compensated Meyer Duffy $5,000 per month, plus
75,000 options, exercisable at $4 per share. Meyer Duffy, is a
management consulting firm whose principal partner is a shareholder,
a former director, and former co-Chairman of the Company. The
agreement was terminated by mutual consent in 1999.
During the years ended December 31, 2000 and 1999, the Company had
sales of $258,000 and $934,000, respectively, to certain dealerships
in Florida, which were owned by a shareholder/former director. During
the year ended December 31, 1999, the dealership agreements for these
stores were terminated, and as of December 31, 2000, there were no
receivables outstanding related to these sales.
At December 31, 2000, the Company had an outstanding note payable
from a shareholder of $156,638, which was related to the second
bridge loan that is described in Note 11. This note payable included
$6,638 of accrued interest that was converted into principal. In
addition, as described in Note 11, the Company recognized a gain of
$366,000 on the extinguishment of debt from a related party as an
extraordinary item for the year ended December 31, 2000.
77
78
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 14 - RELATED PARTY TRANSACTIONS (CONTINUED)
In May 1998, the Company entered into a financing agreement with Cana
Capital Corporation ("Cana Capital"), a corporation owned by an
individual who was a director of the Company at that time. In April
1999, Cana Capital elected to terminate the financing agreement. The
owner of Cana Capital also owned several motorcycle dealerships in
Florida that did business with the Company. In August 1999, at about
the time the owner of Cana Capital resigned as a director of the
Company, a dispute arose as to claims that the Company believed it
had against Cana Capital and the retail motorcycle dealerships and
claims that the motorcycle dealerships, owned by the former director,
had with the Company for failure to pay on certain warranty claims.
During the year ended December 31, 1999, there were several lawsuits
filed by Cana Capital and the motorcycle dealerships, owned by the
former director, against the Company that sought full payment of the
finance agreement balance and payment on certain warranty claims. In
July 2000, the Company entered into a settlement and mutual release
agreement with Cana Capital and the former director, whereby the
Company agreed to pay the outstanding amount owed on the financing
agreement by July 31, 2000. On July 28, 2000, the Company fulfilled
its obligations under the settlement agreement.
NOTE 15 - OTHER UNUSUAL ADJUSTMENTS
During the fourth quarter of 1999, the Company had the following
significant accounting adjustments, which may have been attributed to
prior quarters in 1999:
1. A charge of $400,000 to cost of goods sold at the
Manufacturing Division for an adjustment to reduce
inventories as a result of reconciling the inventory items
and quantities counted during the year-end physical
inventory count with the inventory items and quantities
included in the year-end perpetual inventory listing.
Management has identified that a significant amount of the
adjustment relates to an accumulation of errors related to
not reducing its parts inventory sufficiently as
motorcycles were produced and manufactured. Management
attributes these errors to be the result of implementing
several new manufacturing software programs for its
production control and production planning during 1999,
while failing to establish strong controls over these
programs to prevent human error.
2. A charge of $322,000 to cost of goods sold at the
Manufacturing Division to increase the inventory reserve
for obsolete and slow-moving inventory items based upon the
Company's review of its inventories at December 31, 1999,
which identified a significant amount of items included in
its inventories that were either no longer in current
production or slow-moving inventory.
78
79
ULTRA MOTORCYCLE COMPANY
(FORMERLY BIKERS DREAM, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
================================================================================
NOTE 15 - OTHER UNUSUAL ADJUSTMENTS (CONTINUED)
3. A charge of $247,000 to cost of goods sold at the
Manufacturing Division to increase the provision for
accrued warranty expenses. Actual warranty charges during
the year ended December 31, 1999 were higher than
anticipated due to several motorcycle parts and components
failing to perform to specifications. As a result,
management of the Company considered such unexpectedly high
warranty expenses that were incurred during the year ended
December 31, 1999 in estimating its future warranty
obligations as of December 31, 1999.
4. A charge of $417,000 to reduce the carrying value of
inventories at the Retail Division as a result of
reconciling the inventory items and quantities counted
during the year-end physical inventory count with the
inventory items and quantities included in the year-end
perpetual inventory listing. Since the charge occurred
after the measurement date related to the discontinued
operations of the Retail Division, the effect of the charge
is reflected in the loss on the disposal of the Retail
Division of $1,782,144. Management attributes the
misstatement of the perpetual inventory listing to be the
result of a lack of employee training at the retail stores
on the Retail Division's computerized sales and
order-processing systems, lack of supervision at each one
of the retail stores by their directors, and inadequate
internal controls of the inventories at the retail stores.
