1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ___________ to ____________.
Commission File No. 0-15501
BIKERS DREAM, INC.
(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)
(909) 360-2500
(Issuer's telephone number)
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 30, 2000, 8,925,782 shares
of the issuer's common stock were outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Bikers Dream, Inc., dba Ultra Motorcycle Company
We have reviewed the accompanying condensed consolidated balance sheet of Bikers
Dream, Inc., dba Ultra Motorcycle Company and subsidiaries as of June 30, 2000,
and the related consolidated condensed statements of operations and cash flows
for the each of the six month periods ended June 30, 2000 and 1999. 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred recurring
losses from operations, its total current liabilities exceed its total current
assets, and its accumulated deficit was $23,171,849 as June 30, 2000. This
raises substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Bikers Dream, Inc., dba Ultra
Motorcycle Company and subsidiaries as of December 31, 1999, and the related
statements of operation, shareholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated April 4, 2000, 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, 1999 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
July 26, 2000
3
Part 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BIKERS DREAM, INC., dba ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 2000 (UNAUDITED)
================================================================================
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 499,994 $ 1,434,781
Investments 500,000 --
Accounts receivable, net of allowance for doubtful accounts
of $521,385 at June 30, 2000 and $312,376 at December 31, 1999 1,990,574 2,250,939
Other receivables 335,235 54,175
Inventories, net of reserves 4,286,222 4,354,194
Prepaid expenses and other current assets 284,889 240,279
Net assets of discontinued operations 19,387 1,248,088
------------ ------------
Total current assets 7,916,301 9,582,456
FURNITURE AND EQUIPMENT, net 925,241 988,248
NOTE RECEIVABLE, net of unamortized discount 855,144 --
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net 2,305,397 2,404,907
DEBT ISSUANCE COSTS, net 53,925 80,888
DEPOSITS AND OTHER ASSETS 121,376 346,413
------------ ------------
TOTAL ASSETS $ 12,177,384 $ 13,402,912
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable $ 4,530,742 $ 153,881
Current portion of capital lease obligations 55,028 62,584
Accounts payable 2,089,136 2,685,624
Accrued expenses 1,800,104 1,949,426
Accrued legal and settlement costs 324,326 813,000
Advances on financing agreements-- related party -- 309,087
Notes payable-- related parties 351,638 600,000
------------ ------------
Total current liabilities 9,150,974 6,573,602
NOTES PAYABLE, less current portion 44,304 4,564,562
CAPITAL LEASE OBLIGATIONS, less current portion 115,797 90,324
------------ ------------
Total liabilities 9,311,075 11,228,488
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
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
Cumulative dividends, aggregate liquidation preference
of $1,780,000, 3,500 shares authorized, 0 (unaudited) and
1,780 shares issued and outstanding -- 18
Additional-paid-in-capital, Series D Preferred Stock -- 1,438,526
Common stock, no par value
25,000,000 shares authorized,8,925,782 (unaudited) and
5,725,896 issued and outstanding 25,335,964 23,831,804
Accumulated deficit (23,171,849) (23,798,118)
------------ ------------
Total shareholders' equity 2,866,309 2,174,424
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,177,384 $ 13,402,912
============ ============
</TABLE>
SEE THE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
4
BIKERS DREAM, INC., dba ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 9,502,238 $ 6,386,245 $ 16,214,278 $ 12,309,754
COST OF GOODS SOLD 7,637,579 4,407,110 13,357,856 8,474,981
------------ ------------ ------------ ------------
GROSS PROFIT 1,864,659 1,979,135 2,856,422 3,834,773
------------ ------------ ------------ ------------
EXPENSES
Selling, general, and administrative
expenses 1,064,910 1,282,326 2,434,474 2,530,098
Depreciation and amortization 120,328 134,949 246,214 245,999
------------ ------------ ------------ ------------
Total expenses 1,185,238 1,417,275 2,680,688 2,776,097
------------ ------------ ------------ ------------
OPERATING INCOME FROM CONTINUING
OPERATIONS 679,421 561,860 175,734 1,058,676
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (184,340) (195,983) (379,087) (422,329)
Interest income 24,252 19,732 38,226 24,371
Other income from litigation settlement 622,000 -- 622,000 --
Gain on sale of technology 96,000 -- 96,000 --
Extinguishment of debt-related party 366,000 -- 366,000 --
Gain on disposal of furniture and
equipment 4,087 -- 4,087 --
Other expense, net (19,351) -- (4,152) --
------------ ------------ ------------ ------------
Total other income (expense) 908,648 (176,251) 743,074 (397,958)
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES,
DISCONTINUED OPERATIONS AND PREFERRED
STOCK DIVIDENDS 1,588,067 385,609 918,808 660,718
LOSS ON DISCONTINUED OPERATIONS, net
of provision for income taxes of $0 (114,125) (152,017) (253,397) (299,189)
------------ ------------ ------------ ------------
INCOME BEFORE PREFERRED STOCK
DIVIDENDS $ 1,473,942 $ 233,592 $ 665,411 $ 361,529
PREFERRED STOCK DIVIDENDS, net of
forfeited dividends -- (66,319) -- (389,535)
------------ ------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS $ 1,473,942 $ 167,273 $ 665,411 $ (28,006)
============ ============ ============ ============
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE
From continuing operations $ 0.18 $ 0.06 $ 0.11 $ 0.05
From discontinued operations (0.01) (0.03) (0.03) (0.06)
------------ ------------ ------------ ------------
TOTAL BASIC AND DILUTED
EARNINGS (LOSS) PER SHARE $ 0.17 $ 0.03 $ 0.08 $ (0.01)
============ ============ ============ ============
BASIC AND DILUTED WEIGHTED-
AVERAGE SHARES OUTSTANDING 8,925,782 5,133,525 7,990,584 5,123,282
============ ============ ============ ============
</TABLE>
SEE THE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
5
BIKERS DREAM, INC., dba ULTRA MOTORCYCLE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations $ 918,808 $ 660,718
Adjustments to reconcile net income from continuing
operations to net cash used in operating activities
Gain on sale of equipment (14,754) --
Loss on sale of equipment 10,667 --
Depreciation and amortization 246,214 245,999
Amortization of discount on note receivable (34,758) --
Amortization of loan costs 26,963 95,464
Issuance of stock for services -- 60,000
Extinguishment of debt - related party (366,000) --
Sale of technology (96,000) --
Other income from litigation settlement (622,000) --
(Increase) decrease in
Accounts receivable 260,365 (1,661,201)
Other receivables 18,940 (4,633)
Inventories 27,972 (255,607)
Prepaid expenses and other current assets (24,610) (147,068)
Deposits and other assets 21,037 (127,566)
Increase (decrease) in
Accounts payable (596,488) 664,869
Accrued expenses (5,210) 73,295
Accrued legal and settlement costs (101,674) --
----------- -----------
Net cash used in continuing operating activities (330,528) (395,730)
Net cash provided by(used in) discontinued operating activities (305,082) 630,179
----------- -----------
Net cash provided by (used in) operating activities (635,610) 234,449
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture and equipment (64,199) (314,180)
Cash received upon sales of furniture and equipment 16,000 --
Purchase of marketable securities -- (19,172)
----------- -----------
Net cash used in continuing investing activities (48,199) (333,352)
Net cash used in discontinued investing activities -- (198,170)
----------- -----------
Net cash used in investing activities (48,199) (531,522)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable $ 66,500 $ --
Payments on notes payable (209,897) (29,884)
Payments on capital lease obligations (33,494) (32,180)
Advances on financing agreements - related party, net (74,087) (870,459)
Debt issuance costs -- (33,780)
Proceeds from issuance of preferred stock, net of costs -- 1,367,000
Exercise of warrants -- 159,503
Additional paid-in capital received from related parties -- 107,656
Payment on subscriptions receivable -- 90,000
----------- -----------
Net cash provided by (used in) continuing financing activities (250,978) 757,856
Net cash provided by discontinued financing activities -- --
----------- -----------
Net cash provided by (used in) financing activities (250,978) 757,856
----------- -----------
Net increase (decrease) in cash and cash equivalents (934,787) 460,783
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,434,781 689,679
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 499,994 $ 1,150,462
=========== ===========
</TABLE>
SEE THE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
6
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of Bikers Dream,
Inc., d.b.a. Ultra Motorcycle Company and all of its wholly owned subsidiaries,
including the accounts of Ultra Motorcycle Company, Bikers Dream International,
Inc., Bikers Dream Distribution, Inc., Bikers Dream Management Services, and
Bikers Dream Eagle Enterprises, Inc. (collectively, the "Company"). All
significant intercompany accounts and transactions are eliminated in
consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION:
Revenue from the sale of motorcycles is recognized upon shipment to the
customer.
ADVERTISING COSTS:
Those 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 of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The provision for income taxes represents the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
NET INCOME (LOSS) PER SHARE:
The Company utilizes SFAS No. 128, "Earnings per Share." Basic income (loss) per
share is computed by dividing the net income (loss) by the weighted-average
number of common shares available. Diluted income (loss) per share is computed
similar to basic earnings per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive.
CASH AND CASH EQUIVALENTS:
For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with original maturities of three months or less to
be cash equivalents.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is determined by the
specific identification method for finished motorcycles and work-in-process
inventories and the average cost method for parts inventories. Finished goods
include capitalized overhead costs, which include primarily labor.
FURNITURE AND EQUIPMENT:
Furniture and equipment, including capitalized leases, are stated at cost less
accumulated depreciation and amortization. The Company provides for depreciation
and amortization using
7
the straight-line method over the estimated useful lives or the term of the
lease, whichever is less.
CONCENTRATION OF RISK:
The Company is operating in a growing market due to the current nationwide
popularity of custom motorcycles. Its future success is dependent on the
continuation of interest in the recreational motorcycle industry.
CONCENTRATION OF CREDIT RISK:
Other financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable. These
concentrations are limited due to the large number of customers comprising the
Company's customer base and their dispersion across different geographic
regions. The Company performs ongoing credit evaluations of customers and
generally does not require collateral. Allowances are maintained for potential
credit losses, and such losses have been within management's expectations. As of
June 30, 2000, the Company has no significant concentrations of credit risk.
ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenue and expenses during the reported period.
Actual results could differ from those estimates.
WARRANTY EXPENSES:
Included in accrued expenses are accrued warranty expenses. Estimated future
warranty obligations related to motorcycles and parts are provided by charges to
operations in the period in which the related revenue from the sales of
motorcycles or parts is recognized.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable, accounts
payable, and accrued expenses, the carrying amounts approximate fair value due
to their short maturities. The amounts shown for notes payable also approximate
fair value because current interest rates offered to the Company for debt of
similar maturities are substantially the same.
RECLASSIFICATIONS:
Certain amounts included in the 1999 financial statements have been reclassified
to conform to the 2000 presentation.
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 fifteen years.
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 June 30, 2000 the Company
has not recognized any impairment losses.
DISCONTINUED OPERATIONS:
On January 31, 2000, the Company completed the sale of the assets of its Retail
Division to V-Twin Holdings, Inc. ("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 fixed assets 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 the operations of the Retail Division have been
reclassified as discontinued operations and prior periods have been restated.
8
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 the 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
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, and the resolution of those issues discussed
in Part II, Item 6 of the Company's Annual Report for the fiscal year ended
December 31, 1999 under the caption, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Outlook and Ability of Company
to Continue as Going Concern." Although no assurances can be given, the Company
expects to expand its market share through the introduction of new highly styled
performance motorcycle models and through addition of dealers in geographic
regions of the country with longer riding seasons. In addition to emphasizing
quality control of its manufactured product, the Company is beginning to develop
its customer service infrastructure and has recently introduced an Ultra
motorcycle owners club and is redesigning its web site "www.ultracycles.com".
The club will provide a forum for Ultra owners to participate in riding events
and to exchange information.
9
RESULTS OF OPERATIONS
During 1999, the Company conducted its operations through two operating
divisions: Motorcycle and Retail. The Motorcycle division manufactures large
displacement "V" twin powered heavyweight cruiser motorcycles at the Company's
Mira Loma, California facility. Prior to its sale in January 2000, the Retail
Division sold new and used motorcycles, parts and accessories through the
Company's five owned Superstores.
As noted above, in January 2000, the Company sold to V-Twin Holdings, Inc. the
assets related to the operation of the Retail Division. As stated in Note 2 to
the Company's financial statements filed with the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1999, and Note 2 to the
financial statements included in this report, the results of operations of the
Retail Division have been reclassified as continued operations and prior
periods have been restated.
COMPARISON OF THE FISCAL QUARTERS ENDED JUNE 30, 2000 AND 1999
REVENUES. Revenues for the three months ended June 30, 2000 were $9,502,000 as
compared to $6,386,000 for the comparable period in 1999, representing an
increase of $3,116,000 or 49%. The Company attributes a large portion of the
increase in revenues to sales of its new "Fat Pounder" model, which was
introduced as a 2000 model in late 1999.
The number of motorcycles sold during the three months ended June 30, 2000
increased to 500, from 412 for the comparable period in 1999, while the number
of dealerships decreased to approximately 80 at June 30, 2000, from 100 for the
comparable period in 1999. As a result, dealer sales productivity (the number of
motorcycles sold to dealers divided by the number of dealers) increased from an
average of approximately .7 motorcycles per month for the three months ended
June 30, 1999, to an average of approximately 2 motorcycles per dealer per month
for the three months ended June 30, 2000.
COST OF GOODS SOLD/GROSS PROFIT. Cost of goods sold for the three months ended
June 30, 2000 was $7,638,000 (representing 80% of revenues), as compared to
$4,407,000(representing 69% of revenues) for the comparable period a year
earlier, representing an increase of $3,231,000 or 73%. Cost of goods sold
include direct and indirect manufacturing costs, administrative costs to
purchase and sell Ultra Kustom parts, warranty costs, and costs related to the
assembly of motorcycles. The Company attributes the increase of $3,231,000 in
cost of goods sold to higher material and labor costs (including increased
payroll taxes and benefits) related to the increased level of motorcycle sales
during the period, costs of making quality improvements, and sales of models
during the period with higher manufacturing costs than models sold during the
same period in 1999.
As described in the Company's Annual Report on Form 10-KSB for the fiscal year
period ended December 31, 1999, the Company incurred a significant increase in
warranty expense from $842,000 for the fiscal year ended December 31, 1998 to
$1,795,000 for the fiscal year ended December 31, 1999, representing an increase
of $954,000 or approximately 113%. Included in the $1,795,000 figure was an
increase of $247,000 in the fourth quarter of 1999 to increase the contingency
of liabilities on units sold under warranty. During the three month period ended
June 30, 2000, the Company experienced a decrease of $12,000 in warranty costs
from $215,000 for the three month period ended June 30, 1999 to $203,000 for the
three month period ended June 30, 2000. Based upon the decrease in expense and
after reviewing its warranty service call rate, the Company believes that the
rate of warranty claims per motorcycle sold is decreasing. It is the Company's
view that warranty costs will continue to decline in the future but no
assurances can be given.
