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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-KSB
----------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] 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.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
CALIFORNIA 33-0140149
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3810 WACKER DRIVE MIRA LOMA, CALIFORNIA 91752
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (909) 360-2500
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: COMMON STOCK
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. The issuer had
revenues of $22,308,983 for the fiscal year ended December 31, 1999.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act). The aggregate market value of the
voting and non-voting common equity held by non-affiliates on April 11, 2000 was
approximately $5,157,646 based on the closing price of the Company's Common
Stock on the Nasdaq SmallCap Market on that date.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. As of April 10, 2000,
8,947,493 shares of the issuer's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable
Transitional Small Business Disclosure Format (check one):
Yes [X] No [ ]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL BUSINESS DEVELOPMENT
The Company, which was formerly known as HDL Communications, was
incorporated in California in October 1985. The Company was engaged in the
publishing business until June 1989, when it acquired Biker's Dream, Inc., a
California corporation engaged in the sales and service of used Harley-Davidson
motorcycles. Prior to its acquisition of Biker's Dream, Inc., the Company
effected a 1 for 1,363.341473 reverse split of its outstanding Common Stock.
After the acquisition, Biker's Dream, Inc. was merged into HDL Communications
and HDL Communications changed its name to Bikers Dream, Inc. For accounting
purposes, Biker's Dream, Inc. is considered to be the acquirer of HDL
Communications.
In September 1996, the Company formed a joint venture with Mull Acres
Investments, Inc. ("MAI"), whose Ultra Kustom Cycles division in Riverside,
California manufactured custom V-twin motorcycles and show-bikes. The joint
venture was formed to act as the exclusive distributor of Ultra Kustom Cycles
with exclusive rights to all direct retail sales of Ultra Kustom Cycles in
Southern California, Sacramento, California, and Dallas, Texas. In February
1997, the Company, through its wholly owned subsidiary, Ultra Acquisition
Corporation, a Nevada corporation, purchased from MAI certain assets, including
equipment and inventory, of MAI's Ultra Kustom Cycles and Ultra Kustom Parts
divisions that had been used in connection with the manufacture, distribution
and sale of motorcycles and motorcycle parts and accessories.
Prior to January 31, 2000, the Company operated in two divisions:
Motorcycle Manufacturing and Distribution, whose business is described below
under the caption "Business of Bikers Dream," and Retail Stores (the "Retail
Division"). 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
Retail Division sold motorcycles, after-market parts and accessories and
performed service work on motorcycles at five Superstores in Santa Ana,
Sacramento and San Diego, California, Dallas, Texas, and Conover, North
Carolina, licensed the Company's intellectual property and use of its business
model and operating manuals to approximately 16 independently owned Bikers Dream
Superstores, and operated an e-commerce site for the sale of motorcycle parts,
accessories and apparel. The assets sold included all fixed assets, inventory
and equipment used in the Retail Division, the right to operate the Retail
Division under the assumed name "Bikers Dream", all intellectual property assets
relating to the Retail Division, the right to use the domain name
"bikers-dream.com", all rights under license agreements with independently owned
Bikers Dream Superstores, and rights under real property leases and equipment
leases. The sale of the Retail Division will enable the Company to focus on
strengthening its core motorcycle manufacturing business.
BUSINESS OF BIKERS DREAM
After the sale of the Retail Division as described above under the
caption "General Business Development", the Company's business consists solely
of the Company's Motorcycle Manufacturing and Distribution division, which is
operated through the Company's wholly-owned subsidiary, Ultra Motorcycle
Company, a Nevada corporation formerly known as Ultra Acquisition Corporation.
The Company designs and manufactures "V" twin powered heavyweight cruiser
motorcycles at an assembly facility in Mira Loma, California. Marketing, sales
and administrative offices are also located in Mira Loma, California.
The Company currently offers eleven models under the Ultra Cycles name:
the "Groundpounder", the "Jackhammer", the "Patriot", the "Legacy", the
"Cruiser", the "Wide Series" I & II, the "Groundpounder ST", the "Jackhammer
ST", the "Fatpounder" and the "Avenger." All Ultra Cycles models emphasize
customized features, including polished or painted 96 and 113 cubic inch high
performance S&S motors, custom gas tanks, fenders and paint schemes, and chrome
and billet aluminum accessories, as standard equipment. Additional product
differentiation is added through the use of popular colors and designs. These
features and benefits all combine to present an image that differentiates the
rider from the Harley-Davidson consumer. The Company introduced a four-year,
unlimited mileage warranty for all models on April 1, 1998.
