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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] 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
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0140149
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3810 WACKER DRIVE MIRA LOMA, CALIFORNIA 91752
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (909) 360-2500
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of June 18, 2001, 8,920,946
shares of the issuer's Common Stock were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Ultra Motorcycle Company
(formerly Bikers Dream, Inc.)
We have reviewed the accompanying condensed consolidated balance sheet of Ultra
Motorcycle Company (formerly Bikers Dream, Inc.) and subsidiaries as of March
31, 2001, and the related consolidated condensed statements of operations
(comprehensive loss) and cash flows for the each of the three month periods
ended March 31, 2001 and 2000. These condensed financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
As discussed in Note 1, certain conditions indicate that the Company may be
unable to continue as a going concern. The accompanying financial statements do
not include any adjustments to the financial statements that might be necessary
should the Company be unable to continue as a going concern.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Ultra Motorcycle Company (formerly
Bikers Dream, Inc.) and subsidiaries as of December 31, 2000, and the related
statements of operation, shareholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated March 5, 2001, except for
Notes 10 and 16, as to which the date is March 28, 2001, we expressed an
unqualified opinion on those financial statements. However, our report contained
an explanatory paragraph that expressed substantial doubt about the Company's
ability to continue as a going concern. We have not performed any auditing
procedures since that date. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 2000 is fairly stated,
in all material respects, in relation to the balance sheet from which it has
been derived.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
June 19, 2001
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PART I
ITEM 1. FINANCIAL STATEMENTS
ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND MARCH 31, 2001 (UNAUDITED)
================================================================================
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2001 2000
----------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 217,322 $ 118,900
Accounts receivable, net of allowance for doubtful accounts
of 3,620 (unaudited) and $3,620 809,591 1,116,292
Other receivables, net of allowance for doubtful accounts
of $0 (unaudited) and $37,980 34,190 49,867
Note receivable 122,426 122,425
Current portion of note receivable - related party 187,500 187,500
Inventories 3,435,636 3,870,601
Marketable securities - related party 174,166 266,000
Prepaid expenses and other current assets 130,605 150,767
---------- ----------
Total current assets 5,111,436 5,882,352
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $914,799 (unaudited) and $817,531 616,106 712,605
NOTE RECEIVABLE - RELATED PARTY, net of current portion and
unamortized discount of $78,541 (unaudited) and $101,198 733,959 711,302
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net
of accumulated amortization of $863,223 (unaudited)
and $813,468 2,156,132 2,205,887
DEBT ISSUANCE COSTS 13,482 26,963
DEPOSITS AND OTHER ASSETS 255,282 175,000
---------- ----------
TOTAL ASSETS $8,886,397 $9,714,109
========== ==========
</TABLE>
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ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND MARCH 31, 2001 (UNAUDITED)
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
2001 2000
----------- ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Note payable - related party $ 156,638 $ 156,638
Current portion of notes payable 4,527,559 4,529,267
Current portion of capital lease obligations 45,445 47,238
Accounts payable 760,094 1,090,832
Accrued liabilities 1,171,603 1,086,662
Accrued warranty reserves 445,878 461,694
---------- ----------
Total current liabilities 7,107,217 7,372,331
NOTES PAYABLE, less current portion 30,500 36,500
CAPITAL LEASE OBLIGATIONS, less current portion 54,617 65,127
---------- ----------
Total liabilities 7,192,334 7,473,958
---------- ----------
</TABLE>
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ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND MARCH 31, 2001 (UNAUDITED)
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LIABILITIES AND SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
March 31, December 31,
2001 2000
------------ ------------
(unaudited)
<S> <C> <C>
SHAREHOLDERS' EQUITY
Series A convertible preferred stock, no par value
Aggregate liquidation preference of $175,000
30 shares authorized
0 (unaudited) and 0 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 (unaudited) and 702,194 shares issued and
outstanding 702,194 702,194
Series C convertible preferred stock, no par value
Cumulative dividends, aggregate liquidation preference
of $25,000; 300 shares authorized
0 (unaudited) and 0 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
0 (unaudited) and 0 shares issued and outstanding -- --
Common stock, no par value
25,000,000 shares authorized
8,925,782 (unaudited) and 8,925,782 issued and
outstanding 25,335,964 25,335,964
Accumulated other comprehensive loss (91,834) --
Accumulated deficit (24,252,261) (23,798,007)
------------ ------------
Total shareholders' equity 1,694,063 2,240,151
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,886,397 $ 9,714,109
============ ============
</TABLE>
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ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
2001 2000
----------- -----------
<S> <C> <C>
REVENUES $ 4,393,450 $ 6,712,040
COST OF GOODS SOLD 3,565,206 5,720,277
----------- -----------
GROSS PROFIT 828,244 991,763
----------- -----------
EXPENSES
Selling, general, and administrative expenses 1,039,805 1,369,564