As the cost of goods sold increased at a greater rate than did revenues, gross
profit for the three months ended June 30, 2000 was $1,865,000 (representing 20%
of revenues), as compared to $1,979,000(representing 31% of revenues) for the
three month period ended June 30, 1999. This represents a decrease in gross
profit of $114,000 or 6%. The decrease in gross profit as a percentage of
revenues (i.e., gross margin) is attributable to the increase in cost of goods
sold as described above and sales of several models of motorcycles in the
current period that had a lower gross margin than models sold in the comparable
period of a year ago.
The decrease in gross profit for the three month period ended June 30, 2000 is
also partially attributable to the pricing of the Company's 2000 model year
motorcycles. When the Company designed and determined the cost of manufacture of
its 2000 model year motorcycles, it implemented a price increase that it
believed would maintain the historical rate of gross profit. In January
10
2000, the Company reviewed its manufacturing costs and determined that its
earlier cost estimates were lower than the actual costs of manufacture. As a
result, the Company implemented a price increase of approximately 7%, effective
March 1, 2000, on orders received after March 1, 2000. Due to the Company's
sales backlog, the full impact of the price increase on gross profit was not
realized in the quarter ended June 30, 2000. The Company expects that gross
profit at the end of the third quarter of 2000 will fully reflect the impact of
the price increase. The Company will continue to monitor its product cost and
when required, make the appropriate price increases. In addition, the Company
has continued to implement a material cost reduction program to reduce
manufacturing costs. While the Company believes that it will be able to return
to previous levels of gross profit, no assurances can be given that gross profit
will increase in the future.
As described in Note 14 in the Financial Statements in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999, the Company
recognized an aggregate of $969,000 of charges to cost of goods sold in
connection with three significant adjustments that were all recorded in the
fourth quarter. The periods attributed to these charges could not be identified
by the Company's management. If these charges recorded in the fourth quarter of
1999 were attributed to the first three quarters of 1999, the gross profit for
these quarters would have been lower than as reported in the unaudited interim
financial statements for such periods.
EXPENSES. Selling, general and administrative expenses were $1,065,000 or 11% of
sales for the three months ended June 30, 2000, as compared to $1,282,000 or 20%
of sales, for the three months ended June 30, 1999.
Selling, general, and administrative expenses consist primarily of corporate
operating expenses, professional fees, and salaries. The decrease of $217,000 is
largely attributable to decreased advertising and decreased use of temporary
employees and services of consultants.
Depreciation and amortization expense for the three months ended June 30, 2000
totaled $120,000 as compared to $135,000 for the same period in 1999. The
decrease of $15,000 is the result of disposals of equipment made in fiscal 1999.
OPERATING INCOME FROM CONTINUING OPERATIONS. As a consequence of the foregoing,
the operating income from continuing operations for the three months ended June
30, 2000 increased to $679,000 as compared to an operating income from
continuing operations of $562,000 for the three months ended June 30, 1999, an
increase of $117,000 or 21%.
OTHER INCOME (EXPENSE). For the three months ended June 30, 2000, other income
totaled $909,000 in comparison with total other expenses of $176,000 for the
three months ended June 30, 1999, an increase of $1,085,000. Other income
includes $622,000 under the line item entitled "Other income from litigation
settlement," of which amount $613,000 represents a reduction of liabilities
recorded on December 31, 1999 for the negotiated settlement of the Kinnicutt
lawsuit. (See also discussion of settlement of the Kinnicutt lawsuit under the
caption below entitled "General Discussion of Liquidity and Capital Resources,"
and in Part II, Item 1, under the caption entitled, "Legal Proceedings."). Other
income also includes $366,000 under the line item entitled "Extinguishment of
debt - related party," which amount represents the negotiated reduction of notes
payable held by w3 Holdings in the amount of $366,000 (including interest that
was forgiven). (See also discussion of settlement with w3 Holdings under the
caption below entitled "General Discussion of Liquidity and Capital Resources.")
In addition to the foregoing, other income includes a gain on the sale of
technology in the amount of $96,000.
The judgment against the Company in the Kinnicutt case was entered on March 20,
2000 and originally was in the amount of $683,601. This sum represented over
$283,000 in compensatory damages plus $400,000 in punitive damages. In its
annual report on Form 10-KSB for the year ended December 31, 1999 and its
quarterly report on Form 10-QSB for the quarter ended March 31, 2000, the
Company had recorded in its financial statements total liabilities related to
the Kinnicutt lawsuit of $683,000. These total liabilities consisted of $70,000
related to the SBA loan that the Company had agreed to pay off as part of the
repurchase of the retail store from the Kinnicutts, which was recorded as a debt
on the Company's financial statements when the Company repurchased the retail
store, and $613,000 of estimated litigation costs that were charged as an
expense during the fourth quarter of 1999. After the Company filed its quarterly
report on Form 10-QSB for the quarter ended March 31, 2000, in response to a
subsequent post-trial motion by the plaintiffs, in May 2000 the court awarded
plaintiffs an additional $154,000 for attorneys' fees, thereby bringing the
total award against the Company to $837,601. As discussed in the preceding
paragraph and under the caption below entitled "General Discussion of Liquidity
and Capital Resources," and in Part II, Item 1, under the caption entitled,
"Legal Proceedings."), the Company reached a settlement of the
11
Kinnicutt lawsuit. Because the case settled prior to June 30, 2000, the Company
did not reserve the additional $154,000 sum for attorneys' fees. As a result of
the foregoing, the Company recorded other income of only $613,000 in connection
with the negotiated settlement of the Kinnicutt lawsuit, which amount is
included within the $622,000 amount under the line item entitled "Other income
from litigation settlement."
INCOME BEFORE PROVISION FOR INCOME TAXES, DISCONTINUED OPERATIONS, PREFERRED
STOCK DIVIDENDS AND BENEFICIAL CONVERSION. Income before provision for income
taxes, discontinued operations, preferred stock dividends and beneficial
conversion for the three months ended June 30, 2000 was $1,588,000 and consists
of the operating income from continuing operations of $679,000 and other income
of $909,000 as previously described above.
INCOME TAXES. The provision for income taxes for the three month period ended
June 30, 2000 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. As described in the Company's report on Form 10-QSB for the quarter ended
March 31, 2000, during the quarter ended March 31, 2000, the Company recognized
an adjustment on the provision for losses on discontinued operations in the
amount of $139,000. This adjustment was primarily attributable to an increase of
the reserve balance on accounts receivable at the Retail Division. During the
three month period ending June 30, 2000 the Company finalized the collection of
the Retail Division accounts receivable and, in connection with such collection
efforts, recorded an adjustment in the provision for losses on discontinued
operations of $51,000 for the second quarter of 2000. The Company also recorded
an adjustment in the provision for losses on discontinued operations in the
amount of $63,000, relating to the write-off of certain inventory and prepaid
rent for a retail store in Daytona Beach, Florida that became part of the Cana
Capital litigation and settlement. As a result of the foregoing adjustments, the
Company recognized a loss on discontinued operations in the amount of $114,000
for the fiscal quarter ended June 30, 2000. The total provision for the expense
incurred in the discontinued operations is net of a provision for income taxes
of $0.
PREFERRED STOCK DIVIDENDS AND BENEFICIAL CONVERSION FEATURE GRANTED TO SERIES C
PREFERRED STOCKHOLDERS. During the three months ended June 30, 2000, there were
no costs associated with preferred stock dividends or beneficial conversion
features. However, during the three months ended June 30, 1999 costs were
recognized for the beneficial conversion granted to Series C preferred
stockholders of $66,000.
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS. For the three months ended June 30,
2000, the net income available to common stockholders was $1,474,000 as compared
to a net income of $168,000 for the same period in fiscal 1999. The increased
profitability of $1,306,000 is the result of an increase in income from
operations and the increase in other income as described above.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Revenues for the six months ended June 30, 2000 were $16,214,000 as
compared to $12,310,000 for the comparable period in 1999, representing an
increase of $3,904,000 or 32%.
The number of motorcycles sold during the six months ended June 30, 2000
increased to 874, from 765 for the comparable period in 1999, while the number
of dealerships decreased to approximately 80 at June 30, 2000, from 100 for the
comparable period in 1999. As a result, dealer sales productivity (the number of
motorcycles sold to dealers divided by the number of dealers) increased from an
average of approximately 1.3 motorcycles per dealer per month for the six months
ended June 30, 1999, to an average of approximately 1.8 motorcycles per dealer
per month for the six months ended June 30, 2000.
COST OF GOODS SOLD/GROSS PROFIT. Cost of goods sold for the six months ended
June 30, 2000 was $13,358,000 (representing 82% of revenues), as compared to
$8,475,000(representing 69% of revenues) for the comparable period a year
earlier, representing an increase of
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$4,883,000 or 58%. Cost of goods sold include direct and indirect manufacturing
costs, administrative costs to purchase and sell Ultra Kustom parts, warranty
costs, and costs related to the assembly of motorcycles. The Company attributes
the increase of $4,883,000 in cost of goods sold to higher material and labor
costs related to the increased level of motorcycle sales during the period,
costs of making quality improvements, and sales of models during the period with
higher manufacturing costs than models sold during the same period in 1999.
As the cost of goods sold increased at a greater rate than did revenues, gross
profit for the six months ended June 30, 2000 was $2,856,000 (representing 18%
of revenues), as compared to $3,835,000 (representing 31% of revenues) for the
period ended June 30, 1999. This represents a decrease in gross profit of
$979,000 or 26%. The decrease in gross profit as a percentage of revenues (i.e.,
gross margin) is attributable to the increase in cost of goods sold as described
above and sales of several models of motorcycles in the current period that had
a lower gross margin than models sold in the comparable period of a year ago.
The decrease in gross profit for the six month period ended June 30, 2000 also
can be attributed to the pricing of the Company's 2000 model year motorcycles.
When the Company designed and determined the cost of manufacture of its 2000
model year motorcycles, it implemented a price increase that it believed would
maintain the historical rate of gross profit. In January 2000, the Company
reviewed its manufacturing costs and determined that its earlier cost estimates
were lower than the actual costs of manufacture. As a result, the Company
implemented a price increase of approximately 7 percent, effective March 1,
2000, on orders received after March 1, 2000. Due to the Company's sales
backlog, the full impact of the price increase was not realized in the quarter
ended June 30, 2000. The Company expects that gross profit at the end of the
third quarter of 2000 will fully reflect the impact of the price increase. The
Company will continue to monitor its production cost and when required, make the
appropriate price increases. In addition, the Company has initiated a material
cost reduction program to reduce manufacturing costs. While the Company believes
that it will be able to return to previous levels of gross profit, no assurances
can be given that gross profit will increase in the future.
As described in Note 14 in the Financial Statements in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999, the Company
recognized an aggregate of $969,000 of charges to cost of goods sold in
connection with three significant adjustments that were all recorded in the
fourth quarter. The periods attributed to these charges could not be identified
by the Company's management. If these charges recorded in the fourth quarter of
1999 were attributed to the first three quarters of 1999, the gross profit for
these quarters would have been lower than as reported in the unaudited interim
financial statements for such periods.
EXPENSES. Selling, general and administrative expenses were $2,434,000 or 15% of
sales for the six months ended June 30, 2000, as compared to $2,530,000 or 21%
of sales, for the six months ended June 30, 1999.
Selling, general, and administrative expenses consist primarily of corporate
operating expenses, professional fees, and salaries. The decrease of $96,000 is
primarily attributable to a decrease in advertising expenses of approximately
$76,000.
Depreciation and amortization expense for the six months ended June 30, 2000
totaled $246,000 as compared to $246,000 for the same period in 1999.
OPERATING INCOME FROM CONTINUING OPERATIONS. As a consequence of the foregoing,
operating income from continuing operations for the six months ended June 30,
2000 was $176,000 as compared to an operating profit from continuing operations
of $1,059,000 for the six months ended June 30, 1999.
OTHER INCOME (EXPENSE). For the six months ended June 30, 2000 other income
totaled $743,000 in comparison with total other expenses of $398,000 for the six
months ended June 30, 1999 or an increase of $1,141,000. Other income includes
$622,000 under the line item entitled "Other income from litigation settlement,"
of which amount $613,000 represents a reduction of liabilities recorded on
December 31, 1999 for the negotiated settlement of the Kinnicutt lawsuit. (See
also discussion of settlement of the Kinnicutt lawsuit under the caption below
entitled "General Discussion of Liquidity and Capital Resources," and in Part
II, Item 1, under the
13
caption entitled, "Legal Proceedings.") Other income also includes $366,000
under the line item entitled "Extinguishment of debt - related party," which
amount represents the negotiated reduction of notes payable held by w3 Holdings
in the amount of $366,000 (including interest that was forgiven). (See also
discussion of settlement under the caption below entitled "General Discussion of
Liquidity and Capital Resources.") In addition to the foregoing, other income
also includes a gain on the sale of technology in the amount of $96,000.
INCOME BEFORE PROVISION FOR INCOME TAXES, DISCONTINUED OPERATIONS, PREFERRED
STOCK DIVIDENDS AND BENEFICIAL CONVERSION. Income before provision for income
taxes, discontinued operations, preferred stock dividends and beneficial
conversion for the six months ended June 30, 2000 was $919,000 and consists of
the operating income from continuing operations of $176,000 and other income of
$743,000.
INCOME TAXES. The provision for income taxes for the six month period ended June
30, 2000 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 six months 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 deficient by approximately $253,000. This adjustment to the
operating loss of discontinued operations is primarily attributable to an
increase of the reserve balance for uncollected accounts receivable at the
Retail Division of $190,000 and an adjustment of $63,000 to recognize the write
off of certain assets related to the settlement litigation arising from the
operation of a retail location in Daytona Beach, Florida, The operating loss of
$253,000 for discontinued operations is net of a provision for income taxes of
$0.
PREFERRED STOCK DIVIDENDS AND BENEFICIAL CONVERSION FEATURE GRANTED TO SERIES C
PREFERRED STOCKHOLDERS. During the six months ended June 30, 2000, there were no
costs associated with preferred stock dividends or beneficial conversion
features. However, during the six months ended June 30, 1999 costs were
recognized for the preferred stock dividends and a beneficial conversion feature
which totaled $390,000 and consisted of preferred stock dividends of $31,000 and
the beneficial conversion granted to Series C preferred stockholders of
$359,000.
NET INCOME/(LOSS) AVAILABLE TO COMMON STOCKHOLDERS. For the six months ended
June 30, 2000, the net income available to common stockholders was $665,000 as
compared to a net loss of $28,000 for the same period in fiscal 1999. The
increased profitability of $693,000 is the result of operating income of
$176,000 and other income of $743,000 less the loss on discontinued operations
of $253,000 as explained in the preceding discussion.
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 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.