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The Company also sells under its Ultra Kustom Parts label a variety of
customized parts, replacement parts and motorcycle accessories, as well as
apparel and novelty items. These product categories are continually being
developed and enhanced.
Distribution of Products; Dealer Network. The Company distributes
motorcycles, Ultra Kustom Parts and its other products through a distribution
network of approximately 81 independent licensed Ultra Cycles dealers, of which
approximately 50 are active. The Company's Ultra Cycles dealers include the five
Bikers Dream Superstores formerly owned by the Company which were sold in
connection with the sale of the Retail Division in January 2000. The Company
markets its dealer programs primarily at trade shows and consumer-directed
gatherings and rallies, and through advertising in motorcycle and specialty
magazines. The Company provides dealers with product training and other
operational assistance. The Company also sells its Ultra Kustom Parts, apparel
and novelty items through the Company's catalogue and Internet site.
Market for Company's Products. According to the Motorcycle Industry
Council's Retail Sales Report dated December 1999, 515,468 motorcycles were sold
in the United States last year. The largest segment of this market is the
"on-highway" segment, which was comprised of 340,208 units, or 66% of the total
motorcycle market. Within the on-highway segment are four categories: cruiser,
standard, sportbike and touring. The Company competes in a niche of the
"cruiser" segment where Harley-Davidson is the market leader with unit sales of
94,870, representing a 51.6% market share of that segment. The Company's
motorcycles fall within the "cruiser" category, which is also referred to by the
Motorcycle Industry Council as the "heavy cruiser" or "cruiser over 900 cc"
category. This category had sales in 1999 of 122,269 units, or 23.7% of the
total motorcycle market of 515,468 units sold and 35.9% of the on-highway
segment of the market of 340,208 units sold.
The Company's marketing efforts are focused on dealer promotions,
customer events, magazines, television, and cooperative programs with Ultra
Cycles dealers. In 1999, the Company also advertised on the "Speedvision"
motorsport cable network. The Company also participates in special promotional
events and in most major motorcycle consumer shows and rallies.
The Company maintains an e-commerce web site at "ultracycles.com" which
provides information about the Company and its operations, dealer locations, and
the Company's Ultra Cycles, Ultra Kustom Parts and other accessories. The site
also enables consumers to make purchases of Ultra Kustom Parts and other
accessories over the Internet. In addition, consumers located outside
territories covered by Ultra Cycle dealers are able to purchase motorcycles
online. However, the web site is not currently advertised and the amount of
revenue and profits derived from sales on the site during the 1999 fiscal year
were not material in amount. Currently, the Company does not contemplate making
any changes to its web site.
Competition. The U.S. heavyweight cruiser motorcycle market, as defined
in the Motorcycle Industry Council's Retail Sales Report dated December 1999, is
highly competitive and dominated by competitors that are larger than the
Company. These larger competitors generally have substantially greater financial
and marketing resources than those of the Company. Many of the Company's
principal competitors have greater sales volume than the Company, have a larger
number of distribution outlets and dealers, and are more diversified than the
Company.
The Company seeks to avoid direct competition with Harley-Davidson, the
largest seller of heavyweight cruiser motorcycles, by operating within a
specialized niche of the heavyweight market. Within this niche, the Company
competes on the basis of product performance and style, pricing, service and
warranties. This competitive strategy includes offering certain customized
features (such as polished or painted high-performance engines) at no additional
charge over base prices, as well as a four-year, unlimited mileage warranty for
all models.
Within the Company's market niche, there are other competitors which are
larger than the Company, well financed and have a growing number of dealers.
These competitors offer a product that is traditional or nostalgic in style.
Other competitors within the Company's market niche are the same size or smaller
than the Company and offer products that are similar to the "cutting
edge"/chopper style used by the Company. These competitors generally have lower
production levels and higher selling prices than the Company.