Depreciation and amortization 147,025 125,886
----------- -----------
Total expenses 1,186,830 1,495,450
----------- -----------
LOSS FROM CONTINUING OPERATIONS (358,586) (503,687)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (147,833) (180,773)
Interest income 27,543 --
Other income, net 41,744 15,201
----------- -----------
Total other income (expense) (78,546) (165,572)
----------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS (437,132) (669,259)
LOSS ON DISCONTINUED OPERATIONS, net of provision
for income taxes of $0 and $0 -- (139,272)
----------- -----------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (437,132) $ (808,531)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE
From continuing operations $ (0.05) $ (0.09)
From discontinued operations -- (0.02)
----------- -----------
TOTAL BASIC AND DILUTED LOSS PER SHARE $ (0.05) $ (0.11)
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BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 8,925,782 7,055,386
=========== ===========
</TABLE>
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ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
2001 2000
--------- ---------
<S> <C> <C>
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $(437,132) $(808,531)
OTHER COMPREHENSIVE LOSS
Unrealized holding loss on marketable securities (91,834) --
--------- ---------
TOTAL COMPREHENSIVE LOSS $(528,966) $(808,531)
========= =========
</TABLE>
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ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
2001 2000
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss available to common shareholders $(437,132) $(808,531)
Add (deduct) loss on discontinued operations -- (139,272)
--------- ---------
Net loss from continuing operations (437,132) (669,259)
Adjustments to reconcile net loss from continuing operations
to net cash provided by (used in) operating activities
Gain on sale of equipment -- (14,754)
Depreciation and amortization 147,025 125,886
Amortization of discount on note receivable (22,657) (13,731)
Amortization of loan costs -- 13,482
(Increase) decrease in
Accounts receivable 306,701 422,946
Other receivables 15,677 (69,738)
Inventories 434,965 340,517
Prepaid expenses and other current assets 20,150 62,048
Deposits and other assets (66,801) 31,235
Increase (decrease) in
Accounts payable (330,738) (350,217)
Accrued liabilities 60,122 103,193
Accrued warranty reserves (15,816) --
--------- ---------
Net cash provided by (used in) continuing operating activities 111,496 (18,392)
Net cash used in discontinued operating activities -- (235,570)
--------- ---------
Net cash provided by (used in) operating activities 111,496 (253,962)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (771) (52,032)
--------- ---------
Net cash used in continuing investing activities (771) (52,032)
Net cash used in discontinued investing activities -- --
--------- ---------
Net cash used in investing activities (771) (52,032)
--------- ---------
</TABLE>
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ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2001 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable $ -- $ (16,308)
Payments on notes payable and capital lease obligations (12,303) (18,109)
Payments on financing agreements - related party, net -- (36,140)
----------- -----------
Net cash used in continuing financing activities (12,303) (70,557)
Net cash used in discontinued financing activities -- --
----------- -----------
Net cash used in financing activities (12,303) (70,557)
----------- -----------
Net increase (decrease) in cash and cash equivalents 98,422 (376,551)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 118,900 1,434,781
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 217,322 $ 1,058,230
=========== ===========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS
1. GOING CONCERN AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Ultra
Motorcycle Company and all of its wholly owned subsidiaries, including
the accounts of Ultra Motorcycle Company, 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.
The accompanying reviewed 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 March 31, 2001,
the Company's current liabilities exceeded its current assets by
$1,995,781. In addition, as described in Note 4, 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 consolidated reviewed 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from the sales of motorcycles and parts 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. Internal
development costs are expensed as incurred.
INCOME TAXES
The Company utilizes Statement for 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 the 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
(FIFO) method for parts inventories. Finished goods inventories include
capitalized overhead costs, which include primarily labor.
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 March 31, 2001, consisted of equity
securities that were acquired in connection with the sale of its Retail
Division. Management has classified these 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 repurchase price of the securities or 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 is
considered to have occurred, the cost basis of the individual security
is written down, and such a write-down is recorded in earnings.
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PROPERTY AND EQUIPMENT
Property and equipment, including capital 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.
CONCENTRATION OF RISK WITH VENDORS
For the periods ended March 31, 2001, and March 31, 2000, the Company
purchased certain motorcycle parts primarily from a single vendor. There
could be a negative economic impact to the Company if condition arise so
that the Company could no longer purchase the certain parts from the
vendor.
FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT OR MARKET RISK
Financial instruments that potentially subject the Company to
concentrations of credit of market risk are as follows:
- CASH AND 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.