EXISTING FINANCING ARRANGEMENTS
In April 1998 the Company completed a private placement of Series C Convertible
Preferred Stock, which generated approximately $3.075 million in cash. 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
14
Common Stock, after giving effect to the Company's 5-for-1 reverse stock split
effective on February 5, 1998. Of these warrants, 87,500 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 is reset on the first anniversary of the closing
of the loan at the lesser of (i) $4 1/16 or (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 the original closing date, the Company has become obligated to
issue a warrant to purchase 400,000 additional shares of Common Stock in
accordance with the terms of the FINOVA loan agreement as set forth above.
Prior to the quarter ended June 30, 2000, the Company's indebtedness to FINOVA
in the amount of $4,500,000 had been classified as a long-term note payable on
the Company's consolidated balance sheet. As of June 30, 2000 the FINOVA note is
required to be shown as a current liability.
In May 1998 the Company entered into an agreement with Cana Capital Corporation,
a company owned by Bruce Scott, a former director of the Company, pursuant to
which Cana Capital would provide $1.5 million in floor financing for the
Company's motorcycles. In April 1999 Cana Capital elected to terminate the
flooring agreement. Thereafter, Cana Capital allowed the Company several months
to pay off the balance on the floor financing. In approximately August 1999, a
dispute arose between Cana Capital and the Company as to claims the Company had
against Cana Capital, which offset part of the balance remaining on the floor
financing. Cana Capital subsequently filed suit against the Company in the
Circuit Court for the Fourth Judicial Circuit, Duval County, Florida. The
Company defended the action and cross-complained against Cana Capital to offset
the balance owed on the floor financing, which, according to the Company's
records, was approximately $235,000 as of June 30, 2000. Advances under the Cana
Capital line of credit had an interest of rate of 2% over the prime rate if used
to finance the acquisition of new vehicles, and 5% over the prime rate if used
to finance the acquisition of used vehicles. In July, 2000 the Company
successfully reached a settlement agreement with Cana Capital and Mr. Scott
which required payment by the Company to Cana Capital by July 31, 2000. On July
28, 2000, the Company fulfilled its obligations under the settlement agreement.
In exchange for the payment, Cana Capital agreed to provide the Company the
original title to motorcycles financed under the Cana Capital floor line and has
dismissed its suit with prejudice.
In October 1998, the Company obtained a bridge loan in the amount of $300,000
from MD Strategic L.P. ("MD Strategic"), a partnership in which Don Duffy, a
former director of the Company, is a principal. The loan was originally
evidenced by an unsecured note bearing interest at 18% per annum and was due,
together with accrued interest, on the earlier of December 31, 1999 or upon
receipt by the Company of funds from a third-party lender. In January 2000, MD
Strategic assigned the note, on which there was accrued approximately $82,200 in
interest and fees, to W3 Holdings, Inc. ("W3 Holdings"). W3 Holdings extended
the term of the note to March 31, 2000. On July 5, 2000 the Company completed an
agreement on the payment of the debt with W3 Holdings as described below.
In November 1999, the Company obtained a second bridge loan in the amount of
$300,000 from William Whalen, a stockholder 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 June 30, 2000. In January 2000, the notes were replaced by two
amended and restated promissory notes in the principal amounts of $156,638 and
$150,000, respectively. The amended and restated $156,638 note evidences
$150,000 of the principal amount of the original $200,000 note, $4,338 of
accrued interest on the original $200,000 note and $2,300 of accrued interest on
the original $100,000 note. The amended and restated $150,000 note evidences the
entire principal amount of the original $100,000 note, plus $43,362 of their
original principal amount of the $200,000 note. Both the $156,638 and $150,000
amended and restated notes bear interest at a rate of 12% per annum and mature
on March 31, 2000. Mr. Whalen subsequently assigned the
15
amended and restated note in the amount of $150,000 to W3 Holdings, while
continuing to hold the amended and restated note in the amount of $156,638.
In July 2000, the Company reached a settlement of its obligations owing on the
two promissory notes held by w3 Holdings. The combined sum of principal and
interest owing on the notes was approximately $560,000 at the time the
settlement was reached. The Company negotiated a compromise payment of $195,000
to extinguish all indebtedness on the notes. Final payment of the $195,000 was
made on July 20, 2000. The Company is continuing to negotiate a settlement on
the $156,638 note held by Mr. Whalen, on which there was accrued $8,362 in
interest as of June 30, 2000.
In February 1999 and October 1999, the Company received an aggregate of
$2,000,000 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.
CONSOLIDATED STATEMENT OF CASH FLOWS.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net cash used in operating activities for the six month period ended June 30,
2000 was $636,000 as compared to net cash provided by operating activities of
$234,000 for the period ended June 30, 1999. Net cash used in operating
activities includes net cash used in continuing operating activities and net
cash used in discontinued operating activities. Discontinued operations consist
of the Retail Division that was sold on January 31, 2000.
Net cash used in continuing operating activities for the six month period ended
June 30, 2000 was $331,000 as compared to $396,000 for the comparable period in
1999, representing a change of approximately $65,000. During the six months
ended June 30, 2000, the primary use of cash was in the reduction of trade
accounts payable of $596,000, which was partially offset by cash provided by
improved collection of motorcycle receivables as accounts receivable decreased
$260,000.
The net cash used in discontinued operating activities was $305,000 for the six
month period ended June 30, 2000. For the same period in 1999, the discontinued
operations provided cash of $630,000.
Net cash used in investing activities is $48,000 for the six month period ended
June 30, 2000, as compared to $532,000 net cash used in investing activities for
the same six month period in 1999. The principle use of cash during the six
months ended June 30, 2000 was the purchase of a trade show exhibit booth. The
principle use of cash for the period ended June 30, 1999 was the purchase of
assets related to the move to the Mira Loma facility and the implementation of
new computer hardware and software. These acquisitions totaled $314,000, while
$198,000 was used by the discontinued operations during the same period of 1999.
Net cash used by financing activities for the six month period ended June 30,
2000 is $251,000 and consists of payments on notes payable and capital lease
obligations of approximately $243,000, after refinancing the SBA loan of $67,000
related to the Kinnicutt settlement, and repayments of advances on floor plan
financing from Cana Capital of approximately $74,000.
Net cash provided by financing activities for the six month period ended June
30, 1999 was approximately $758,000. This sum consisted of primarily the
proceeds from the placement of the Series D Preferred Stock in February 1999 of
approximately $1,367,000. Warrants were exercised in the Series C class and
provided cash of $160,000 during the period. The principle use of cash during
the period was the payment made to retire debt on the Cana
16
Capital floor plan financing which was reported under the line item titled
"Advances on financing agreements-related party."
For the six months ended June 30, 2000, there was a net decrease in cash and
cash equivalents of $935,000. The primary use of cash during the six month
period consisted of approximately $596,000 used in the reduction of trade
accounts payable and $317,000 was used to make payments on notes payable, lease
obligations and financing agreements.
For the six months ended June 30, 1999 the net increase in cash and cash
equivalents was approximately $461,000. The major source of cash during the
period was the approximately $1,367,000 in net proceeds from the sale of Series
D preferred stock. Cash of $870,000 was used to make payments on the Cana
Capital floor plan financing.
OUTLOOK AND ABILITY OF COMPANY TO CONTINUE AS A GOING CONCERN
As described Note 2 to the Company's financial statements in its Annual Report
for fiscal 1999 on Form 10-KSB, entitled "Summary of Significant Accounting
Policies -- Going Concern and Basis of Presentation", and in their independent
Accountants' report dated April 4, 2000, which appears in this quarterly report
on Form 10-QSB, the Company's independent auditors state that the Company has
incurred recurring losses from operations, and that its total liabilities exceed
its tangible assets as of December 31, 1999.
In Part II, Item 6 of the Company's annual report on Form 10-KSB for the fiscal
year ended December 31, 1999, under the caption entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Outlook and Ability of Company to Continue as a Going Concern," the Company
described several extraordinary liabilities that were of primary concern to the
Company. These included the Company's liability under the promissory notes held
by w3 Holdings and Mr. Whalen, the Company's liability to pay the judgment in
the Kinnicutt lawsuit, as described in Part II, Item 1 of this report, and the
Company's obligation to repay its $4,500,000 loan from FINOVA Capital
Corporation when that loan becomes due in June 2001.
As discussed above, the Company has satisfied the indebtedness owing to w3
Holdings in full. The Company has also settled its lawsuit with Cana Capital
Corporation and Bruce Scott, as discussed above. Finally, the Company has
settled the Kinnicutt litigation as described below Part II, Item 1 of this
report.
As a result of the foregoing, as of the date of the filing of this report, the
Company has settled or discharged liabilities of approximately $1,600,000.
Although cash payments made to date of $195,000 together with future payments of
approximately $67,000 to settle these matters have reduced the Company's current
liquidity, management remains confident that it can continue to meet its
obligations to vendors and suppliers through the generation of operating income.
However, no assurances can be given.
The Company plans to negotiate with Mr. Whalen regarding the repayment of his
note. At the time of the filing of this report, Mr. Whalen has not presented a
demand for payment. However, there can be no assurances that these negotiations
will be successful.
The remaining significant liability of the Company is the Company's obligation
to repay its $4,500,000 secured loan from FINOVA Capital Corporation when that
loan matures in June 2001. As noted above, the Company has reclassified this
loan on its consolidated balance sheet as of June 30, 2000 as a current
liability. The Company may not be able to repay the FINOVA loan unless it
obtains an extension, or refinancing on terms acceptable to the Company. The
ability of the Company to extend or refinance the FINOVA loan will be affected
by, among other factors, the ability of the Company to sustain profitability by
the loan's maturity date. While the Company had a net income of approximately
$665,000 for the six months ended June 30, 2000, the Company has a prior history
of operating losses and accumulated deficits. See discussion above 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 assurances that the Company will be able to sustain
profitability in future periods. If the Company is unable to extend or refinance
the FINOVA loan at maturity, whether due to the Company's inability to sustain
profitability or for other reasons, such event will have a material adverse
effect on the Company's financial condition.
17
The ability of the Company to continue generating a profit is paramount to
resolving its working capital issues and to obtain an extension or refinancing
of the FINOVA loan when that loan matures in June 2001. 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, manage the
transition from model year 2000 product to model year 2001 product 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, and
improvements in purchasing, cash management, and inventory control. However,
there can be no assurances that the Company will be able to successfully
implement any of the changes described above, or that the Company will in fact
achieve profitability in future periods.
Any additional equity financing which the Company may obtain in the future may
be dilutive to shareholders, and any additional debt financing may impose
substantial restrictions on the ability of the Company to operate and raise
additional funds.
SEASONALITY
Generally, the Company's Motorcycle division exhibits a moderate level of
seasonality 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.
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. Due to the Company's prior history of
operating losses and working capital deficiency, 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, 1999 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 "Report of Independent Certified Public
Accountants", dated April 4, 2000, included in the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1999 filed with the
Securities and Exchange Commission on April 14, 2000. See also paragraph below
entitled, "The Company may not be able to implement the changes necessary to
sustain profitability in future periods."
THE COMPANY MAY NOT BE ABLE TO IMPLEMENT THE CHANGES NECESSARY TO SUSTAIN
PROFITABILITY IN FUTURE PERIODS. While the Company had a net income of
approximately $665,000 for the six months ended June 30, 2000, the Company has a
prior history of operating losses and accumulated deficits. The Company had a
net operating loss of approximately $809,000 for the fiscal quarter ended March
31, 2000. Prior to that period, the Company had operating
18
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, 1999, the
Company's accumulated deficit was approximately $23,800,000. The Company may not
be able to implement the changes necessary to sustain profitability in future
periods. These changes include implementation of better internal controls,
reduction of expenses, and improvements in purchasing, cash management, and
inventory control. The Company's ability to sustain profitability will also
depend upon other factors, including the ability of the Company to introduce new
products, manage the transition from model year 2000 product to model year 2001
product and maintain a level of production which is responsive to seasonal
demands. There can be no assurances that the Company will be able to
successfully implement any of these changes, or that the Company will be able to
sustain profitability in future periods.
THE COMPANY MAY NOT BE ABLE TO REPAY OR REFINANCE ITS EXISTING SECURED TERM LOAN
ON TERMS ACCEPTABLE TO THE COMPANY. The Company's $4.5 million secured term loan
with FINOVA Mezzanine Capital expires in June 2001. See discussion in Part I,
Item 2, of this report, entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -General Discussion of Liquidity
and Capital Resources." The Company may not be able to repay the FINOVA loan
unless it obtains an extension or refinancing on terms acceptable to the
Company. The ability of the Company to extend or refinance the FINOVA loan will
be affected by, among other factors, the ability of the Company to sustain
profitability by the loan's maturity date. While the Company had a net income of
approximately $665,000 for the six months ended June 30, 2000, the Company has a
prior history of operating losses and accumulated deficits. See discussion above
under the caption entitled, "The Company may not be able to implement the
changes necessary to sustain profitability in future periods." There can be no
assurances that the Company will be able to sustain profitability in future
periods. If the Company is unable to extend or refinance the FINOVA loan at
maturity, whether due to the Company's inability to sustain profitability or for
other reasons, such event will have a material adverse effect on the Company's
financial condition.
IF THE AMOUNT OF CAPITAL NEEDED TO FUND OPERATIONS EXCEEDS CURRENT ASSETS, THE
COMPANY MAY NOT BE ABLE TO OBTAIN ADDITIONAL EQUITY OR DEBT FINANCING. If the
Company needs to seek additional debt or equity financing in the future, there
is no assurance that sufficient financing will be available or, if available,
that it will be on terms favorable to the Company or its shareholders. Any
additional equity financing may cause substantial dilution to the Company's
existing equity holders. Many factors may cause the amount of capital needed to
fund operations to exceed current estimates, including, among other
unanticipated events, the Company's inability to:
- increase quarterly production volume;
- lower per unit production costs;
- control departmental costs; or
- manage inventory effectively.
Additional financing may not be available on terms favorable to the Company, or
at all. If adequate funds are not available or are not available on acceptable
terms, the Company may not be able to take advantage of business opportunities.
In addition, if the Company elects to raise capital by issuing additional shares
of stock, existing stockholders may incur dilution.
THE COMPANY'S COMMON STOCK MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET,
WHICH MAY MAKE IT DIFFICULT FOR THE COMPANY'S STOCKHOLDERS TO BUY, SELL AND
OBTAIN PRICING INFORMATION ABOUT THE COMPANY'S COMMON STOCK. The Company's
common stock has been listed on The Nasdaq SmallCap Market since June 1998 under
the symbol "BIKR." On June 12, 2000, Nasdaq notified the Company that its common
stock had failed to maintain a minimum bid price of $1.00 over the 30
consecutive trading days preceding such date. Therefore, as of June 12, 2000,
the Company was not in compliance with the requirements for continued listing on
the The Nasdaq SmallCap Market as set forth in Nasdaq Marketplace Rule
4310(c)(4). Pursuant to Nasdaq Marketplace Rule 4310(c)(8)(B), Nasdaq has
provided the Company 90 days from June 12, 2000, or until September 11, 2000, to
regain compliance with Marketplace Rule 41310(c)(4). If at any time before
September 11, 2000, the bid price of the Company's common stock is at least
$1.00 for a minimum of 10 consecutive trading days, Nasdaq will determine in its
discretion if the Company complies with the Nasdaq listing requirements.