There can be no assurance that the Company's competitors within the
Company's market niche will not expand their product lines or manufacturing
operations, or that other motorcycle manufacturers will not enter this market.
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MATERIALS AND SUPPLIERS
The principal suppliers of the Company, and the parts purchased from
these suppliers are identified in the table below:
<TABLE>
<CAPTION>
VENDOR CITY AND STATE PARTS PURCHASED
------ -------------- ---------------
<S> <C> <C>
S&S Viola, WI Motors
Custom Chrome Morgan Hill, CA Frames, wheels, oil tanks
and miscellaneous parts
Performance Machine La Palma, CA Brake calipers
Drag Specialties Janesville, WI Miscellaneous parts
Tucker Rocky Fort Worth, TX Tires
Zodiac Enterprises Hong Kong, China Tanks & Fenders
West Coast Batteries Windsor, CA Batteries
</TABLE>
The Company can obtain components from vendors other than those listed
above, in some cases at a substantial increase in cost to the Company. However,
increased demand for motorcycle parts, brought on by the entrance of new
competitors to the original equipment manufacture (OEM) segment of the industry,
has increased competition among current vendors and allowed new vendors to enter
the market. As a result, the Company is actively pursuing expansion of its
vendor base and intends to improve the quality and lower the cost of its
product.
RESEARCH AND DEVELOPMENT
The Company has not expended a material amount during each of the past
two fiscal years on research and development efforts. The Company expended
approximately $20,600 and $23,700 in 1998 and 1999, respectively, on materials
used in research and development efforts. The Company also relies on skilled
in-house technicians and engineers to develop new products.
PATENTS, LICENSES AND TRADEMARKS
The Company has no patents issued and has several patents pending that
relate to performance oriented motorcycle components. In connection with the
sale of the Retail Division in January 1999, the Company assigned to V-Twin
Holdings, Inc. the Company's rights to the registered service mark "Bikers
Dream", as well as the Company's rights under license agreements with operators
of approximately 16 independently owned Bikers Dream Superstores. The Company
actively promotes national brand recognition for the Ultra Cycles name by
entering into strategic marketing and promotional agreements. In 1999, the
Company had marketing programs and advertising programs with the "Speedvision"
cable network and Castrol Motor Oil. The Company has also assisted suppliers
with the development of products for use by the Company.
REGULATION
The Company's operations are subject to regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations. Federal and state authorities have various environmental control
requirements relating to air and noise pollution which affect the business and
operations of the Company. The Company's motorcycles are subject to
certification by the U.S. EPA for compliance with applicable emissions and noise
standards and by the state of California Air Resources Board with respect to
more stringent emissions standards. The Company's motorcycle products also must
comply with the National Highway Traffic Safety Administration's standards.
Management believes that it maintains all requisite licenses and permits and is
in compliance with all applicable federal, state and local laws and regulations.
As the Company generally utilizes in the manufacture of its motorcycles
components which have already been designed by third-party vendors, management
believes that the cost of compliance with environmental regulations is already
factored into the cost of such components. Therefore, the Company's internal
cost of compliance with environmental regulations is not material in amount.
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EMPLOYEES
As of April 7, 2000, the Company had 94 employees, all of which are full
time.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's motorcycle assembly operations and executive offices are
located in a 56,200 square foot facility in Mira Loma, California. The Company
leases the premises at a current monthly rent of $19,670, which shall increase
to $21,356 per month commencing March 2001. The lease expires in 2004. In the
opinion of the Company's management, the facilities are adequately covered by
insurance.
As of December 31, 1999, the Company also leased properties at the
locations listed below in connection with the operation of the Company's five
owned Superstores. A sixth store located in Dallas, Texas, was closed in 1999.
In connection with the sale of its Retail Division on January 31, 2000, the
Company assigned its interest in these leases to V-Twin Holdings, Inc. However,
the Company remains liable on the leases until their expiration.