- RECEIVABLES
The Company sells to dealers throughout the United States. The
concentrations of credit risk from accounts receivable are limited
due to the large number of dealers comprising the Company's customer
base and their dispersion across different geographic regions.
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 March 31, 2001, the Company had 83,333 shares of V-Twin Holdings,
Inc. ("V-Twin")'s common stock, which had a carrying value of
$174,166, net of an impairment reserve of $325,834, and a $1,000,000
note receivable from V-Twin, which had a carrying value of $921,459,
net of an unamortized discount of $78,541. Full realization of the
V-Twin common stock is dependent upon V-Twin's stock price
maintaining a trading price of above at least $6 per share.
Subsequent to March 31, 2001, the per share price of the V-Twin
common stock was trading significantly below $6 per share. As
described more fully in Note 6 in the Company's annual report on Form
10-KSB for the fiscal year ended December 31, 2000, an impairment
loss on the V-Twin common stock was recognized. During the period
ended March 31, 2001, an additional impairment loss was recognized on
the V-Twin common stock based upon the trading price of the
securities as of the balance sheet date. Full realization of the
$1,000,000 note receivable is dependent upon V-Twin's ability to make
the scheduled payments. In May 2001, V-Twin defaulted on the
quarterly payment installment due May 1, 2001, however, the security
agreement that the Company has with V-Twin reduces any credit risk.
As such, an impairment loss has not been recognized on the note
receivable as of March 31, 2001
- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET-RISK
The majority 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 that the Company repurchase the motorcycles
at the wholesale prices in the event the dealer defaults on its floor
plan agreement and the motorcycles purchased under the floor plan
agreement are repossessed by the lender.
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 reported amounts of revenues and
expenses during the reported period. Actual results could differ from
those estimates.
WARRANTY
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.
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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 market 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 periods ended March 31, 2001, and 2000, accumulated
amortization expense was $863,223 and $813,468, 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 March 31, 2001, the
Company has not recognized any impairment losses.
COMPREHENSIVE INCOME AND LOSS
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. As of March 31, 2001, the Company
recognized comprehensive loss in the amount of $91,834 related to the
unrealized loss on available-for-sale equity securities in V-Twin.
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." As a result of the sale, the results of
operations of the Retail Division have been classified as discontinued
operations.
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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. On May 1,
2001, Harold ("Hal") Collins was dismissed, with prejudice, from the lawsuit.
Herm Rosenman, a former officer also named in the action, has also been
dismissed. As of the date of this filing, the Company and the ARB have reached
an agreement in principle on a settlement, subject to the preparation, approval,
and execution of a definitive settlement agreement.
4. SUBSEQUENT EVENTS
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. On May 21, the Company filed a petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the Central
District of California. The filing was necessitated by the threat of a
foreclosure sale scheduled later that day by FINOVA. FINOVA is prevented by the
automatic stay under the Bankruptcy Code from exercising its remedies, including
foreclosure on the Company's assets. The total arrearage owing to FINOVA as of
May 31, 2001 is $4,758,248, comprised of $4,500,000 in principal and $258,248 in
interest. Under the terms of a cash collateral agreement entered into between
the Company and FINOVA in connection with the bankruptcy filing, the Company has
been obligated to make interest payments of $10,500 per week in payment of
interest accruing after May 21, 2001 as adequate protection payments to FINOVA.
The Company and FINOVA are in ongoing discussions regarding the
settlement of the debt, and FINOVA has indicated to the Company that it would be
willing to move forward and work with the Company to seek bankruptcy court
approval of a transaction pursuant to which the Company would pay $1.3 million
in satisfaction in full of its obligations to FINOVA. Any transaction with
FINOVA is conditioned on FINOVA's agreement on all the terms and conditions of
the transaction and the execution of documents satisfactory to both parties. The
Company is in the process of seeking new financing to be used to satisfy its
obligations to FINOVA. The Company does not currently have the resources to
repay the FINOVA indebtedness unless new financing is obtained.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed in this Quarterly Report on Form 10-QSB 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. 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 completed fiscal 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.
On May 21, the Company filed a petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the Central
District of California. The filing was necessitated by the threat of a
foreclosure sale scheduled later that day by the Company's secured creditor,
FINOVA Mezzanine Capital, Inc. The Company and FINOVA are in ongoing discussions
regarding settlement of the debt. See discussion below under the caption
entitled, "General Discussion of Liquidity and Capital Resources."