However, if the Company is unable to demonstrate compliance with the Nasdaq
listing requirements on or before September 11,
19
2000, its common stock could be delisted at the opening of business on September
13, 2000. From June 12, 2000 to August 11, 2000, the minimum bid price of the
Company's common stock has remained below $1.00. Therefore, no assurances can be
given that the Company will be able to comply with the Nasdaq listing
requirements prior to the September 11, 2000 deadline. If the Company is not
able to comply with the Nasdaq listing requirements prior to the September 11
deadline and as a result Nasdaq elects to delist the Company's stock, the
Company intends to appeal the Nasdaq decision. No assurances can be given that
the Company will be successful in its appeal.
The loss of a listing on the Nasdaq SmallCap Market could have a material
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, stockholders may find it more difficult to buy, sell
and obtain pricing information about our common stock. The Company also risks no
longer qualifying as a "margin security" as defined by the Federal Reserve Board
and becoming 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 which 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. The Company
cannot assure you 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 approximately from $20,000 to
$25,000. 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 86 independent Ultra Cycles
dealers, of which approximately 55 are currently active as of August 8, 2000.
The Company may not be able to maintain or increase
20
its current level of sales if it does not continue to expand its dealer network,
and there is no assurance that the Company will be able to do so.
THE COMPANY'S COMPETITIVE POSITION WITHIN ITS NICHE OF THE HEAVYWEIGHT CRUISER
MOTORCYCLE MARKET COULD SUFFER IF EXISTING COMPETITORS EXPAND OPERATIONS OR
OTHER MOTORCYCLE MANUFACTURERS INSTITUTE SIMILAR PRODUCT OFFERINGS. The Company
seeks to avoid direct competition with Harley-Davidson, which has the largest
share of the heavyweight cruiser motorcycle market, by competing within a
specialized niche. The Company's competitive strategy focuses on product
performance and style, pricing and service. For example, the Company offers on
all models, at no additional charge over base prices, customized features like
polished or painted high-performance engines and a four-year, unlimited mileage
warranty. 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
Titan Motorcycles, 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, 1999, 1,347,583 warrants and 1,266,387 options were outstanding.
770,527 of the options were fully vested. During the six months ended June 30,
2000 the Company issued 200,000 warrants, no options were issued and there was
no change in the number of options that are fully vested. Under the terms of the
agreement governing its $4.5 million term loan from FINOVA Mezzanine Capital,
the Company is obligated to issue to FINOVA on each anniversary of the closing
date of the term loan, until such loan is paid in full, a warrant to purchase
200,000 additional shares of common stock at an exercise price equal to the
greater of (1) $4.00, or (2) 80% of the average closing bid price of the common
stock for the 20 days preceding such anniversary date. Since June 1998, the date
of the FINOVA loan, the Company became obligated to issue a warrant to purchase
400,000 additional shares of Common Stock pursuant to the foregoing provision.
The issuance in June 2000 of 200,000 shares and the issue of 200,000 shares in
June 1999 brings the total warrants issued to FINOVA to 857,500 as of June 30,
2000. The issuance of additional shares of common stock upon exercise of the
warrants and options described in this paragraph could result in significant
dilution to existing security holders of the Company.
THE POSSIBLE ISSUANCE OF ADDITIONAL PREFERRED STOCK MAY ADVERSELY AFFECT RIGHTS
OF HOLDERS OF COMMON STOCK AND MAY RENDER MORE DIFFICULT CERTAIN UNSOLICITED
TAKEOVER PROPOSALS WHICH WOULD BE IN THE BEST INTEREST OF SHAREHOLDERS. As of
the date of this report, the Company has 702,194 shares of preferred stock
outstanding. The Articles of Incorporation of the Company permit the Board of
Directors to designate the terms of, and issue, up to 9,297,806 additional
shares of preferred stock without further shareholder approval. The issuance of
additional shares of preferred stock could adversely affect the rights of
holders of common stock by, among other things, establishing preferential
dividends, liquidation rights and voting power. In addition, the issuance of
preferred stock might render more difficult, and therefore discourage, certain
unsolicited takeover proposals which would be in the best interest of
shareholders, such as a tender offer, proxy contest or removal of incumbent
management.
THE COMPANY RELIES HEAVILY ON THIRD PARTY PARTS SUPPLIERS AND ANY SIGNIFICANT
ADVERSE VARIATION IN QUANTITY, QUALITY OR COST WOULD NEGATIVELY AFFECT OUR
OPERATIONS. We operate primarily as an assembler and rely heavily on a number of
major component manufacturers to supply us with almost all of our parts. Any
significant adverse variation in quantity, quality or cost would adversely
affect our volume and cost of production until we could identify alternative
sources of supply.
OUR FAILURE TO COMPLY WITH VARIOUS REGULATORY APPROVALS AND GOVERNMENTAL
REGULATIONS COULD NEGATIVELY IMPACT OUR OPERATIONS. Our motorcycles must comply
with certain governmental approvals and certifications regarding noise,
emissions and safety characteristics. Our failure to comply with these
requirements could prevent us or delay us from selling our products which would
have a significant negative impact on our operations.
21
OUR QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY WHICH MAY RESULT IN THE
VOLATILITY OF OUR STOCK PRICE. Our quarterly operating results may fluctuate
significantly as a result of a variety of factors, many of which are outside of
our 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.
WE ARE SUBJECT TO CONTINGENT LIABILITIES UNDER A DEALER FLOOR PLAN FINANCING
PROGRAM WHICH COULD EXPOSE US TO SIGNIFICANT FINANCIAL OBLIGATIONS.
Approximately 80% of our dealers receive floor plan financing for our products
through several lending institutions. The dealers are the obligors under these
floor plan agreements and are responsible for all principal and interest
payments. However, we are subject to a standard repurchase agreement which
requires us to buy back any of our motorcycles at the wholesale price if the
defaults and the motorcycles are repossessed by the lender. While we have only
had to repurchase less than approximately $175,000 or ten motorcycles since
August of 1997, as of June 30, 2000, total estimated outstanding obligations of
all 80 dealers is estimated to range between $4,600,000 and $8,300,000. Our
profitability would be significantly negatively impacted if we were forced to
repurchase a large number of these motorcycles.
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 Form 10-QSB and Part I, Item 2
of this report, 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.
As described in the Company's reports on Form 8-K dated January 31, 2000, Form
10-KSB for the fiscal year ended December 31, 1999, and Form 10-QSB for the
fiscal quarter ended March 31, 2000, James and Susan Kinnicutt (the
"Kinnicutts") filed an action against the Company on August 20, 1998 in
Sacramento Superior Court, Sacramento County, California, for breach of
contract, fraud, slander, wrongful termination and gender discrimination in
connection with the Company's repurchase of a Bikers Dream franchise which the
Kinnicutts had purchased in 1994. At the time the Kinnicutts had purchased the
franchise, the Company had failed to strictly comply with the requirements of
California's Franchise Investment Law. Thereafter, the Kinnicutts elected to
rescind their franchise agreement, and the parties entered into an asset
purchase agreement, pursuant to which the Company agreed to repurchase the
franchise and its assets. The agreement required the Company to pay off a SBA
loan, which the Kinnicutts had obtained to finance the opening of the franchise
and to assume the franchise's lease. In conjunction with the repurchase of the
franchise, the Company retained Mr. and Mrs. Kinnicutt as managers of the store.
In August 1997, the Kinnicutts were terminated as employees of the store and
they subsequently filed the action described in this paragraph.
The case was tried before a jury in December 1999, and the jury found in favor
of the Kinnicutts on the breach of contract and fraud causes of action. The jury
rendered verdicts for compensatory damages against the Company of over $283,000.
In January 2000, following a trial on the bifurcated issue of punitive damages,
the jury awarded $400,000 in punitive damages against the Company and lesser
amounts against two of its former employees. On March 20, 2000, the court
entered a judgment against the Company in the amount of $683,601. In response to
a subsequent post-trial motion by the plaintiffs, the court awarded
22
plaintiffs an additional $154,000 for attorneys' fees, thereby bringing the
total award against the Company to $837,601.
The Company has recently concluded a settlement with the plaintiffs, which
provides for a compromise (reduced) payment to the plaintiffs and the mutual
release of all claims and dismissal of the action, with prejudice. The terms of
the settlement agreement between the Company and the plaintiffs provide that the
plaintiffs shall be paid the sum of $190,000 and that the balance owing on the
plaintiffs' SBA loan, which was the subject of the litigation, shall be paid in
full. The Company's insurer is paying the entire settlement amount, except that
the Company shall repay to its insurer the loan pay-off amount of approximately
$67,000, payable, without interest, at the rate of $2,000 per month. Settlement
documents have been signed by all parties, which include a motion to vacate the
judgment and a request for dismissal of the action.
The Company and its insurer entered into an ancillary agreement, which provides,
among other things, that the Company will release its insurer from any and all
claims, relative to the handling and defense of the action, in consideration for
the insurer's payment of the settlement amount.
ITEM 2. CHANGES IN SECURITIES
In June 2000 the Company issued 200,000 warrants at an exercise price of $4.00
as required under the terms of the Company's existing term loan with an
institutional lender. The warrants are exercisable for five years from the date
of issue.
The issuance of the warrants was not registered under the Securities Act of
1933, as amended (the "Securities Act"). The Company believes that such
transactions were exempt from registration under the Securities Act by virtue of
Section 4(2) thereof as transactions not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5 - OTHER INFORMATION
Not Applicable.
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 Bikers Dream, Inc.), Biker
Dream, Inc. and the stockholders of Bikers Dream, Inc., 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 Bikers
Dream, Inc. and V-Twin Holdings, Inc.(3)
3.1 Articles of Incorporation, as amended, of Bikers Dream, Inc.
(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
Bikers Dream, Inc.)(1)
3.1.4 Certificate of Determination of Series B Convertible Preferred
Stock(5)
3.1.5 Certificate of Determination of Series C Convertible Preferred
Stock(6)
23
3.1.6 Certificate of Determination of Series D Convertible Preferred
Stock(7)
3.2 Bylaws, as amended, of Bikers Dream, Inc. (1)
4.1 Form of Certificate of Common Stock of Bikers Dream, Inc.(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 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) as Borrowers(9).
10.1 Form of Settlement Agreement and Release effective as of
June 1, 2000, by and between Bikers Dream, Inc. and
w3 Holdings, Inc.
10.2 Form of Memorandum of Settlement Terms regarding the action in
Sacramento County Superior Court captioned James Kinnicutt, et
al. v. Bikers Dream, Inc.
10.3 Form of Settlement Agreement and General Release between James
Kinnicutt, Susan Kinnicutt, Bikers Dream of Sacramento, Bikers
Dream, Inc. and William Gresher.
10.4 Form of Settlement Agreement and General Release between TIG
Insurance Company, Bikers Dream, Inc. and William and
Sandra Gresher.
10.5 Form of Promissory Note dated July 20, 2000 by Bikers Dream,
Inc. in favor of TIG Insurance Company in the principal sum
of $67,062.
10.6 Form of Settlement Agreement as of July 2000 between Cana
Capital Corporation, Bruce A. Scott and affiliated companies,
on the one hand, and Bikers Dream, Inc., and Ultra Acquisition
Corporation on the other hand and General Releases between the
parties.
15 Letter of Singer Lewak Greenbaum & Goldstein LLP regarding
awareness of use of report dated July 26, 2000.
27 Financial Data Schedule
------------------------
(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
From 10-KSB for the period ended December 31, 1999 filed with
the Commission on April 14, 2000.
(b) Reports on Form 8-K
(1) Report on Form 8-K filed with the Commission on April 7, 2000
(reporting the resignation of H. Rosenman as President and Chief
Executive Officer).
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: August 11, 2000 Bikers Dream, Inc.
By: /s/ Harold L. Collins
------------------------------------
Harold L. Collins,
(Chief Operating Officer
Principal Executive Officer)
By: /s/ Michael J. Fisher
------------------------------------
Michael J. Fisher
(Chief Financial Officer)
1
Exhibit 10.1
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release ("Agreement") is entered into, effective
June 1, 2000, by and between Bikers Dream, Inc. ("BDI") and w3 Holdings, Inc.
("w3") with the intention of extinguishing all claims w3 may have against BDI
arising from or relating to certain promissory notes (the "Notes") currently
held by w3, as more particularly described below.
I - RECITALS
A. In October 1998, BDI obtained a bridge loan in the amount of $300,000
from MD Strategic L.P. ("MD Strategic"), a partnership in which Don Duffy, a
former director of BDI, is a principal. The loan was evidenced by an unsecured
note bearing interest at 18% per annum and was due, together with accrued
interest, on the earlier of December 31, 1999, or upon receipt by BDI of funds
from a third-party lender (the "MD Strategic Note").
B. In January 2000, MD Strategic assigned the MD Strategic Note, on which
there was accrued approximately $82,200 in interest and fees, to w3. Pursuant to
a letter dated January 25, 2000, w3 extended the term of the MD Strategic Note
to March 31, 2000.
C. In November 1999, BDI obtained a second bridge loan in the amount of
$300,000 from Bill Whalen, a stockholder of BDI. 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 (the said notes are hereafter referred to as the
"200,00 Original Whalen Note" and the "$100,000 Original Whalen Note").
D. In January 2000, the $200,000 Original Whalen Note and the $100,000
Original Whalen Note were replaced by two amended and restated promissory notes
in the principal amounts of $156,638 and $150,000, respectively (said amended
and restated promissory notes are hereafter referred to as the "$156,638 Amended
Whalen Note" and the "$150,000 Amended Whalen Note.") This $156,638 Amended
Whalen Note evidences $150,000 of the principal amount of the $200,000 Original
Whalen Note, $4,338 of accrued interest on the $200,000 Original Whalen Note and
$2,300 of accrued interest on the $100,000 Original Whalen Note. The $150,000
Amended Whalen Note evidences the entire principal amount of the $100,000
Original Whalen Note, plus the balance of the original principal amount of the $
200,000 Original Whalen Note. Both the $156,638 Amended Whalen Note and the
$150,000 Amended Whalen Note bear interest at a rate of 12% per annum and mature
on March 31, 2000.
E. On January 26, 2000, Mr. Whalen assigned the $150,000 Amended Whalen
Note to w3, while Mr. Whalen continued to hold the $156,638 Amended Whalen Note.
The $150,000 Amended Whalen Note, together with the MD Strategic Note, are
hereafter referred to as the "w3 Notes."
F. On March 31, 2000, BDI failed to pay the w3 Notes when due, including
interest thereon, and since that time has been negotiating with w3 regarding the
satisfaction of the indebtedness evidenced by the w3 Notes. BDI contends that it
has certain defenses to the payment of the MD Strategic Note, which offset its
obligations thereon.