Management of the Company has not determined which quarters in 1999
for which the above adjustments relate. If such charges do relate to
prior quarters in 1999, the net loss of the prior quarters may have
been higher than as reported.
NOTE 16 - SUBSEQUENT EVENTS
As described in Note 8, in January 2001, KT Components, which had a
technology repurchase agreement with the Company and which was also a
vendor, filed suit against the Company and its Chief Executive
Officer, alleging breach of contract and fraud.
In March 2001, the Company failed to make the quarterly interest
payments due on its $4,500,000 note payable.
On March 28, 2001, the maturity of the Company's $4,500,000 note
payable was accelerated, and the note became due and payable in full.
The maturity date of the note payable was accelerated as a result of
the Company not making a required interest payment of approximately
$136,000 that was due March 1, 2001.
79
1
EXHIBIT 3.1.4
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
BIKERS DREAM, INC.,
a California Corporation
Harold L. Collins and Anne Todd certify that:
1. They are the duly elected President and Secretary, respectively, of
Bikers Dream, Inc., a California corporation (the "Corporation").
2. Article One of the Articles of Incorporation of the Corporation (the
"Articles") is amended to read as follows, in its entirety:
"The name of this corporation is Ultra Motorcycle Company."
3. The foregoing amendment of the Articles of Incorporation has been
duly approved by the Board of Directors of the Corporation pursuant to Section
902 of the California Corporations Code (the "Corporations Code").
4. The foregoing amendment of the Articles of Incorporation has been
duly approved by the required vote of the shareholders of the Corporation
pursuant to Section 902 of the Corporations Code. On November 6, 2000, the
record date of the meeting of shareholders of the Corporation at which the
foregoing amendment of the Articles of Incorporation was approved, the total
number of issued and outstanding shares entitled to vote with respect to the
foregoing amendment was 9,061,385, consisting of 8,920,946 shares of Common
Stock and 702,194 shares of Series B Preferred Stock entitled to 140,439 votes
with the Common Stock. On said record
1
2
date, the Corporation had no other class of securities outstanding. The
favorable vote of a majority of the 9,061,385 shares entitled to vote is
required to approve the amendment and the number of shares voting in favor of
the amendment exceeded the required vote.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
IN WITNESS WHEREOF, the undersigned have executed this certificate in
Mira Loma, California, this 15th day of January, 2001.
/s/ Harold L. Collins
-----------------------------------------
Harold L. Collins, President
/s/ Anne Todd
-----------------------------------------
Anne Todd, Secretary
2
1
Exhibit 10.13
[LETTERHEAD OF ULTRA MOTORCYCLE COMPANY]
AMENDMENT TO EMPLOYMENT CONTRACT
The employment contract of Harold L. Collins (hereinafter "Collins") is hereby
amended as follows:
1. Effective November 1, 2000, Collins is appointed as the CEO and President
of Ultra Motorcycle Company, formerly known as Bikers Dream, Inc.
2. The termination date of said employment contract shall be October 31,
2002, unless hereafter or otherwise extended, and the contract shall be
construed, in its entirety, accordingly.
3. Effective November 1, 2000, Collins' annual salary shall be increased to
$225,000, in addition to all other forms of compensation currently being paid to
him.
Except as otherwise modified above, said employment contract shall continue in
full force and effect.
Dated: ULTRA MOTORCYCLE COMPANY
-----------------
By:
------------------------------
JOHN RUSSELL,
Chairman
By:
------------------------------
HUMBERT POWELL,
Director
By:
------------------------------
KENNETH SCHWARTZ,
Director
1
Exhibit 10.33
[LETTERHEAD OF ULTRA MOTORCYCLE COMPANY]
EXTENSION OF MATURITY DATE
I, Bill Whalen, hereby extend the maturity date of my amended and restated
promissory note, dated January 27, 2000, in the sum of $156,638, from March 31,
2000, to March 31, 2001.
Date: 12/19/00 /s/ William P. Whalen
---------------- -----------------------------------
Bill Whalen
1
Exhibit 10.34
SETTLEMENT AND RELEASE AGREEMENT
This Settlement and Mutual General Release Agreement (hereinafter
"Agreement") is made and entered into this 18th day of January, 2001, by and
amongst Mull Acres Investments, Inc., Jeffrey H. Silvers, William Alden and Carl
Vincent "Vini" Bergeman ("Cross-Defendants"), on the one hand, and Ultra
Motorcycle Company, f/k/a Bikers Dream, Inc ("Cross-Complainant"), on the other
hand. Cross-Complainant and Cross-Defendants are hereinafter sometimes
collectively referred to as "Parties."