RESULTS OF OPERATIONS
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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 QUARTERS ENDED MARCH 31, 2001 AND 2000
REVENUES. Total revenues for the three months ended March 31, 2001 were
$4,393,450, as compared to $6,712,040 for the comparable period in 2000,
representing a decrease of $2,318,590 or 34.5%. The Company sold 201 motorcycles
that it manufactured, to unaffiliated customers, during the first three months
of 2001, representing a decrease of 173 units, or 46.3%, from 374 units sold
during the comparable period a year earlier. The Company experienced lower
revenues than anticipated in the first quarter of 2001 due, in part, to the
failure of Company suppliers to deliver product in a timely fashion. In
particular, one of the Company's suppliers failed to deliver frames in a timely
fashion as promised. The resultant production delay caused a loss of revenue in
the first quarter of 2001 of approximately $1,150,000.
As a result of the Company's shift in the mix of units produced, and sold, to
higher priced models during the first quarter of 2001, the average price per
unit increased from the same period a year earlier. Although priced higher than
some of the other models in the Company's lineup, the popular "Groundpounder
ST," "Sledgehammer," and newly introduced "Fat Pounder ST" and "Titanium Series
1" represented about 71% of unit sales.
COST OF GOODS SOLD/GROSS PROFIT. Cost of goods sold for the three months ended
March 31, 2001 was $3,565,206 (representing 81.1% of revenues), as compared to
$5,720,277 (representing 85.2% of revenues) for the comparable period a year
earlier, representing a decrease of $2,155,071 or 37.7%. Cost of goods sold
include direct and indirect manufacturing costs, warranty costs, and costs
related to the assembly of motorcycles.
The Company primarily attributes the $2,155,071 decrease in cost of goods sold
to the corresponding decrease in unit sales in 2001, from the same period a year
earlier. However, the higher material and labor costs of making quality
improvements, and sales of models during the period with higher manufacturing
costs than models sold during the same period in 2000, contributed to an
increased manufacturing cost per unit during the period from the same period a
year earlier.
Gross profit for the three months ended March 31, 2001, was $828,244
(representing 18.9% of revenues), as compared to $991,763 (representing 14.8% of
revenues) for the period ended March 31, 2000. This represents a decrease in
gross profit of $163,519 or 16.5%, however, gross profit as a percentage of
revenues increased 4.1%. The increase in gross profit as a percentage of
revenues (i.e., gross margin) is attributable to a higher average revenue per
unit which resulted primarily from the 2001 model year price increase.
EXPENSES. Selling, general and administrative expenses were $1,039,805, or 23.7%
of revenues, for the three months ended March 31, 2001, as compared to
$1,369,564, or 20.4% of revenues, for the three months ended March 31, 2000.
Selling, general, and administrative expenses consist primarily of corporate
operating expenses, professional fees, and salaries. The decrease of $329,759,
or 24.1%, was largely attributable to reductions in administrative salaries and
professional fees, as well as advertising and trade show expense, in the first
quarter of 2001.
Depreciation and amortization expense for the three months ended March 31, 2001
totaled $147,025, as compared to $125,886 for the same period in 2000.
OPERATING LOSS FROM CONTINUING OPERATIONS. As a consequence of the foregoing,
operating loss from continuing operations for the three months ended March 31,
2001 was $358,586, as compared to $503,687 for the three months ended March 31,
2000.
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OTHER INCOME (EXPENSE). Interest expense decreased from $180,773 for the three
months ended March 31, 2000 to $147,833 for the three months ended March 31,
2001. The decrease resulted from interest accrued and paid on lower notes
payable and capital lease obligations in 2001, as compared to 2000. For the
three months ended March 31, 2001, interest income increased to $27,543, from $0
in 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 for the three-month period ended March 31, 2001 totaled $41,744, as
compared to $15,201 for the three-month period a year earlier.
LOSS BEFORE DISCONTINUED OPERATIONS. Loss before discontinued operations for the
three months ended March 31, 2001 was $437,132, compared to $669,259 for the
same period a year earlier. Loss before discontinued operations at March 31,
2001 consists of $358,586 in loss from continuing operations and other expenses
of $78,546, as compared to loss from continuing operations of $503,687 and other
expenses of $165,572 for the period ended March 31, 2000.
INCOME TAXES. The provision for income taxes for the three-month period ended
March 31, 2001, is $0. The Company has fully reserved for the deferred tax asset
related to its net operating loss carry-forwards. 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 ON DISCONTINUED OPERATIONS. In accordance with APB No. 30, in order to
record the loss on disposal of its Retail Division for the year ended December
31, 1999, the Company estimated the future operating losses of the Retail
Division for the period up until the sale of the division, which was January 31,
2000. During the first quarter of 2000, it became evident that the provision as
of December 31, 1999 made for the operating loss for the period ended January
31, 2000 was less than what it should have been by approximately $139,272. This
adjustment to the provision in the operating loss of discontinued operations was
primarily attributed to an adjustment to increase the reserve balance on
accounts receivables at the Retail Division. Accordingly, the Company has
recognized an adjustment in the provision for losses on discontinued operations
in the first quarter of 2000 by $139,272, which is net of a provision for income
taxes of $0.