1
2
G. The parties desire to resolve the dispute over payment of the
indebtedness evidenced by the w3 Notes and therefore are entering into this
Settlement Agreement and Release.
II - AGREEMENT
For valuable consideration, as hereinafter set forth, the parties agree as
follows:
A. In order to extinguish the indebtedness owing to w3 on the w3 Notes, BDI
shall pay to w3 the total sum of $195,000, payable, as follows: $100,000 upon
the return to BDI of a fully executed copy of this Agreement and $95,000.00
within 15 days thereafter. It is understood that w3 has agreed to accept this
compromise payment in full satisfaction of the w3 Notes only if it receives the
full payment of $195,000 and is able to retain said payment. Therefore, this
Agreement shall not serve to extinguish the w3 Notes, until such time as the
full amount of $195,000.00 has been received by w3 and further providing that
BDI has not sought relief in any bankruptcy proceeding that might cause or
result in w3 having to relinquish or disgorge any of the payments received
hereunder.
B. Subject to Paragraph II-A, w3 hereby releases and forever discharges BDI
and all of its affiliates, associates, agents, principals, parent corporations,
dealers, employees, officers, directors, insurers and attorneys, and all other
persons, from any and all claims, causes of actions, debts, obligations, or
otherwise he/she/it may have, of whatever nature, arising from, relating to or
associated with the w3 Notes and the indebtedness evidenced thereby. w3
expressly waives the provisions of California Civil Code, Section 1542, which
provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
w3 also waives any provision that may exist under federal law or the law of any
other state that may have jurisdiction over the claims released herein, which is
similar in language, purpose or effect to California Civil Code, Section 1542.
C. In giving this release w3 relies wholly upon its judgment, belief and
knowledge of the nature, extent, degree, affect and duration of any damages it
has suffered and the liability therefor, and this release is made without
reliance upon any statement or representation of the party or parties hereby
released or their representatives.
D. It is understood and agreed that this Agreement is the compromise of a
doubtful and disputed claim(s) and that the consideration given herein is not to
be construed as an admission of liability on the part of the party or parties
hereby released, and that said releasees deny liability therefor and intend
merely to avoid litigation and buy their peace.
E. The releases herein run in favor of the heirs, successors, predecessors,
assigns, agents,
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3
employees, representatives, attorneys, insurers, affiliates and
partners, parent, affiliate or subsidiary organizations, officers, directors,
shareholders, related entities, contractors and subcontractors of each released
party.
F. w3 represents and warrants to BDI that it (w3) is the owner of all
claims being released herein and it has not heretofore assigned or transferred,
or purported to assign or transfer, to any person or entity whatsoever, any of
the claims released herein, and it agrees to indemnify and hold harmless each
releasee against any claim, demand, damage, debt, liability, account, action,
proceeding or cause of action, cost or expense, including reasonable attorney's
fees actually paid or incurred, arising out of or in connection with any such
transfer or assignment, or purported transfer or assignment, of such claim.
III - GENERAL PROVISIONS:
A. TERMINOLOGY. Whenever used herein, the masculine includes the feminine
and the neuter, and the singular includes the plural.
B. GOVERNING LAW, JURISDICTION AND VENUE. This Agreement shall be governed
by and construed in accordance with the laws of the State of California. Any
action to enforce this Agreement or to recover for any breach thereof shall be
brought in the County of Riverside, State of California.
C. BINDING UPON SUCCESSORS. All of the terms of this Agreement shall be
binding upon, and inure to the benefits of, and be enforceable by the successors
of the parties hereto.
D. DISCLAIMER OF THIRD PARTY BENEFICIAL CONTRACT. Nothing herein shall be
construed to create a "third party" beneficiary contract, and no person or
entity, save and except for the parties hereto, their heirs and successors and
their voluntary assigns, shall have any rights hereunder nor any right of
enforcement hereof.
E. REPRESENTATION BY COUNSEL OF OWN CHOOSING. By execution hereof, each
party represents and warrants that he is either represented by counsel, or has
been advised to seek the representation or advice of counsel and has had the
opportunity to do so and has voluntarily and knowingly declined to do so;
further, that, except as set forth herein, there have been no representations
made to him, which are being relied upon as an inducement to enter into this
Agreement, and further, that he recognizes and agrees that for the purposes of
this Agreement, no attorney representing any party hereto has undertaken any
duty to disclose any facts or knowledge had or possessed by said attorney.
F. INTERPRETATION. All parties and/or their counsel have participated in
the negotiation and preparation of this Agreement. In the event of a dispute as
to the meaning or intent of any provision hereof, such provision shall be given
a reasonable interpretation and there shall be no presumption or burden against
any person as a preparer or drafter of this Agreement.
G. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding of
the
3
4
parties hereto relating to the subject matter herein contained, and this
Agreement cannot be changed, modified, amended, rescinded or terminated, except
by an Agreement in writing signed by all parties, who are affected by such
change, modification, amendment, rescission or termination. This Agreement
supersedes all prior releases, understandings, discussions, statements and
negotiations of the parties. Each party acknowledges that no representations,
inducements, promises or releases, oral or written, with reference to the
subject matter hereof, have been made other than as expressly set forth herein,
and that the terms of this Agreement are contractual and not a mere recital.
H. ADDITIONAL DOCUMENTS. Each of the parties hereto specifically agrees to
execute such other and further instruments and documents, as may be reasonably
required to effectuate the terms, conditions and objectives of this Agreement,
including the execution and filing of a request for dismissal with prejudice of
any action heretofore filed in this matter.
I. SEVERABILITY. Should any part of this Agreement for any reason be
declared invalid by any court having jurisdiction over this Agreement, or the
relationship between the parties, such decision or determination will not affect
the validity of any remaining portion of said Agreement and such remaining
portion will remain in force and effect as if this Agreement had been executed
with the invalid portion eliminated; provided, however, that in the event of a
declaration of invalidity, the provision declared invalid will not be
invalidated in its entirety but will be observed and performed by the parties to
the extent such provision is valid and enforceable. The parties hereby agree
that any such provision shall be deemed to be altered and amended to the extent
necessary to affect such validity and enforceability.
J. ATTORNEY'S FEES. If any action or proceeding is commenced by any party
to enforce any of the terms of this Agreement, then the prevailing party shall
be entitled to the recovery of reasonable attorney's fees and costs incurred
therein, whether or not prosecuted to judgment or conclusion and whether or not
said action or proceeding is dismissed independently of any settlement requiring
such dismissal. Pleading this Agreement as a defense in an action or proceeding
and as a bar to the enforcement of any of the claims released herein shall be
deemed an action to enforce this Agreement.
K. COUNTERPARTS: This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be a duplicate original, but all
of which together shall constitute one and the same instrument.
L. EFFECTIVE DATE: This Agreement shall become effective on the date above
written.
THE UNDERSIGNED has read and fully understands the foregoing Agreement.
w3 HOLDINGS, INC.
Dated: By:
---------------- ------------------------------
ANTONIO KATZ,
President
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BIKERS DREAM, INC.
Dated: By:
--------------- ------------------------------
HAROLD L. COLLINS,
Chief Operating Officer
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1
Exhibit 10.2
MEMORANDUM OF SETTLEMENT TERMS
In connection with the mediation held on June 12, 2000, before James S.
Crawford, Esq. and subsequent negotiations regarding the action in Sacramento
County Superior Court captioned James Kinnicutt, et al. v. Bikers Dream, Inc. et
al. and bearing case number 98AS04185 ("Action"), James Kinnicutt, Susan
Kinnicutt and Bikers Dream of Sacramento (collectively referred to herein as
"plaintiffs") and Bikers Dream, Inc. ("BDI") and William Gresher ("Gresher")
(collectively "defendants") (plaintiffs and defendants are collectively referred
to herein as "the Parties") have reached a settlement on the following terms and
conditions:
1. Defendants will cause to be paid to plaintiffs the single sum of
$190,000 ("Settlement Amount") in the form of a check made payable to "James
Kinnicutt and Susan Kinnicutt and their counsel of record Stephen L. Davis" and
will also cause the balance of the SBA Loan to plaintiffs ("Loan Balance") to be
fully paid off by way of a single payment in the form of a check made payable to
"James Kinnicutt and Susan Kinnicutt and their counsel of record Stephen L.
Davis and Westamerica." Plaintiffs' counsel will forthwith provide counsel for
defendants with the current amount due to satisfy the Loan Balance.
2. In return for the payment of the Settlement Amount and the payment of
the Loan Balance, plaintiffs will dismiss the Action with prejudice as to all
defendants. Prior to that dismissal, plaintiffs will enter into a stipulation
that the judgment entered in the Action be vacated in its entirety.
3. The manner and method pursuant to which the Settlement Amount is
recorded, distributed or allocated is solely the responsibility of plaintiffs
and their counsel of record. Defendants and their attorneys and insurers are not
in any way responsible for any aspect thereof, including but not limited to
liens or claims of third parties to the Settlement Amount.
4. By signing this document, the parties release any and all known or
unknown claims that have been asserted or could have been asserted against each
other or the parties' insurers relating to, or arising out of, the Action and/or
Bikers Dream of Sacramento and/or any communications between the parties and
expressly agree to waive all rights and remedies available under Civil Code ss.
1542 which states "A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his settlement
with the debtor." Plaintiffs herein release any and all claims pertaining to
statements about plaintiffs contained in any documents filed by BDI with the
Securities and Exchange Commission, including but not limited to, BDI's Form
10-Q statement for the quarter ended March 31, 2000.
5. Defendants' settlement of the Action is not in any way an admission of
any wrongdoing, liability or fault of any kind. Defendants deny all liability to
plaintiffs and have settled the Action solely to avoid the nuisance and expense
of litigation.
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6. All of the provisions contained in this memorandum are enforceable
pursuant to C.C.P.ss.664.6 in the Sacramento County Superior Court.
7. No later than ten (10) days from defendants' counsel's receipt of this
memorandum executed by plaintiffs and on behalf of Bikers Dream of Sacramento,
the parties will execute the further settlement agreement and mutual general
release, the stipulation to vacate the judgment and cause their counsel to
exchange the executed request for dismissal of the Action with prejudice in its
entirety for the check for the Settlement Amount and the check for the Loan
Balance. The execution of the further settlement agreement by the Parties does
not alter the terms contained in this memorandum, all of which are deemed to be
material and enforceable settlement terms.
8. Each party will bear its own costs and fees incurred in connection with
the Action.
9. This document may be executed in counterparts by facsimile and the same
shall be deemed an original for all purposes, and taken together shall
constitute one and the same document.
10. Each party or responsible officer, director, partner or representative
thereof has read this agreement and understands the contents hereof. Each of the
representatives, officers, directors or partners executing this Agreement on
behalf of their respective corporation, trust, partnership, firm or entity is
empowered to do so and thereby binds such respective corporation, trust,
partnership, firm or entity.
By signing this document, each party represents that it has irrevocably
agreed to settle the Action, pursuant to the above terms, which have been fully
explained to each party by their counsel of record.
Dated: , 2000 BIKERS DREAM OF
-------------- SACRAMENTO
By:
-----------------------------
An Authorized Representative with
Binding Irrevocable Settlement
Authority
Dated: , 2000 JAMES KINNICUTT
--------------
By:
-----------------------------
James Kinnicutt
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Dated: , 2000 SUSAN KINNICUTT
--------------
By:
-----------------------------
Susan Kinnicutt
Dated: , 2000 WILLIAM GRESHER
--------------
By:
-----------------------------
William Gresher
Dated: , 2000 BIKERS DREAM, INC.
--------------
By:
-----------------------------
An Authorized Representative with
Binding Irrevocable Settlement
Authority
1
Exhibit 10.3
SETTLEMENT AGREEMENT AND GENERAL RELEASE
PARTIES
This Settlement Agreement and General Release (hereinafter referred to as
"Agreement") resolves and settles all disputes between James Kinnicutt, Susan
Kinnicutt and Bikers Dream of Sacramento (collectively referred to as
"plaintiffs") and Bikers Dream, Inc. ("BDI") and William Gresher ("Gresher")
(collectively "defendants"). Plaintiffs as defined above and defendants as
defined above are collectively referred to herein as "the parties." This
Agreement is binding upon and shall enure to the benefit of the parties hereto
and all of their respective past and present officers, directors, employees,
agents, representatives, employers, insurers, attorneys, attorneys of record,
accountants, advisors, partners, partnerships, predecessor partnerships,
divisions, subsidiaries, affiliates, shareholders, joint venturers, commonly
controlled corporations, ventures, projects, trusts, other entities, heirs,
successors-in-interest, predecessors-in-interest, legatees and assigns.
RECITALS
1. This Agreement is made with reference to the following facts:
1.1 Certain disputes have arisen between the parties hereto.
1.2 Said disputes include, but are not limited to, the claims for
relief, causes of action, assertions, denials, demands and prayers set forth by
plaintiffs and defendants in that certain civil action filed in the Superior
Court of the State of California, County of Sacramento, bearing Case No.
98AS04185 entitled (in short form) James Kinnicutt, et al. v. Bikers Dream, Inc.
et al. (referred to herein as the "Action"), including but not limited to the
pleadings and all discovery responses served by or on behalf of plaintiffs and
defendants in the Action.
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1.3 There are no other actions, claims or proceedings on file or
otherwise known, asserted or believed to exist as between the parties or any of
them in any forum, or before any Court, agency, arbitral body or other person or
entity and if any of the parties learn of such actions, claims or proceedings,
they will cause such actions, claims or proceedings to be immediately dismissed
with prejudice.
1.4 It is the intention of the parties to settle and dispose of, fully
and completely and forever, any and all known or unknown claims for relief,
causes of action and demands based upon acts or omissions occurring or not
occurring prior to the date of this Agreement, including but not limited to (a)
any and all claims for relief, causes of action and demands hereafter arising
out of, connected with, relating to, or incidental to any and all claims for
relief, demands, and causes of action that are set forth or that should have or
could have been set forth in the Action as to the parties to this Agreement, and
(b) any and all claims for relief, causes of action and demands that were, could
have been or should have been asserted by plaintiffs against any of the parties
to this Agreement, including but not limited to said party's agents,
representatives, insurers or attorneys by reason of anything asserted in or
connected with the Action and/or Bikers Dream of Sacramento, including but not
limited to all present and future claims of plaintiffs arising out of events,
transactions, acts or omissions alleged in the Action and/or relating to the
sale and repurchase of Bikers Dream of Sacramento, or that have been or could
have been asserted in any other action, including but not limited to, claims
pertaining to statements about plaintiffs contained in any documents filed by
BDI with the Securities and Exchange Commission, including but not limited to,
BDI's form 10Q statement for the quarter ended March 31, 2000.
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1.5 Upon their execution of this Agreement, the parties shall
authorize and cause their respective counsel of record to exchange an executed
Request for Dismissal of the Action in its entirety with prejudice as to all
parties ("Request for Dismissal") and an executed stipulation to vacate the
judgment entered in the Action as to all parties ("Stipulation") in the form
annexed hereto as Exhibits "A" and "B" in return for the checks for the
Settlement Amount and Loan Balance as described in Section 1.6.