1.00. RECITALS.
1.01. Certain disputes have arisen between the Parties. The
purpose of this Agreement is to resolve, in their entirety, all disputes that
now exist, or potentially could exist, between the Parties relating to those
claims and disputes which are, or could have been, set forth in the action
pending in the Superior Court of the State of California in and for the County
of Riverside entitled: Mull Acres Investments, Inc v. Bikers Dream, Inc et. al,
(and related cross actions) Case No. RIC 338208. This action may sometimes be
referred to hereinafter as the "Litigation."
1.02. It is the desire and intention of the Parties to this
Agreement to settle all disputes between them that are, or could have been,
included in the Litigation.
2.00. AGREEMENT.
2.01. NOW, THEREFORE, in exchange for mutual releases and for a
full and adequate consideration, receipt of which is hereby acknowledged, and
the terms, conditions, and covenants contained herein, the Parties hereto agree
as follows:
2.02. Recitals. The recitals set forth here in above are
incorporated herein by this reference and made a part of this Agreement between
the Parties.
2.03. Terms. Cross-Defendants and Cross-Complainant intend to
settle and resolve all of the issues in the litigation with this agreement. No
Cross-Defendant shall have to pay Cross-Complainant any monies as a result of
this settlement. Nor, shall Cross-Complainant have to pay any monies to any
Cross-Defendant. All Cross-Defendants and Cross-Complainant shall bear their own
attorneys fees and costs. The Cross-Defendants each reserve, however, any and
all rights they may each have to pursue each other on any disputes they may have
against one another either on this matter or any other matter. This settlement
agreement is not supposed to affect any of the Cross-Defendants' own rights
against each other relating to this litigation or any other issues they may have
amongst themselves.
Page 1 of 8
2
2.04. The Parties understand, and acknowledge, that some of the
principal claims in this Litigation related to, amongst other things, alleged
wrongful acts of Cross-Complainant in seizing stock in Ultra Motorcycle Company
f/k/a Bikers Dream, Inc. owned by some Cross-Defendants, particularly Mull Acres
Investments, Inc. There were also claims that some Cross-Defendants allegedly
wrongfully built and sold motorcycles in competition with Ultra Motorcycle
Company and committed other acts of unfair competition and interference with
business. The Parties agree that as part of this settlement, any Cross-Defendant
claiming an ownership interest of any type in the 730,000 shares of stock
(pre-split) which were seized hereby transfers, relinquishes and disclaims any
and all right, title and interest they may ever have had in that stock to Ultra
Motorcycle Company f/k/a Bikers Dream, Inc. Each person/entity who may have
previously owned any right, title or interest in any of these shares
specifically agrees to sign any and all documents which may be necessary to
cause clear title and ownership in those shares to be transferred to Ultra
Motorcycle Company. Those documents may include, but are not limited to,
endorsing the stock certificates, declarations of lost certificates and/or a
power of attorney to Ultra Motorcycle Company or its designee, so that they may
legally sign any and all documents necessary to effectuate the transfer of the
stock. Furthermore, Cross-Complainant is relinquishing all claims against each
Cross-Defendant concerning damages suffered by the alleged acts of any
Cross-Defendant in building and selling motorcycles in competition with Ultra
Motorcycle Company or in any other alleged acts of unfair competition or
interference with business that were included in this Litigation.
2.05. Furthermore, there is presently pending against
Cross-Complainant, an action filed in the Superior Court of the State of
California in and for the County of Orange, entitled People of the State of
California ex rel. State Air Resources Board v. Ultra Acquisition Corporation,
et al., Case No. 00CC10745. Cross-Complainant has not yet filed responsive
pleadings in that action. Cross-Complainant believes, however, that if, and
when, it must file responsive pleadings in that matter, it may have valid
grounds to Cross Complain therein against some, or all, of the Cross-Defendants
herein. As part of the terms of this settlement agreement, Cross-Complainants
agree not to initially Cross-Complain against any of the Cross-Defendants in
that action. Cross-Complainant is not making any representation or warranty that
these parties may not be brought into the action via some other means or via
some other party. Nor is Cross-Complainant agreeing to indemnify or hold
harmless any of these parties if they are brought into that action or sued for
any of the same claims or damages Cross-Complainant is now facing in that
action. This is simply an agreement that Cross-Complainant will not be the one
to initially bring them into that action, if they are even ever brought into it.