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS. As a result of the foregoing, the net
loss available to common stockholders was $437,132 for the three months ended
March 31, 2001, as compared to a net loss of $808,531 for the same period a year
earlier.
OTHER COMPREHENSIVE LOSS. As discussed in the notes to the financial statements
filed as part of this report, at March 31, 2001, the Company held 83,333 shares
of common stock of V-Twin Holdings, Inc. As of March 31, 2001, the Company
recognized comprehensive loss in the amount of $91,834 related to the unrealized
loss on available-for-sale equity securities in V-Twin, as compared to $0 for
the same three-month period a year earlier.
TOTAL COMPREHENSIVE LOSS. As a result of the foregoing, the total comprehensive
loss available to common shareholders was $528,966, for the three months ended
March 31, 2001, as compared to a total comprehensive loss of $808,531 for the
same period a year earlier.
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
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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
has become obligated to issue a warrant to purchase 600,000 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.
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. On May 21, the Company filed a petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the Central
District of California. The filing was necessitated by the threat of a
foreclosure sale scheduled later that day by FINOVA. FINOVA is prevented by the
automatic stay under the Bankruptcy Code from exercising its remedies, including
foreclosure on the Company's assets. The total arrearage owing to FINOVA as of
May 31, 2001 is $4,758,248, comprised of $4,500,000 in principal and $258,248 in
interest. Under the terms of a cash collateral agreement entered into between
the Company and FINOVA in connection with the bankruptcy filing, the Company has
been obligated to make interest payments of $10,500 per week in payment of
interest accruing after May 21, 2001 as adequate protection payments to FINOVA.
The Company and FINOVA are in ongoing discussions regarding the
settlement of the debt, and FINOVA has indicated to the Company that it would be
willing to move forward and work with the Company to seek bankruptcy court
approval of a transaction pursuant to which the Company would pay $1.3 million
in satisfaction in full of its obligations to FINOVA. Any transaction with
FINOVA is conditioned on FINOVA's agreement on all the terms and conditions of
the transaction and the execution of documents satisfactory to both parties. The
Company is in the process of seeking new financing to be used to satisfy its
obligations to FINOVA. The Company does not currently have the resources to
repay the FINOVA indebtedness unless new financing is obtained.
The Company is actively seeking new financing to refinance the FINOVA
loan. However, there are no assurances that the Company will be successful. If
the Company is not successful in refinancing the FINOVA loan, the Company may
not be able to successfully emerge from its Chapter 11 bankruptcy. See the
discussion below under "Outlook and Ability of Company to Continue as a Going
Concern" and "Certain Trends and Uncertainties--The Company may not be able to
successfully emerge from its Chapter 11 bankruptcy."
The Company's ability to successfully emerge from it Chapter 11
bankruptcy will also be affected by its ability to negotiate an arrangement with
Transamerica or another lender to provide floor plan financing to the Company's
dealers. Until recently, approximately 55% of the Company's dealers utilized
floor plan financing from Transamerica to acquire motorcycles manufactured by
the Company. The dealers are the obligors under these floor plan agreements and
are responsible for all principal and interest payments. Pursuant to these
arrangements, 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 Transamerica. However, in May
2001, the Company received notice from Transamerica that, due to the Company's
filing under Chapter 11, Transamerica would no longer provide floor plan
financing to the Company's dealers. The Company is in ongoing negotiations with
Transamerica to reinstate the dealers' flooring line. If these negotiations are
not successful, the Company will seek to arrange floor plan financing for its
dealers from another lender. However, there are no assurances that the Company
will be successful in its efforts. The Company's future revenues may be
materially adversely affected if the Company cannot successfully implement floor
plan financing for its dealers.
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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. 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.
CONSOLIDATED STATEMENT OF CASH FLOWS - COMPARISON OF THE FISCAL QUARTERS ENDED
MARCH 31, 2001 AND 2000.
Net cash provided by operating activities for the three-month period ended March
31, 2001 was $111,496, as compared cash used of $253,962 for the period ended
March 31, 2000. Net cash used in operating activities includes net cash used in
continuing operating activities and net cash used in discontinued operating
activities. The discontinued operations consist of the Retail Division that was
sold on January 31, 2000.