1.6 Defendants shall cause to be paid to plaintiffs the single sum of
one hundred and ninety thousand dollars and no cents ($190,000.00) ("Settlement
Amount") in a single check made payable "James Kinnicutt and Susan Kinnicutt and
their counsel of record Stephen L. Davis." Defendants shall also cause the
balance of the SBA Loan to plaintiffs ("Loan Balance") to be fully paid off by
way of a single payment in the form of check made payable to "James Kinnicutt
and Susan Kinnicutt and their counsel of record Stephen L. Davis and
Westamerica" in the amount of $67,062.66 which is the Loan Balance as of July
28, 2000 according to Westamerica. The checks for the Settlement Amount and Loan
Balance are to be provided to counsel of record for plaintiffs in exchange for
the executed Request for Dismissal and the Stipulation. The manner and method
pursuant to which the Settlement Amount thereafter is recorded, distributed
and/or paid to tax authorities is solely the responsibility of plaintiffs and
their counsel and neither defendants, defendants' lawyers, its insurers nor any
other person or entity affiliated with defendants are in any way responsible for
any aspect thereof including but not limited to claims to the Settlement Amount,
if any, made by lienholders and/or third parties.
GENERAL RELEASE
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2. In consideration of the Mutual General Release as contained herein,
payment of the Settlement Amount and Loan Balance as set forth in section 1.6
above and for other good and valuable consideration expressly described herein,
the receipt of which is acknowledged by each party hereto, the parties promise,
agree and generally release as follows:
2.1 James Kinnicutt, Susan Kinnicutt and Bikers Dream of Sacramento
hereby release Bikers Dream, Inc. and William Gresher and all of their present
and past partners, associates, employees, and representatives, including but not
limited to Kraig Kavanagh and Jeffrey Simons, and all of their respective past,
present and future officers, directors, agents, employees, representatives,
independent contractors, employers, insurers, attorneys, accountants, advisors,
partners, associates, partnerships, divisions, subsidiaries, affiliates, trusts,
assigns, heirs, legatees, successors-in-interest, predecessors-in-interest,
shareholders, joint venturers, commonly controlled corporations, ventures,
projects, and any other entities, absolutely and forever from all manner of
accounts, actions, suits, liens, debts, dues, damages, claims, causes of action,
claims for relief, claims for bad faith, obligations, appeals, agreements,
judgments, fees, costs, contracts, promises, expenses, bonds, bills, trespasses
and demands of every nature whatsoever in law, admiralty or equity, whether
known or unknown, whether suspected or unsuspected, which plaintiffs ever had,
now have or hereafter may or can have against defendants and any or all of the
above-defined persons and entities based upon acts or omissions occurring or not
occurring prior to the effective date of this Agreement, including but without
limitation, all claims in any way that were, could have been or should have been
asserted in connection with the transactions, occurrences, acts or omissions set
forth, arising out of, done in connection with, or related to the pleadings on
file in the Action, as well as any other present or future claims that arise out
of or relate in any
5
way to the Action or Bikers Dream of Sacramento or that have
been or could have been asserted in any other action, including but not limited
to, claims pertaining to statements about plaintiffs contained in any documents
filed by BDI with the Securities and Exchange Commission, including but not
limited to, BDI's 10Q statement for the quarter entered March 31, 2000.
Plaintiffs expressly agree to the vacation of the judgment in the Action as to
all parties pursuant to the stipulation annexed hereto as Exhibit "B."
Notwithstanding the foregoing release, BDI shall indemnify and hold harmless
plaintiffs against any claims brought by any third party against plaintiffs
regarding the lease of the property at 1715 I Street, Sacramento between
December 1995 and May 2000.
2.2 Bikers Dream, Inc. and William Gresher hereby release plaintiffs
and all of their past, present and future officers, directors, agents,
employees, representatives, employers, insurers, attorneys, accountants,
advisors, partners, partnerships, divisions, subsidiaries, affiliates, assigns,
heirs, legatees, successor-in-interest, predecessors-in-interest, shareholders,
joint ventures, commonly controlled corporations, ventures, projects, and other
entities absolutely and forever from all manner of accounts, actions, suits,
liens, debts, dues, damages, claims, causes of action, claims for relief, claims
for bad faith, obligations, appeals, agreements, judgments, fees, costs,
contracts, promises, expenses, bonds, bills, trespasses and demands of every
nature whatsoever in law, admiralty or equity, whether known or unknown, whether
suspected or unsuspected, which BDI or Gresher ever had, now have or hereafter
can have against plaintiffs and any or all of the above defined persons and
entities based upon acts or omissions occurring or not occurring prior to the
effective date of this Agreement, including but without limitation all claims in
any way that were, could have been or should have been asserted in connection
with the transactions, occurrences, acts or omissions set forth, arising
6
out of, done in connection with, or related to the pleadings on file in the
Action as well as any other present or future claims that arise out of or relate
in any way to the Action or Bikers Dream of Sacramento or that have been or
could have been asserted in any other action.
2.3 EACH PARTY TO THIS AGREEMENT SPECIFICALLY WAIVES THE BENEFIT OF
THE PROVISIONS OF SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA AND
SIMILAR LAWS OF ALL OTHER STATES, TERRITORIES OF THE UNITED STATES AND OTHER
JURISDICTIONS. SECTION 1542 OF THE CALIFORNIA CIVIL CODE PROVIDES:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
REPRESENTATIONS AND WARRANTIES
3. Each of the parties to this Agreement represents and warrants to the
other as follows:
3.1 Each of the parties has received independent legal advice from
their attorneys with respect to the advisability of executing this Agreement,
the meaning of California Civil Code ss. 1542 and the effect of the waiver of
ss. 1542 provided for by this Agreement.
3.2 None of the parties has made any statement or representation to
any other party regarding any fact relied upon in entering into this Agreement
and each party specifically states herein that it does not rely upon any
statement, representation or promise of
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any of the other parties not contained herein in executing this Agreement or
making the settlement provided for herein.
3.3 Each of the parties to this Agreement has made such investigation
of the facts pertaining to this Agreement and all the matters pertaining thereto
as it has independently deemed necessary and appropriate.
3.4 Each of the parties or responsible officer, director or partner
thereof has read this Agreement and understands the contents hereof. Each of the
officers, directors or partners executing this Agreement on behalf of their
respective corporation, trust, partnership or entity is empowered to do so and
thereby binds such respective corporation, trust, partnership or entity.
3.5 In entering into this Agreement and the settlement provided for
herein, each of the parties assumes all risk of misrepresentation, concealment
or mistake. If any party should subsequently discover that any fact relied upon
by it in entering into this Agreement was untrue or that any fact was concealed
from it or that its understanding of the facts or the law was incorrect, such
party shall not be entitled to any relief in connection herewith including, but
not limited to, the fact that no party shall have any right or claim to set
aside or rescind this Agreement. This Agreement is intended to be and is final
and binding between the parties hereto regardless of any claims of
misrepresentation made without the intention to perform, concealment of fact,
mistake of fact or law or any other circumstances whatsoever.
3.6 The parties hereto hereby warrant and represent to each other that
there has been no assignment, encumbrance, hypothecation or other complete or
partial transfer of all or any part of any interest in any claim, right, act,
damage, demand, debt, liability, note, accounting, reckoning, obligation, cost,
right of action, claim for relief or cause of action
8
released herein and further warrant and represent to each other that they are
legally authorized and entitled to settle and release, on their own behalf every
claim, right, act, damage, debt, demand, liability, note, accounting, reckoning,
obligation, cost, right of action, claim for relief or cause of action herein
referred to and released and to give a valid, full and final acquittance
therefore and each party shall indemnify the other, and hold them harmless from
all damages, expenses, costs and attorney fees arising out of any breach of the
representations or warranties contained in this paragraph.
3.7 No difference, dispute or disagreement between the parties to this
release arising on or subsequent to the effective date of this Agreement shall
in any way affect the finality of this release.
3.8 Each term of this Agreement is contractual and not merely a
recital.
3.9 This Agreement, and all of the terms, conditions and provisions
contained herein are enforceable pursuant to C.C.P.ss.664.6 in the Sacramento
County Superior Court.
3.10 The parties will execute all further and additional documents as
shall be reasonable, convenient, necessary or desirable to carry out the
provisions of this Agreement.
3.11 None of the parties hereto intends to reserve any claim for
relief, cause of action, claim or demand it has or may have against any of the
other parties from the coverage of this Agreement ("covered claim") including,
but not limited to, any possible claim for malicious prosecution, abuse of
process, lien, or other claims related to or connected with the Action. The fact
that a particular type of claim is not expressly set forth herein is not
intended to be nor shall it be construed to be an intent by any party to reserve
any covered claim against any other party to this Agreement, including but not
limited to, any claim based upon the
9
Action or relating to or arising from any aspect of Bikers Dream of Sacramento.
Notwithstanding the foregoing, BDI warrants and represents that it is not aware
of any claim or suit by any third party against it relating to the lease of the
property at 1715 I Street.
NO ADMISSION OF FAULT
4. This Agreement includes the settlement of all claims asserted by
plaintiffs which are denied by defendants. Nothing contained herein shall be
construed as an express or implied admission of any kind by any party hereto of
any responsibility, fault or liability of any kind to any other party. Each of
the parties hereto denies any such liability in connection with any claim and
intends hereby solely to avoid the annoyance and expense of additional
litigation. Any attempt by any party, its agents, representatives or anyone
acting on its behalf, to construe this agreement as an admission of
responsibility, fault or liability by defendants, or any of them, is a material
breach of this agreement.
ENFORCEMENT OF AGREEMENT
5. In any proceeding, suit or action brought to enforce any term,
condition, warranty or representation of this Agreement and/or because of any
breach thereof and/or arising out of this Agreement, the prevailing party or
parties shall be entitled to recover from the other party or parties, their
costs of suit and reasonable attorney fees incurred in connection with said
proceeding, suit or action in addition to any and all other available relief.
GENERAL
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6. General Provisions.
6.1 This Agreement shall in all respects be interpreted, enforced and
governed by and under the laws of the State of California applicable to
instruments, persons, transactions and subject matter which have legal context
and relationship solely within the State of California. The language of this
Agreement and all other documents referred to herein shall be construed as a
whole according to its fair meaning. Venue and jurisdiction with respect to any
acts arising under or in relation to this Agreement shall be exclusively within
the Sacramento County Superior Court, State of California.
6.2 This Agreement is the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous oral and written agreements and discussions, if any, which are
hereby merged into this Agreement. This Agreement may not be amended orally in
any way and may be amended only by an agreement in writing and signed by all
parties thereto. No provision of this Agreement shall be modified or construed
by any practice that is inconsistent with any such provision, and failure by any
party to comply with any such provision or to require any other party to comply
with any provision shall not affect the rights of either to thereafter require
the other party to comply with that or any other provision.
6.3 Each party has participated in, cooperated in or contributed to
the drafting and preparation of this Agreement. In any construction to be made
of this Agreement, the same shall not be construed for or against any party, but
shall be construed fairly according to its plain meaning.
6.4 This Agreement may be executed in counterparts and when each party
has signed and delivered at least one counterpart, each counterpart shall be
deemed an original
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and, when taken together with other signed counterparts, shall constitute one
agreement which shall be binding and effective as to all parties.
6.5 Each party shall pay their own legal fees, costs and other
expenses relating to the litigation of the Action referred to in paragraph 1.2
except as provided in paragraph 5.
6.6 This Agreement shall be effective on the date signed by all
parties and if those signatures are on different dates, the effective date shall
be the date upon which the last signatory signed the Agreement.
6.7 This Agreement constitutes 11 pages and two (2) exhibits in
addition thereto.
6.8 Each party or responsible officer or partner or other person
signing on behalf of any person or entity has read this entire agreement and
understands the contents.
Dated: , 2000 BIKERS DREAM OF SACRAMENTO
----------------
By:
------------------------------------
An authorized representative with
binding irrevocable settlement
authority
Dated: , 2000
-------------- ------------------------------------
JAMES KINNICUTT
Dated: , 2000
-------------- ------------------------------------
SUSAN KINNICUTT
Dated: , 2000
-------------- ------------------------------------
WILLIAM GRESHER
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Dated: , 2000 BIKERS DREAM, INC.
--------------
By: ____________________________________
An authorized representative with
binding irrevocable settlement
authority
1
Exhibit 10.4
SETTLEMENT AGREEMENT AND GENERAL RELEASE
PARTIES
The parties to this Agreement of Settlement and General Release
(hereinafter referred to as "Agreement") are TIG Insurance Company (referred to
herein as "TIG") and Bikers Dream, Inc. ("BDI") and William and Sandra Gresher
(collectively the "Insureds"). TIG, (as defined above) and the Insureds (as
defined above) are collectively referred to herein as "the parties." This
Agreement is binding upon and shall enure to the benefit of the parties hereto
and to their respective predecessors-in-interest, successors-in-interest and all
of their past and present officers, directors, employees, agents,
representatives, employers, insurers, attorneys, accountants, advisors,
partners, partnerships, divisions, subsidiaries, affiliates, including but not
limited to K&K Insurance Group, shareholders, joint venturers, commonly
controlled corporations, ventures, projects, trusts, other entities, heirs,
successors-in-interest, predecessors-in-interest, legatees and assigns, except
as to Jeffrey Simons, Michel, Hartman and Fackler and Peter Johnson.
RECITALS
1. This Agreement is made with reference to the following facts:
1.1 Certain disputes have arisen between the parties hereto including
but not limited to disputes concerning the availability of insurance coverage
for claims asserted against the Insureds in that certain civil action filed in
the Superior Court of the State of California, County of Sacramento, bearing
Case No. 98AS04185 entitled (in short form) James Kinnicutt,
2
et al. v. Bikers Dream, Inc., et al. (referred to as the "Action") under
liability insurance policies issued by TIG to BDI bearing policy Nos.
T70003750250500 and T70003750250800 for the policy period December 31, 1996 to
December 31, 1997 (referred to herein as the "TIG Policies").
1.2 The Insureds hereto have entered into an agreement with plaintiffs
in the Action for the dismissal of the Action with prejudice as to all parties
pursuant to the terms, conditions and provisions of the executed settlement
memorandum attached hereto as Exhibit "A" ("Settlement Memorandum") which is
incorporated into this Agreement by this reference.
1.3 It is the intention of the parties hereto (as specified in
paragraphs 2.1 and 2.2 below) to settle and dispose of, fully and completely and
forever, any and all known or unknown claims for relief, causes of action and
demands between the parties based upon acts or omissions occurring or not
occurring or alleged to have occurred prior to the parties' execution of this
Agreement in connection with or incidental to coverage, or lack of coverage, for
the claims asserted in the Action against the Insureds, or any of them, under
the TIG Policies. As part of this settlement, BDI shall execute a promissory
note in the form attached hereto as Exhibit "B" (which is incorporated into this
Agreement by this reference) in connection with BDI's obligation to repay TIG
for the amount paid by TIG for the balance of the SBA Loan to plaintiffs in the
Action pursuant to paragraph 1 of the Settlement Memorandum ("Loan Balance").