2.06. The Parties hereto each hereby authorize their respective
legal counsel to execute and cause to be submitted to the Court any and all
documents necessary to effectuate a full and complete Dismissal With Prejudice
of all Litigation.
3.00. MUTUAL RELEASES.
3.01. The Cross-Defendants do each hereby absolutely and forever,
release and
Page 2 of 8
3
discharge Cross-Complainant and each of its associates, owners, stockholders,
predecessors, successors, heirs, assigns, agents, directors, officers, partners,
employees, representatives, lawyers and all persons acting by, through, under or
in concert with them, of and from any and all actions, causes of action,
arbitrations, requests for proceedings, debts, guarantees, warranties, express
or implied, balances, liabilities, demands, obligations, costs, expenses,
damages and liens of every kind whatsoever (hereinafter referred to as "Claims")
whether known or unknown, suspected or unsuspected, fixed or contingent, which
each now has, or potentially may have, against Cross-Complainant, by reason of
any matter, cause or thing whatsoever which was, or could have been, included in
the Litigation.
3.02. Cross-Complainant does hereby absolutely and forever,
release and discharge each Cross-Defendant and each of their associates, owners,
stockholders, predecessors, successors, heirs, assigns, agents, directors,
officers, partners, employees, representatives, lawyers and all persons acting
by, through, under or in concert with them, of and from any and all actions,
causes of action, arbitrations, requests for proceedings, debts, guarantees,
warranties, express or implied, balances, liabilities, demands, obligations,
costs, expenses, damages and liens of every kind whatsoever (hereinafter
referred to as "Claims") whether known or unknown, suspected or unsuspected,
fixed or contingent, which it now has, or potentially may have, against the
Cross-Defendants, by reason of any matter, cause or thing whatsoever which was,
or could have been, included in the Litigation.
3.03. The Parties hereto acknowledge that they are aware of the
fact that it is the intention of each of them that the execution of this
Agreement shall, except as to the rights, obligations and exceptions contained
herein, be effective as a full and final settlement of, and as a bar to, each
and every claim which either of them has against the other, by reason of any
matter, cause or thing whatsoever which was, or could have been, included in the
Litigation. The Parties hereto acknowledge that they are aware that if they
hereafter discover facts different from, or in addition to, the facts which they
now know or believe to be true with respect to the subject matter of this
Agreement, it is nevertheless their intention hereby to settle finally, any and
all Claims which do now exist between them. In furtherance of such intention,
the releases herein shall be and will remain in effect as releases, not
withstanding the discovery of any such different or additional facts. It is
expressly understood and agreed that the Parties hereto realize that there may
exist at this time Claims herein released, the nature of which have not yet been
discovered.
3.04. The Parties hereto acknowledge that they have been informed
by their attorneys, and that they are familiar with and waive the provisions of
Section 1542 of the Civil Code of the State of California which provides as
follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor.
Page 3 of 8
4
3.05. It is expressly understood and agreed that the possibility
that such Claims exist has been explicitly taken into account in determining the
consideration to be given for this Agreement and that a portion of that
consideration, having been bargained for in full knowledge of the possibility of
such unknown Claims, was given in exchange for the releases and discharge of
Claims covered by these releases.
3.06. No Prior Assignments. The parties hereto represent and
warrant that they have not assigned or transferred any interest in any claim
which they may have against the persons which are released under the terms of
this Agreement, or any of them, and agree to indemnify and hold such persons,
and each of them, harmless from any liabilities, claims, demands, damages,
costs, expenses, and attorneys fees incurred by such persons, or any of them, as
a result of any person asserting any such assignment or transfer or any rights
or claims under any such assignment or transfer. It is the intention of the
Parties that this indemnity does not require payment as a condition precedent to
recovery hereunder by any indemnified person.
3.07. The Parties hereto, and the persons signing on behalf of
each party, represent, and warrant, that they have all necessary and requisite
authorizations to, and are completely empowered to, enter into this Agreement
and each and every one of its terms and conditions. Each Party, and the person
signing on behalf of each party, agrees to indemnify and hold harmless all of
the other Parties to this Agreement for any costs, expenses or damages incurred
as a result of any breach, or allegation of breach, of said warranty. It is the
intention of the Parties that this indemnity does not require payment as a
condition precedent to recovery hereunder by any indemnified person.