Net cash provided by continuing operating activities for the three-month period
ended March 31, 2001, was $111,496, as compared to cash used of $18,392 for the
comparable period in 2000, representing a change of $129,888. During the three
months ended March 31, 2001, significant working capital changes included a
decrease in accounts receivable of $306,701 as a result of improved collections,
and a decrease in inventories of $434,965, as a result of improvements in
inventory management. The decrease in accounts receivables and inventories were
offset, in part, by a decrease in accounts payable of $330,738.
The Company did not use cash in discontinued operating activities during the
three-month period ended March 31, 2001, compared to net cash used in
discontinued operating activities was $235,570 for the three-month period ended
March 31, 2000.
Net cash used in investing activities was $771 for the three-month period ended
March 31, 2001, as compared to $52,032 for the same three-month period in 2000.
The principle use of cash during the three months ended March 31, 2000 was for
the installation of four new assembly lines.
Net cash used by financing activities for the three month period ended March 31,
2001 was $12,303 and consists of payments on notes payable and capital lease
obligations. During the same three-month period in 2000, the Company used
$70,557 in financing activities consisting of payments on notes payable and
capital leases of $34,417, and repayments of advances on floor plan financing
from Cana Capital Corporation of $36,140.
For the three months ended March 31, 2001, there was a net increase in cash and
cash equivalents of $98,422. Cash was primarily provided by continuing operating
activities in the amount of $111,496, offset, in part, by payments on notes
payable and capital lease obligations of $12,303.
During the three-month period ended March 31, 2000, net cash decreased by
$376,551. The primary use of cash during the three-month period consisted of
$235,570 used in connection with the operations of the discontinued Retail
Division. In addition, $70,557 was used to make payments on notes payable, lease
obligations and financing agreements.
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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 the Company's 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 "General Discussion of 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. On May 21, the Company
filed a petition for relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Central District of California. The
filing was necessitated by the threat of a foreclosure sale scheduled later that
day by FINOVA. FINOVA is prevented by the automatic stay under the Bankruptcy
Code from exercising its remedies, including foreclosure on the Company's
assets.
The Company and FINOVA are in ongoing discussions regarding the
settlement of the debt, and FINOVA has indicated to the Company that it would be
willing to move forward and work with the Company to seek bankruptcy court
approval of a transaction pursuant to which the Company would pay $1.3 million
in satisfaction in full of its obligations to FINOVA. Any transaction with
FINOVA is conditioned on FINOVA's agreement on all the terms and conditions of
the transaction and the execution of documents satisfactory to both parties. The
Company is in the process of seeking new financing to be used to satisfy its
obligations to FINOVA. The Company does not currently have the resources to
repay the FINOVA indebtedness unless new financing is obtained. There are no
assurances that the Company will be able to obtain such financing.
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. The Company has a history
of operating losses and accumulated deficit. The Company had a net loss of
approximately $437,132 for the quarter ended March 31, 2001, net income of
$73,435 for the year ended December 31, 2000, and 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 and
emerge from its Chapter 11 bankruptcy. 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.
OBTAINING DEALER FLOOR PLAN FINANCING The Company's ability to
successfully emerge from its Chapter 11 bankruptcy will also be affected by its
ability to negotiate an arrangement with Transamerica or another lender to
provide floor plan financing to the Company's dealers. Until recently,
approximately 55% of the Company's dealers were utilizing floor plan financing
from Transamerica to acquire motorcycles manufactured by the Company. The
dealers are the obligors under these floor plan agreements and are responsible
for all principal and interest payments. Pursuant to these arrangements, 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 Transamerica. However, in May 2001, the Company
received notice from Transamerica that, due to the Company's filing under
Chapter 11, Transamerica would no longer provide floor plan financing to the
Company's dealers. The Company is in ongoing negotiations with Transamerica to
reinstate the dealers' flooring line. If these negotiations are not successful,
the Company will seek to arrange floor plan financing for its dealers from
another lender. There are no assurances that these
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efforts will be successful. The Company's future revenues may be materially
adversely affected if the Company cannot successfully implement floor plan
financing for its dealers.
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.
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. As discussed above, it is possible that
the Company's revenues for future periods may be materially adversely affected
if the Company cannot successfully implement floor plan financing for its
dealers.
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.
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 March 31, 2001 the
Company's current liabilities exceeded its current assets by approximately
$2,000,000. Due to, among other reasons, the Company's working capital
deficiency, as well as the decision of the Company's lender, FINOVA Mezzanine
Capital, 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, "The Company may not be able to
successfully emerge from its Chapter 11 bankruptcy", "The Company may not be
able to arrange for dealer floor plan financing, which may result in lower
revenues to the Company in future periods," and "The Company may not be able to
implement the changes necessary to sustain profitability in future periods."