BDI agrees to repay TIG for the Loan Balance by making monthly payments of
$2,000 to TIG until the amount of the Loan Balance has been fully repaid. Each
of the foregoing monthly payments by BDI to TIG shall reference Claim No.
A98165684 and "Bikers Dream, Inc." and shall be mailed to TIG Insurance Company,
Accounts Payable Department, 5205 North O'Connor Boulevard, Irving, Texas 75039.
3
Nothing in this Agreement in any way modifies, alters, waives, discharges or
releases the obligations of the parties hereto under the Settlement Memorandum,
including but not limited to, TIG's obligation to pay the Settlement Amount and
the Loan Balance referred to in the Settlement Memorandum (subject to the
provisions of paragraph 1.3 of this Agreement). This Agreement pertains only to
the resolution and settlement of the Action and disputes between the parties
regarding insurance coverage under the TIG Policies in connection with the
Action and in no way pertains to any other insurance policies issued by TIG to
the Insureds, or any of them, or any and all claims for relief, causes of action
or demands that exist or may exist in the future between the parties as to other
disputes, matters and/or insurance policies.
GENERAL RELEASE
2. In consideration of the Mutual General Release as contained herein,
including but not limited to TIG's payment of the Settlement Amount and Loan
Balance (subject to the provisions of paragraph 1.3 of this Agreement) and for
other good and valuable consideration expressly described herein, the receipt of
which is acknowledged by each party hereto, the parties promise, agree and
generally release as follows:
2.1 TIG hereby releases Bikers Dream, Inc., William and Sandra Gresher
and all of their past and present officers, directors, agents, employees,
representatives, employers, attorneys, accountants, advisors, partners,
associates, partnerships, divisions, subsidiaries, affiliates, trusts, assigns,
heirs, legatees, successors-in-interest, predecessors-in-interest, shareholders,
joint venturers, commonly controlled corporations, ventures, projects, and any
other affiliated entities, absolutely and forever from all manner of accounts,
actions, suits, liens, debts, dues, damages, claims, causes of action, claims
for relief, claims for bad
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faith, recoupment, obligations, agreements, judgments, costs, contracts,
promises, expenses, bonds, bills, trespasses and demands of every nature
whatsoever in law, equity, whether known or unknown, whether suspected or
unsuspected, which TIG ever had or now has or hereafter may or can have against
the Insureds and any or all of the above-defined persons and entities based upon
acts or omissions prior to the effective date of this Agreement regarding
insurance coverage under the TIG Policies for the claims asserted against the
Insureds in the Action, except that none of the foregoing releases apply to
Jeffrey Simons or Bikers Dream, Inc.'s obligation to repay the Loan Balance to
TIG as referred to in paragraph 1.3 of this Agreement. The foregoing releases
pertain solely to disputes between the parties regarding insurance coverage
under the TIG Policies in connection with the Action and in no way pertain to
any other insurance policies issued by TIG to the Insureds, or any of them, or
any and all claims for relief, causes of action or demands that exist or may
exist in the future between the parties as to other disputes, matters and/or
insurance policies.
2.2 Bikers Dream, Inc. and William and Sandra Gresher hereby release
TIG and all of its past and present officers, directors, agents, employees,
representatives, employers, insurers, reinsurers, attorneys, accountants,
advisors, partners, associates, partnerships, divisions, subsidiaries,
affiliates, trusts, assigns, heirs, legatees, successors-in-interest,
predecessors-in-interest, shareholders, joint ventures, commonly controlled
corporations, ventures, projects, and any other affiliated entities, including
but not limited to K&K Insurance Group, Inc. and its employees, agents and
representatives, absolutely and forever from all manner of accounts, actions,
suits, liens, debts, dues, damages, claims, causes of action, claims for relief,
claims for bad faith, recoupments, obligations, agreements, judgments, costs,
contracts, promises, expenses, bonds, bills, trespasses and demands of every
5
nature whatsoever in law, equity, whether known or unknown, whether suspected or
unsuspected, which the Insureds ever had now have or hereafter may or can have
against TIG and any or all of the above-defined persons and entities based upon
acts or omissions prior to the effective date of this Agreement regarding
insurance coverage under the TIG Policies for the claims asserted against the
Insureds in the Action, except that none of the foregoing releases apply to
Michel, Hartman & Fackler and Peter Johnson nor TIG's payment of certain
attorney fees incurred for Gresher's defense of the Action after May 23, 2000
and referred to in the May 25, 2000 letter from counsel for TIG to counsel for
William Gresher nor TIG's obligation to pay the Settlement Amount and the Loan
Balance referred to in the Settlement Memorandum (subject to the provisions of
paragraph 1.3 of this Agreement). The foregoing releases pertain solely to the
disputes between the parties regarding insurance coverage under the TIG Policies
in connection with the Action and in no way pertain to any other insurance
policies issued by TIG to the Insureds, or any of them, or any and all claims
for relief, causes of action or demands that exist or may exist in the future
between the parties as to other disputes, matters and/or insurance policies.
2.3 EACH PARTY TO THIS AGREEMENT SPECIFICALLY WAIVES THE BENEFIT OF
THE PROVISIONS OF SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA AND
SIMILAR LAWS OF ALL OTHER STATES, TERRITORIES OF THE UNITED STATES AND OTHER
JURISDICTIONS. SECTION 1542 OF THE CALIFORNIA CIVIL CODE PROVIDES:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of
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executing the release, which if known by him must have
materially affected his settlement with the debtor."
REPRESENTATIONS AND WARRANTIES
3. Each of the parties to this Agreement represents and warrants to the
other as follows:
3.1 Each party has received independent legal advice from their
attorneys with respect to the advisability of executing this Agreement, the
meaning of California Civil Code ss. 1542 and the effect of the waiver of ss.
1542 provided for by this Agreement.
3.2 No party hereto (nor any officer, agent, partner, employee,
representative or attorney for or of any party) has made any statement or
representation to any other party regarding any fact relied upon in entering
into this Agreement and each party specifically states herein that it does not
rely upon any statement, representation or promise of any other party not
contained herein (or any officer, agent, partner, employee, representative or
attorney for any other party), in executing this Agreement or making the
settlement provided for herein.
3.3 Each party to this Agreement has made such investigation of the
facts pertaining to this Agreement and all the matters pertaining thereto as it
has independently deemed necessary and appropriate.
3.4 Each party or responsible officer, director or partner thereof has
read this Agreement and understands the contents hereof. Each of the
representatives,
7
officers, directors or partners executing this Agreement on
behalf of their respective corporation, trust, partnership or entity is
empowered to do so and thereby irrevocably binds such respective corporation,
trust, partnership or entity.
3.5 The parties hereto understand and acknowledge that they may
discover facts different from, or in addition to, those which they now know or
believe to be true with respect to the subject matters encompassed by this
Agreement, and agree that this Agreement shall be and remain effective in all
respects notwithstanding any subsequent discovery of different and/or additional
facts. Should any party hereto subsequently discover that any fact relied upon
in entering into this Agreement was untrue, or that any fact was concealed, or
that an understanding of the facts or law was incorrect, it shall not be
entitled to any relief as a result thereof, and the parties hereto surrender any
right they may have now or in the future to rescind this Agreement on any
ground. This Agreement is intended to be, and is, final and binding regardless
of any claim of misrepresentation, promise made without the intention to
perform, concealment of fact, mistake of law or fact, or any other circumstance
whatsoever.
3.6 The parties hereto hereby warrant and represent to each other that
there has been no assignment, encumbrance, hypothecation or other complete or
partial transfer of all or any part of any interest in any claim, right, act,
damage, demand, debt, liability, note, accounting, reckoning, obligation, cost,
right of action, claim for relief or cause of action released herein, and
further warrant and represent to each other that they are legally authorized and
entitled to settle and release every claim, right, act, damage, debt, demand,
liability, note, accounting, reckoning, obligation, cost, right of action, claim
for relief or cause of action herein referred to and released and to give a
valid, full and final acquittance therefor and each party shall indemnify the
other, and hold them harmless from all damages, costs and fees
8
arising out of any breach of the representations or warranties contained in this
paragraph.
3.7 No difference, dispute or disagreement between the parties to this
release arising on or subsequent to the date hereof shall in any way affect the
finality of this Agreement and/or the releases provided for herein.
3.8 Each term of this Agreement is contractual and not merely a
recital.
3.9 This Agreement, and all of the terms, conditions and provisions
contained herein are enforceable pursuant to CCPss.664.6 in the Los Angeles
County Superior Court.
3.10 No party hereto intends to reserve any claim for relief, cause of
action, claim or demand it has or may have against the other party from the
scope of this Agreement related to or connected with disputes regarding
insurance coverage under the TIG Policies for the Action ("covered claim"). The
fact that a particular type of claim is not expressly set forth herein is not
intended to be nor shall it be construed to be an intent by any party to reserve
any covered claim against any person or entity regarding disputes between the
parties over insurance coverage under the TIG Policies in connection with the
Action, except that none of the foregoing applies to Jeffrey Simons, Michel,
Hartman & Fackler and Peter Johnson.
NO ADMISSION OF FAULT
4. This Agreement includes the settlement of all claims asserted, or that
could have been asserted by TIG against the Insureds regarding insurance
coverage disputes pertaining to the Action, which are denied by the Insureds and
all claims asserted, or that could have been asserted by the Insureds against
TIG regarding insurance coverage disputes pertaining to the Action, which are
denied by TIG, and nothing contained herein shall be construed as an express or
implied admission of any kind by any party hereto of any responsibility, fault
or
9
liability of any kind to any other party. Each of the parties hereto denies any
such liability in connection with any potential claim and intends hereby solely
to avoid the annoyance and expense of additional litigation.
ENFORCEMENT OF AGREEMENT
5. In any proceeding, suit or action brought to enforce any term,
condition, warranty or representation of this Agreement and/or because of any
breach thereof and/or arising out of this Agreement, the prevailing party or
parties shall be entitled to recover from the other party or parties, their
costs of suit and reasonable attorney fees incurred in connection with said
proceeding, suit or action in addition to any and all other available relief.
GENERAL
6. General Provisions.
6.1 This Agreement shall in all respects be interpreted, enforced and
governed by and under the laws of the State of California applicable to
instruments, persons, transactions and subject matter which have legal context
and relationship solely within the State of California. The language of this
Agreement and all other documents referred to herein shall be construed as a
whole according to its fair meaning. Venue and jurisdiction with respect to any
acts arising under or in relation to this Agreement shall be exclusively within
the Los Angeles Superior Court, Central District, State of California.
6.2 This Agreement is the entire agreement between the parties with
respect
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to the subject matter hereof and supersedes all prior and contemporaneous oral
and written agreements and discussions, if any, which are hereby merged into
this Agreement. This Agreement may not be amended orally in any way and may be
amended only by an agreement in writing and signed by all parties thereto. No
provision of this Agreement shall be modified or construed by any practice that
is inconsistent with any such provision, and failure by any party to comply with
any such provision or to require any other party to comply with any provision
shall not affect the rights of either to thereafter require the other party to
comply with that or any other provision.
6.3 Each party has participated in, cooperated in or contributed to
the drafting and preparation of this Agreement. In any construction to be made
of this Agreement, the same shall not be construed for or against any party, but
shall be construed fairly according to its plain meaning.
6.4 This Agreement may be executed in counterparts and when each party
has signed and delivered at least one counterpart, each counterpart shall be
deemed an original and, when taken together with other signed counterparts,
shall constitute one agreement which shall be binding and effective as to all
parties thereto.
6.5 Each party shall pay their own legal fees, costs and other
expenses relating to the litigation of the Action and disputes regarding
insurance coverage for the Action under the TIG Policies except as provided in
paragraph 5 of this Agreement, and except as to TIG's payment of certain
attorney fees incurred for Gresher's defense of the Action after May 23, 2000
and referred to in the May 25, 2000 letter from counsel for TIG to counsel for
Gresher.
6.6 This Agreement shall be effective on the date signed by all
parties and if
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those signatures are on different dates, the effective date shall be the date
upon which the last signatory signed the Agreement.
6.7 This Agreement constitutes eleven (11) pages and two (2) exhibits
in addition thereto.
6.8 Each party or responsible officer or partner or other person
signing on behalf of any person or entity has read this entire agreement and
understands the contents.
DATED: , 2000 TIG INSURANCE COMPANY
------------
By:
-----------------------------------------
Its Authorized Representative with
Binding Irrevocable Settlement
Authority
DATED: , 2000 BIKERS DREAM, INC.
------------
By:
-----------------------------------------
Its Authorized Representative with
Binding Irrevocable Settlement
Authority
DATED: , 2000
------------- -----------------------------------------
WILLIAM GRESHER
DATED: , 2000
------------- -----------------------------------------
SANDRA GRESHER
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Exhibit 10.5
PROMISSORY NOTE
$67,062 Los Angeles, California
1. FOR VALUE RECEIVED, the undersigned, Bikers Dream, Inc. ("Maker), a
California corporation, promises to pay to the order of TIG Insurance company
("Payee"), a California corporation, the principal sum of $67,062 (Sixty-Seven
Thousand Sixty-Two Dollars and No Cents) as provided below. Pursuant to Section
1914 of the California Civil Code, the indebtedness evidenced by this Note shall
not bear interest.
2. This Note shall be payable in equal monthly installments of Two Thousand
Dollars ($2,000) ("Installment Payments"), commencing on the date which is 30
days following the entry of dismissal of the action James Kinnicutt, et al. v.
Bikers Dream, Inc., et al., Sacramento Superior Court Case No. 98AS04185
("Action"), and on the first day of each month thereafter until the balance of
this Note shall be paid in full to Payee.
3. Each Installment Payment from Maker to Payee shall be in the form of a
check payable to Payee which shall reference Claim No. A98165684 and "Bikers
Dream, Inc." and shall be mailed to TIG Insurance Company, Accounts Payable
Department, 5205 North O'Connor Boulevard, Irving, Texas 75039.
4. Maker may, at any time and from time to time, without penalty, make
prepayments on this Note in any amount, all of which will be applied to the
final payment due under this Note.
5. This Note is non-negotiable and has been issued in connection with the
settlement of the Action.
6. At its option, Payee may determine that Maker is in default and
accelerate the maturity of this Note such that the unpaid Installment Payments
shall become immediately due and payable by Maker to Payee without presentment
for payment, or any notice, and judgment shall be entered in favor of Payee for
that unpaid balance of the Note if:
a. Maker has failed to make two (2) consecutive Installment Payments
and has failed to cure such default within thirty (30) days of receipt of
written demand from Payee for payment of the delinquent amounts with said demand
to be sent to Bikers Dream, Inc., 1310 Wacker Drive, Mira Loma, California
91752; or
b. Maker has cured a default under the foregoing paragraph 6a and then
subsequently fails to timely make an Installment Payment to Payee within thirty
(30) days of its due date.