3.08. THE RELEASES HEREIN SHALL BECOME EFFECTIVE IMMEDIATELY UPON
EXECUTION AND THIS AGREEMENT IS, AND SHALL BE, FULLY ENFORCEABLE UNDER CCP
Section 664.6.
4.00. MISCELLANEOUS
4.01. The Parties hereto agree to perform their obligations
hereunder in "good faith."
4.02. All notices, requests or demands and other communications
hereunder shall be in writing and telecopied, delivered by overnight delivery
service or mailed to the intended recipient at the telecopy number or address
specified below. Such notices, requests, demands and other communications shall
be deemed to have been fully given when transmitted by telecopier, answerback
received, delivered by overnight delivery service against receipt or, in the
case of mailed notices, three (3) business days after such notice is enclosed in
a properly scaled envelope and deposited in a post office or collection facility
regularly maintained by the United States Postal Service (registered or
certified mail, return receipt requested, postage and certification or
registration prepaid.)
Page 4 of 8
5
To: Cross-Defendants William Alden and Carl Vincent Bergeman:
Andrew W. Couch, Esq.
110 Newport Center Drive, Suite 200
Newport Beach, CA 92660
(949) 760-2596 Telephone
(949) 760-0337 Facsimile
To: Cross-Defendants Mull Acres Investments, Inc and
Jeffrey H. Silvers
David P. Christianson, Esq.
LAW OFFICES OF DAVID P. CHRISTIANSON
3 Upper Newport Plaza
Newport Beach, CA 92660
(714) 543-2398 Telephone
(949) 752-1501 Facsimile
To: Cross-Complainant Ultra Motorcycle Company:
Harold L. Collins, Esq.
James M. Duarte, Esq.
ULTRA MOTORCYCLE COMPANY
3810 Wacker Drive
Mira Loma, CA 91752
(909) 360-2500 Telephone
(909) 360-2525 Facsimile
Any party may change its address for the purpose of notice to any
other address by giving notice in accordance with the foregoing provisions.
4.03. This Agreement and Mutual Release as entered into by the
Parties hereto is solely for the purpose of compromising and settling the
matters in dispute. It does not constitute, nor shall it be construed as, an
admission by any of the Parties hereto of the truth or validity of any of the
Claims asserted.
4.04. All costs and expenses incurred by the Parties hereto in
litigating any of the above referred to litigation and in completing this
Agreement, to the extent not already provided for herein, shall be borne, each
Party by themselves.
4.05. Time is of the Essence. Time is specifically declared to be
of the essence in completing the terms, conditions, and covenants of this
Agreement to be performed by the respective Parties.
Page 5 of 8
6
4.06. Entire Agreement. This Agreement constitutes the entire
Agreement between the parties hereto pertaining to the subject matter hereof and
supersedes all prior or contemporaneous Agreements, understandings, negotiations
and discussions, whether oral or written, of the Parties in connection with the
subject matter hereof, except as specifically set forth herein. No supplements,
modifications, waivers or terminations of this Agreement shall be binding unless
executed in writing by the Parties to be bound thereby. No waiver of any
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision herein (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
4.07. Binding on Successors. All of the terms and provisions of
this Agreement shall be binding upon or shall inure to the benefit of the
Parties hereto, their assigns, heirs, administrators, executors or successors.
4.08. Headings. The headings contained in this Agreement have
been inserted for convenience only and in no way define or limit the scope or
interpretation of this Agreement.
4.09. Waiver. Either Party hereto may specifically waive any
breach of this Agreement by the other Party, but no such waiver shall constitute
a continuing waiver of similar or other breaches. A waiving Party may at any
time, upon notice given in writing to the breaching Party, direct future
compliance with the waived term or terms of this Agreement, in which event the
breaching Party shall comply as directed from such time forward. All remedies,
rights, undertakings, obligations and agreements contained in this Agreement
shall be cumulative and not mutually exclusive.
4.10. Counterparts. This Agreement may be executed in any number
of counterparts each of which shall be deemed an original but all of which taken
together shall constitute an Agreement. Facsimile signatures are acceptable and
may be deemed to be originals on any counterpart to this agreement.