THE COMPANY MAY NOT BE ABLE TO SUCCESSFULLY EMERGE FROM ITS CHAPTER 11
BANKRUPTCY. 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 "General Discussion of 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. On May 21, 2001, the Company filed a
petition for relief under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Central District of California. The filing was
necessitated by the threat of a foreclosure sale scheduled later that day by
FINOVA. FINOVA is prevented by the automatic stay under the Bankruptcy Code from
exercising its remedies, including foreclosure on the Company's
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assets. The Company and FINOVA are in ongoing discussions regarding the
settlement of the debt, as described above under the caption entitled "General
Discussion of Liquidity and Capital Resources." The Company is in the process of
seeking new financing to be used to satisfy its obligations to FINOVA. The
Company does not currently have the resources to repay the FINOVA indebtedness
unless new financing is obtained. There are no assurances that the Company will
be able to obtain such financing. See discussion above under the caption
entitled "Outlook and Ability of Company to Continue as a Going Concern ---
Repayment of FINOVA Loan." The Company may not be able to successfully emerge
from its Chapter 11 bankruptcy if it cannot obtain financing to repay FINOVA.
THE COMPANY MAY NOT BE ABLE TO ARRANGE FOR DEALER FLOOR PLAN FINANCING,
WHICH MAY RESULT IN LOWER REVENUES TO THE COMPANY IN FUTURE PERIODS. The
Company's ability to successfully emerge from it Chapter 11 bankruptcy will also
be affected by its ability to negotiate an arrangement with Transamerica or
another lender to provide floor plan financing to the Company's dealers. Until
recently, approximately 55% of the Company's dealers were receiving floor plan
financing from Transamerica to acquire motorcycles manufactured by the Company.
The dealers are the obligors under these floor plan agreements and are
responsible for all principal and interest payments. Pursuant to these
arrangements, 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 Transamerica. However, in May
2001, the Company received notice from Transamerica that, due to the Company's
filing under Chapter 11, Transamerica would no longer provide floor plan
financing to the Company's dealers. The Company is in ongoing negotiations with
Transamerica to reinstate the dealers' flooring line. If these negotiations are
not successful, the Company will seek to arrange floor plan financing for its
dealers from another lender. There are no assurances that these efforts
will be successful. The Company's future revenues may be materially adversely
affected if the Company cannot successfully implement floor plan financing for
its dealers.
THE COMPANY MAY NOT BE ABLE TO IMPLEMENT THE CHANGES NECESSARY TO
SUSTAIN PROFITABILITY IN FUTURE PERIODS. The Company has a history of operating
losses and accumulated deficits. The Company had a net loss of approximately
$437,132 for the fiscal quarter ended March 31, 2001, net income of
approximately $73,000 for the fiscal year ended December 31, 2000, and 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.
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 and the first quarter of 2001, 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 in the approximate amount of $1,500,000 for the fourth
quarter of 2000 and in the approximate amount of $1,150,000 for the first
quarter of 2001.
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 "UMCCE." Under the rules of
the OTC Bulletin Board, the Company must continue to file its quarterly and
annual reports under the Securities and Exchange Act of 1934 in a timely fashion
in order to remain eligible for trading by market makers in that forum.
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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.
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 90 independent Ultra
motorcycle dealer locations as of the date of the filing of this report. 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.
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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.
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 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 600,000 additional
shares of Common Stock pursuant to the foregoing provision. The issuance of
200,000 warrants to FINOVA in each of June 1999, June 2000 and June 2001, brings
the total warrants issued to FINOVA to 1,057,500 as of June 21, 2001. 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 discussion under Part II--Other Information--Item 1,
Legal Proceedings, for a discussion of a complaint filed against the Company 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 of 2000 in the approximate amount of $1,500,000.
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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 quarterly report on
Form 10-QSB under the caption entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PART II -- OTHER INFORMATION
ITEM 1. 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. On May 1,
2001, Harold ("Hal") Collins, a former officer of the Company, was dismissed,
with prejudice, from the lawsuit. Herm Rosenman, another former officer also
named in the action, has also been dismissed. As of the date of this filing, the
Company and the ARB have reached an agreement in principle on a settlement,
subject to the preparation, approval, and execution of a definitive settlement
agreement.
See also the discussion below under Item 3, Defaults Upon Senior
Securities.