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7. Maker and Payee agree that if a legal action is filed to enforce or
collect this Note for nonpayment, the prevailing party shall be entitled to
reasonable attorney fees and costs in addition to any other relief that such
prevailing party may be entitled to in law or equity. This provision is
applicable to the entire Note.
8. Maker waives trial by jury in any action to enforce the terms of this
Note.
9. This Note shall be construed in accordance with, and governed by, the
laws of the State of California, including but not limited to the Uniform
Commercial Code in force in the State of California.
Dated: July , 2000 BIKERS DREAM, INC.
----
By:
---------------------------------------
An authorized representative with
irrevocable binding authority
2
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EXHIBIT 10.6
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (Settlement Agreement) is entered into by and
among Cana Capital Corporation, a Florida corporation, (CCC) Big Bike of
Daytona, Inc., a Florida corporation, d/b/a Biker's Dream of Jacksonville, (BBD)
Big Bike of Jacksonville, Inc., a Florida corporation, d/b/a Biker's Dream of
Jacksonville, (BBJ) and Scott & Johns Enterprises, Inc., a Florida corporation,
d/b/a/ Big Biker of Tampa Bay, Inc., (BBTB), individually, their parents,
subsidiaries, affiliates, officers, directors, shareholders, insurers, sureties,
employees, agents, attorneys, general partners, limited partners, predecessors,
successors and assigns, and Bruce A. Scott, individually, his heirs, personal
representatives, administrators, executors, family, agents, insurers, sureties,
employees, attorneys, successors and assigns, (collectively Cana) and Biker's
Dream, Inc., a California corporation, (BD) and Ultra Acquisition Corporation, a
Nevada corporation d/b/a/ Ultra Kustom Cycles, (Ultra) their parents,
subsidiaries, affiliates, officers, directors, shareholders, insurers, sureties,
employees, agents, attorneys, general partners, limited partners, predecessors,
successors and assigns, (collectively Biker's Dream).
WHEREAS, CCC has an action pending against BD in the Circuit Court, Fourth
Judicial Circuit Court in and for Duval County, Florida; styled Cana Capital
Corporation, a Florida corporation v. Biker's Dream, Inc., a California
corporation, Case No. 99-1438-CA, Division CV-G; and
WHEREAS, BBD has an action pending against Ultra in the Circuit Court,
Seventh Judicial Circuit Court in and for Volusia County, Florida; styled Big
Bike of Daytona, Inc., a Florida corporation, d/b/a Biker's Dream of
Jacksonville v. Ultra
1
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Acquisition Corporation, a Nevada corporation, d/b/a Ultra Kustom Cycles, Case
No. 2000-31183 CICI, Division 32; and
WHEREAS, BBJ has an action pending against Ultra in the County Court,
Fourth Judicial Circuit Court in and for Duval County, Florida; styled Big Bike
of Jacksonville, Inc., a Florida corporation, d/b/a biker's Dream of
Jacksonville v. Ultra Acquisition Corporation, a Nevada corporation, d/b/a/
Ultra Kustom Cycles, Case No. 99-6607-CC, Division G; and
WHEREAS, BBTB has an action pending against Ultra in the Circuit Court,
Thirteenth Judicial Circuit Court in and for Hillsborough County, Florida;
styled Scott & Johns Enterprises, Inc., a Florida corporation, d/b/a Big Bike of
Tampa Bay, v. Ultra Acquisition Corporation, a Nevada corporation d/b/a/ Ultra
Kustom Cycles, Case No. 99-7614-CC, Division G; and
WHEREAS, Cana and Biker's Dream desire to resolve and settle any and all
issues, claims, disputes, and causes of action among them.
Accordingly, IT IS EHREBY AGREED AS FOLLOWS:
1. In exchange for the consideration given by Biker's Dream as set forth below,
in paragraph A through J, the sufficiency of which Cana acknowledges, Biker's
Dream agrees as follows:
A. Biker's Dream will ship 8 Fat Pounders Model 2000; 3 Ground
Pounders S/T Model 2000; and 3 Ground Pounders Model 2000 (the motorcycles) to
Cana described on Exhibit A attached on or before July 31, 2000. The delivery
shall be made at Cana's offices located at 9543 Sunbeam Center Drive,
Jacksonville, Florida 32257.
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B. The motorcycles' paint schemes will be selected by Robert Dick from
those in inventory at his sole discretion on or before July 21, 2000.
C. Biker's Dream will deliver a Manufacturer's Certificate of Origin
(MSO) contemporaneously with each motorcycle.
D. Cana will pay the freight charges for the delivery of the
motorcycles, at the time of delivery.
E. All the motorcycles will be honored by Ultra's Warranty program.
None may be sold in Daytona or Clearwater.
F. Biker's Dream will transfer ownership and provide Cana with a Bill
of Sale for the 1998 Ultra Wide Series (18ZWS21A8WR000710) (1998 Ultra) located
in Daytona Beach, Florida. Biker's Dream will execute all documents necessary to
transfer the 1998 Ultra title to Cana.
G. Biker's Dream will transfer ownership and provide Cana with a Bill
of Sale or invoices marked "paid" for all parts consigned by Biker's Dream to
BBD which are currently located in Daytona Beach in BBD's possession.
H. Biker's Dream will provide Cana with a Termination and Release
Agreement for each and every Dealer and/or Warranty Agreement between Cana and
Biker's Dream.
I. Biker's Dream will provide Cana with a General Release of Dick
Lindholm, MN Beach Properties, Inc.
J. Biker's Dream will provide Cana with a General Release of all
parties to this Settlement Agreement.
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2. In exchange for the consideration given by Biker's Dream as set forth in
paragraphs A through D below, the sufficiency of which Cana acknowledges, Cana
agrees as follows:
A. Upon complete performance of all the conditions and agreements of
this Settlement Agreement, Cana shall dismiss the actions described in this
Settlement Agreement with prejudice.
B. Cana will provide Biker's Dream the MSO's on all bikes financed
under Cana's Floor Plan.
C. Cana will provide Biker's Dream with a General Release of BD from
Dick Lindholm, MN Beach Properties, Inc.
D. Cana will provide Biker's Dream with a General Release of all
parties to this Settlement Agreement.
3. For purposes of this Agreement, an "affiliate" of any person or entity
means any person, entity or group (currently existing or hereafter created)
controlling, controlled by or under common control with, the specified person or
entity, and "control" of a person or entity (including with correlative meaning,
the terms "control by" and "under common control with") means the power to
direct or cause the direction of the management, policies or affairs of the
controlled persons, whether through ownership of securities or partnership or
other ownership interests, by contract or otherwise.
4. THE PARTIES SPECIFICALLY, KNOWINGLY AND INTENTIONALLY WAIVE THEIR RIGHT
TO A JURY TRIAL IN ANY ACTION RELATING TO THIS SETTLEMENT AGREEMENT.
4
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5. The parties to this Settlement Agreement agree to cooperate fully and
execute any and all supplementary documents and to take all additional actions
which may be necessary or appropriate to give full force and effect to the terms
and intent of this Settlement Agreement.
6. The parties to the Settlement Agreement acknowledge that they have had
the advice of counsel with regard to the meaning and purpose of this Settlement
Agreement. Each party represents that it, she or he has read this Settlement
Agreement, understands its terms and enters into this Settlement Agreement
freely and without reservation.
7. The parties to this Settlement Agreement further represent and warrant
that each signatory to this Settlement Agreement is duly authorized to sign for
the purpose and in the capacity in which she, or he purports to sign.
8. This Settlement Agreement shall be construed as a whole according to its
fair meaning and not strictly for or against any of the parties.
9. The terms of this Settlement Agreement are contractual in nature and are
not merely recitals and may not be changed except in a writing signed by all
parties.
10. If any provision of this Settlement Agreement or the application
thereof to any circumstance shall, in any event, be invalid or unenforceable,
the remainder hereof, the application of such provision to circumstances other
than those to which it is held invalid or unenforceable, shall not be affected
thereby, and each provision hereof shall be valid and enforced to the fullest
extent permitted by governing law.
11. This Stipulation of Settlement may be executed in counterparts and
signatures transmitted by facsimile and shall be binding on the parties.
5
6
12. If a court of competent jurisdiction finds that either party has
breached any of the covenants, warranties, or agreements contained in this
Stipulation of Settlement, that party shall pay the attorneys' fees and expenses
of the prevailing party for litigation or resolving that breach.
13. Each party shall bear its own costs and attorneys' fees in connection
with all matters arising out of or concerning the litigation described in this
Settlement Agreement.
Dated this day of July, 2000.
---------
CANA CAPITAL CORPORATION BIG BIKE OF DAYTONA, INC.
By: /s/ Bruce A. Scott By: /s/ Bruce A. Scott
-------------------------- ----------------------------
Bruce A. Scott, President Bruce A. Scott, President
BIG BIKE OF JACKSONVILLE, INC. SCOTT & JOHNS ENTERPRISES,
INC.
By: /s/ Bruce A. Scott By: /s/ Bruce A. Scott
-------------------------- ---------------------------
Bruce A. Scott, President Bruce A. Scott, President
/s/ Bruce A. Scott
-----------------------------------
Bruce A. Scott, Individually
BIKER'S DREAM, INC. ULTRA ACQUISITION
CORPORATION
By: /s/ Harold L. Collins By: /s/ Harold L. Collins
-------------------------- ---------------------------
Its: CEO Its: CEO
-------------------------- ---------------------------
6
7
SETTLEMENT AGREEMENT (CONTINUED)
/s/ Myra Loughran /s/ Daniel C. Shaughnessy
------------------------------------ ------------------------------------
Myra Loughran Daniel C. Shaughnessy
333 First St. N., Suite 305 4640 Blanding Blvd.
Jacksonville Beach, FL 32250 Jacksonville, FL 32201
Telephone: (904) 249-8500 Telephone: (904) 777-8383
Facsimile: (904) 249-0841 Facsimile: (904) 777-1330
Florida Bar No. 866849 Florida Bar No. 323586
Attorney for Cana Capital Corporation Attorney for Biker's Dream, Inc.,
Big Bike of Daytona, Inc., Big Bike of and Ultra Acquisition Corporation
Jacksonville, Inc. and Scott & Johns
Enterprises, Inc.
/s/ Albert M. Guemmer
------------------------------------
Albert M. Guemmer
3002 W. Kennedy Blvd.
Tampa, FL 33609
Telephone: (813) 875-1973
Florida Bar No. 99549
Attorney for Ultra Acquisition
Corporation
7
8
GENERAL RELEASE
Cana Capital Corporation, Big Bike of Daytona, Inc., Big Bike of
Jacksonville, Inc., Scott & Johns Acquisitions, Inc. and Bruce A. Scott,
individually, (the "first party"), for valuable and sufficient consideration and
the settlement and compromise of certain claims and other valuable
consideration, received from or on behalf of Biker's Dream, Inc. and Ultra
Acquisition Corporation (the "second party"), the receipt and sufficiency
whereof are hereby acknowledged.
(Wherever used herein the term "first party" and "second party" shall
include singular and plural heirs, legal representatives, the assigns of
individuals, subsidiaries and the successors and assigns of corporations,
wherever the contexts so admits or requires.)
HEREBY remises, releases, acquits, satisfies, and forever discharges the
second party, of and from any and all manner of obligation, sequela, action and
actions, cause and causes of action, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever, in law or in equity, which the first
party ever had, now has or which the first party and any personal
representative, successor, heir or assign of the first party hereinafter can,
shall or may have, whether known or unknown, against the second party, for, upon
or by reason of any matter, cause or thing whatsoever, from the beginning of the
world to the date of this General Release, including but not limited to any and
all claims which were or which could have been set forth in those certain suits
filed in the Circuit Court of the Fourth Judicial Circuit, Duval County,
Florida, Cana Capital Corporation v. Bikers' Dream, Inc., Case No. 99-1438-CA;
the Circuit Court, Seventh Judicial Circuit in and of Volusia County, Florida,
Case No. 2000-31183 CICI, Big Bike of Daytona, Inc. v. Ultra Acquisition
Corporation; in the County Court, Fourth Judicial Circuit in and for Duval
County, Florida, Case No. 99-6607-CC, Big Bike of Jacksonville, Inc. v. Ultra
Acquisition Corporation; and in the Circuit Court, Thirteenth Judicial Circuit
in and for Hillsborough County, Florida, Scott & Johns Enterprises, Inc., v.
Ultra Acquisition Corporation.
Signed sealed and delivered Cana Capital Corporation in the presence of:
By: /s/ Bruce A. Scott
---------------------------- ------------------------------------
Bruce A. Scott, President
Big Bike of Daytona, Inc.
/s/ Bruce A. Scott By: /s/ Bruce A. Scott
----------------------------- -----------------------------------
Bruce A. Scott, Individually Bruce A. Scott, President
8
9
Big Bike of Jacksonville, Inc.
By: /s/ Bruce A. Scott
-----------------------------------
Bruce A. Scott, President
Scott & Johns Acquisitions, Inc.
By: /s/ Bruce A. Scott
-----------------------------------
Bruce A. Scott, President
9
10
GENERAL RELEASE
Dick Lindholm and MN Beach Properties, Inc. (the "first party"), for
valuable and sufficient consideration and the settlement and compromise of
certain claims and other valuable consideration, received from or on behalf of
Biker's Dream, Inc. and Ultra Acquisition Corporation (the "second party"), the
receipt and sufficiency whereof are hereby acknowledged.
(Wherever used herein the term "first party" and "second party" shall
include singular and plural heirs, legal representatives, the assign of
individuals, subsidiaries and the successors and assigns of corporations,
wherever the contexts so admits or requires.)
HEREBY remises, releases, acquits, satisfies, and forever discharges the
second party, of and from any and all manner of obligation, sequela, action and
actions, cause and causes of action, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever, in law or in equity, which the first
party ever had, now has or which the first party and any personal
representative, successor, heir or assign of the first party hereinafter can,
shall or may have, known or unknown, against the second party, for, upon or be
reason of any matter, cause or thing whatsoever, from the beginning of the world
to the date of this General Release.
Signed sealed and delivered MN Beach Properties, Inc.
in the presence of:
By: /s/ Dick Lindholm
--------------------------- ------------------------------------
Dick Lindholm
Its: President
------------------------------------
--------------------------------------------
Dick Lindholm, President
STATE OF FLORIDA
COUNTY OF
The foregoing instrument was acknowledged before me this 21 day of July
2000 by Dick Lindholm, individually and on behalf of MN Beach Properties, Inc.
He is personally known to me or has provided Drivers License as identification.
-------------------------------------------
Notary Public, State of Florida
10
1
EXHIBIT 15
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 Bikers Dream, Inc. dba Ultra Motorcycle Company and consolidated
subsidiaries for the period ended June 30, 2000, as indicated in our report
dated July 26, 2000; 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 June 30, 2000 is
incorporated by reference in the Registration Statements of Bikers Dream, Inc.
on Forms 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.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
August 11, 2000
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