4.11. Attorney's Fees. In the event any Party hereto shall
commence legal proceedings against the other to enforce the terms hereof, or to
declare rights hereunder, as the result of the breach of any covenant or
condition of this Agreement, the prevailing Party in any such proceeding shall
be entitled to recover from the losing Party its costs of suit including
reasonable attorney's fees, as may be fixed by the court.
4.12. Negotiated Agreement. The drafting and negotiating of this
Agreement has been participated in by each of the Parties. This Agreement shall
be deemed to have been drafted jointly by the Parties.
4.13. Independent Counsel. The Parties do hereby acknowledge and
agree that they have been represented by independent counsel of their own choice
throughout all negotiations which preceded the execution of this Agreement and
that they have executed this Agreement with the consent and upon the advice of
said independent counsel.
Page 6 of 8
7
4.14. Governing Law. This Agreement has been entered into and
executed in the State of California and shall be interpreted in accordance with
the laws of said state. Venue for any litigation, arbitration or other
proceedings arising out of, referring or relating to this Settlement and Release
Agreement shall be in the County of Riverside, State of California.
4.15. Invalid Provision. The invalidity or unenforceability of
any particular provision of this Agreement shall not affect the other provisions
hereof, and in such instance, this Agreement shall be construed in all respects
as if such invalid or unenforceable provision were omitted.
4.16. Other Documents. The Parties shall execute such other
documents and take such further actions as may be required for the consummation
of the transactions contemplated in this Agreement.
5.00. EXECUTION.
5.01. In witness whereof the Parties have caused this Agreement
to be entered into and signed their respective names hereon, all as of the date
first written above.
THE UNDERSIGNED HAVE READ THIS SETTLEMENT AND RELEASE AGREEMENT AND
AGREED TO ITS TERMS. THE UNDERSIGNED UNDERSTAND AND ACKNOWLEDGE THAT THIS
SETTLEMENT AND RELEASE AGREEMENT CONTAINS A RELEASE OF ALL KNOWN OR UNKNOWN
CLAIMS.
"CROSS-DEFENDANTS"
MULL ACRES INVESTMENTS, INC.
DATED: By:
--------------------- -------------------------------------
Its:
------------------------------------
DATED:
--------------------- ----------------------------------------
Jeffrey H. Silvers
DATED:
--------------------- ----------------------------------------
William Alden
DATED:
--------------------- ----------------------------------------
Carl Vincent "Vini" Bergeman
SIGNATURES CONTINUED ON NEXT PAGE
Page 7 of 8
8
SIGNATURES CONTINUED FROM PRIOR PAGE
APPROVED AS TO FORM FOR CROSS-DEFENDANTS
MULL ACRES INVESTMENTS, INC AND JEFFREY
H. SILVERS
LAW OFFICES OF DAVID P. CHRISTIANSON
DATED:
--------------------- ----------------------------------------
David P. Christianson, Esq.
APPROVED AS TO FORM FOR CROSS-DEFENDANTS
WILLIAM ALDEN AND CARL VINCENT "VINI"
BERGEMAN
LAW OFFICES OF ANDREW W. COUCH
DATED:
--------------------- ----------------------------------------
Andrew W. Couch, Esq.
"CROSS-COMPLAINANT"
ULTRA MOTOTRCYCLE COMPANY f/k/a BIKERS
DREAM, INC
DATED: By:
--------------------- -------------------------------------
Its:
------------------------------------
APPROVED AS TO FORM:
DATED:
--------------------- ----------------------------------------
James M. Duarte, Esq.
General Counsel
Page 8 of 8
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 5, 2001, except for Notes 10 and 16, as to
which the date is March 28, 2001, accompanying the consolidated financial
statements included in the Annual Report of Ultra Motorcycle Company (formerly
Bikers Dream, Inc.) on Form 10-KSB for the year ended December 31, 2000, which
includes an emphasis paragraph relating to an uncertainty as to the company's
ability to continue as a going concern. We hereby consent to the incorporation
by reference of said report in the Registration Statements of Ultra Motorcycle
Company (formerly Bikers Dream, Inc.) on Forms S-8 (#333-54962, dated February
5, 2001), S-3/A (#333-90747, dated January 26, 2000), S-3/A (#333-72167, dated
August 25, 1999), S-8 (#333-68971, dated December 15, 1998), S-8 (#333-32639,
dated August 1, 1997), S-3/A (#333-17829, dated May 23, 1997), and S-8
(#333-26719, dated May 8, 1997).
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 17, 2001