ITEM 2 -- CHANGES IN SECURITIES
Not applicable.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
On March 28, 2001, FINOVA Mezzanine Capital, Inc. 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 on a promissory note in the principal
amount of $4,500,000. The note is secured by a security interest in
substantially all of the assets of the Company. On May 21, the Company filed a
petition for relief under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Central District of California. The filing was
necessitated by the treat of a foreclosure sale scheduled later that day by
FINOVA. The Company and Finova are continuing discussions regarding settlement
of the debt. The total arrearage owing to FINOVA as of May 31, 2001 is
$4,758,248, comprised of $4,500,000 in principal and $258,248 in interest. Under
the terms of a cash collateral agreement entered into between the Company and
FINOVA in connection with the bankruptcy filing, the Company is obligated to
make interest payments of $10,500 on a weekly basis in payment of interest
accruing after May 31, 2001.
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ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 -- OTHER INFORMATION
The employment of Harold ("Hal") Collins, former President and CEO of
the Company, was terminated, effective June 12, 2001. It is the Company's
position that the termination was for cause, and that the Company is not
obligated to make any severance payments to Mr. Collins under the terms of his
written employment agreement with the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are filed or incorporated by reference as
part of this report:
2.1 Agreement and Plan of Reorganization dated August 4, 1994 among
HDL Communications (now known as Ultra Motorcycle Company), Biker Dream, Inc.
and the stockholders of the company now known as Ultra Motorcycle Company., as
amended by agreements dated November 11, 1994, February 3, 1995 and February 20,
1995.(1)
2.2 Asset Purchase Agreement dated January 30, 1997 among the
Company, Ultra Acquisition Corporation and Mull Acres Investments, Inc.(2)
2.3 Asset Purchase Agreement dated January 18, 2000 between the
Company and V-Twin Holdings, 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)
3.1.5 Certificate of Amendment of Articles of Incorporation dated
January 15, 2001(10)
3.1.4 Certificate of Determination of Series B Convertible Preferred
Stock(5)
3.1.6 Certificate of Determination of Series C Convertible Preferred
Stock(6)
3.1.7 Certificate of Determination of Series D Convertible Preferred
Stock(7)
3.2 Bylaws, as amended, of the Company(1)
4.1 Form of Certificate of Common Stock of the Company(8)
4.2 Articles of Incorporation of the Company, as amended (included
as Exhibits 3.1, 3.1.1, 3.1.2, 3.1.4, 3.1.5 and 3.1.6)
4.3 By-laws, as amended, of the Company (included as Exhibit 3.2).
4.4 Loan Agreement dated June 22, 1998 between FINOVA Mezzanine
Capital Inc. (formerly known as Sirrom Capital Corporation d/b/a/ Tandem
Capital) and the Company and Ultra Acquisition Corporation, a Nevada
corporation, as Borrowers(8).
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), a Nevada corporation,
as Borrowers(9).
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15 Letter of Singer Lewak Greenbaum & Goldstein LLP regarding
awareness of use of report.
--------------
(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 8-K dated
January 30, 1997 filed with the Commission on February 14, 1997.
(3) Previously filed as an exhibit to the Company's Form 8-K dated
January 18, 2000 filed with the Commission on January 26, 2000.
(4) Previously filed as an exhibit to the Company's Form 10-KSB report
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 report
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-QSB report
for fiscal quarter ended March 31, 1998 filed with the Commission on May 15,
1998.
(7) Previously filed as an exhibit to the Company's registration
statement on Form S-3 filed with the Commission on February 11, 1999.
(8) Previously filed as an exhibit to the Company's Form 10-KSB report
for the fiscal year ended December 31, 1998 filed with the Commission on April
15, 1999.
(9) Previously filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the period ended December 31, 1999 filed with the Commission on
April 14, 2000.
(10) Previously filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the period ended December 31, 2000 filed with the Commission on
April 17, 2001
b. REPORTS ON FORM 8-K.
(1) Report on Form 8-K dated January 17, 2001 filed with the Commission
on February 2, 2001 regarding change of Company's name from "Bikers Dream, Inc."
to "Ultra Motorcycle Company."
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SIGNATURES
In accordance with the requirements 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: June 20, 2001 By: /s/ Steven Saslow
--------------------------------------
Steve Saslow, Chief Executive Officer
(Principal Executive Officer)
By: /s/ Anne Todd
--------------------------------------
Anne Todd (Principal Financial and
Accounting Officer)
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EXHIBIT 15
Ultra Motorcycle Company
(formerly Bikers Dream, Inc.)
3810 Wacker Drive
Mira Loma, California 91752
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited interim financial
information of Ultra Motorcycle Company (formerly Bikers Dream, Inc.) and
consolidated subsidiaries for the three-month period ended March 31, 2001, as
indicated in our report dated June 19, 2001; because we did not perform an
audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-QSB for the quarter ended March 31, 2001, is
incorporated by reference 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).
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant within the meaning of Sections
7 and 11 of that Act.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
June 20, 2001