<TABLE>
<CAPTION>
SQUARE LEASE APPROXIMATE
LOCATION PRIMARY FUNCTION FEET EXPIRES MONTHLY RENT
- -------- ---------------- ------ ------- ------------
<S> <C> <C> <C> <C>
Sacramento, CA............ Retail Superstore 10,480 2000 $ 3,900
San Diego, CA............. Retail Superstore 6,935 2001 $ 5,710
Santa Ana, CA............. Retail Superstore 12,107 2003 $13,900
Conover, NC............... Retail Superstore 7,000 2001 $ 2,300
Dallas, TX(1)............. Retail Superstore 5,000 2001 $ 2,500
Farmers Branch, TX........ Retail Superstore 10,000 1999 $ 9,400
</TABLE>
- -------------
(1) The Dallas store was closed prior to the sale of the Retail Division and
prior to the end of the year.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising out of
its operations in the normal course of business. As of the date of this report,
except as set forth below, in the opinion of the Company's management,
liability, if any, under these actions is adequately covered by insurance or
will not have a material effect on the Company's financial position or results
of operations.
As described in the Company's report on Form 8-K dated January 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,
or 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 an 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, due to their poor performance, 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
$283,000.00. In January 2000, following a trial on the bifurcated issue of
punitive damages, the jury awarded $400,000.00 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.
There is currently in effect a stay which would prevent enforcement of
this judgment against the Company until ten days after the last day on which the
Company may file an appeal. Currently, the stay will expire on May 29, 2000. The
Company is in the process of filing certain post trial motions, one of which, if
granted, may strike that portion of the judgment based on a finding of fraud,
leaving only that portion of the judgment based on a finding of breach of
contract. This would have the effect of reducing the amount of the judgment to
approximately $70,000, which amount has already been set aside by the Company
for payment. The court may also grant the Company a new trial.
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These post trial motions may have the effect of extending the time for
appeal, which in turn may extend the stay of the enforcement of the judgment
beyond May 29, 2000. If an appeal bond is posted, enforcement of the judgment
will be stayed during the pendency of an appeal. The Company's insurance carrier
recently has informed the Company that it will not post an appeal bond to stay
enforcement of the judgment after the expiration of the original stay period. It
is uncertain at this time whether the Company will be able to post the appeal
bond and if it cannot post the appeal bond, what effect the unsatisfied portion
of any judgment may have on the Company. If the Company is required to pay the
judgment in the Kinnicutt case, the Company's ability to continue to operate its
business may be materially impaired. See Item 6 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded since July 30, 1998 on The
Nasdaq SmallCap Market under the symbol "BIKR". Prior to such date, the
Company's Common Stock was traded in the over-the-counter market and quoted on
the National Association of Securities Dealers Electronic Bulletin Board ("OTC
Bulletin Board") under the same symbol. The following table reflects the high
and low bid prices of the Company's Common Stock, as reported by the OTC
Bulletin Board, from January 1, 1998 to July 30, 1998, and the high and low
closing sales prices of the Company's Common Stock, as reported by The Nasdaq
Stock Market, from July 30, 1998 through December 31, 1999, in each case as
adjusted for the reverse split of the Company's Common Stock effected on
February 5, 1998. The bid prices shown in the following table are inter-dealer
quotations without retail mark-ups, mark-downs or commissions, and may not
represent actual transactions. The high and low prices for the third quarter of
1998 occurred after July 30, 1998, and therefore the prices shown are the high
and low closing sales prices.
<TABLE>
<CAPTION>
1998 Low High
- ---- ----- -----
<S> <C> <C>
First Quarter.......................................... $4.00 $4.20
Second Quarter......................................... $4.00 $4.44
Third Quarter.......................................... $2.63 $5.34
Fourth Quarter......................................... $2.53 $6.84
1999
- ----
First Quarter.......................................... $2.9062 $4.25
Second Quarter......................................... $2.6875 $3.50
Third Quarter.......................................... $1.625 $2.9685
Fourth Quarter......................................... $0.5312 $2.00
</TABLE>
To date, the Company has not paid any cash dividends on its Common Stock
and does not expect to pay any dividends in the foreseeable future.
As of March 17, 2000, there were 1,308 shareholders of record of the
Company's Common Stock.
The Company believes that the transactions described below in which
securities were sold were exempt from registration under the Securities Act of
1933 by virtue of Section 4(2) thereof as transactions not involving any public
offerings. In each transaction, the number of investors was limited, the
investors were provided with information about the Company and/or access to such
information, and restrictions were placed on resales of the securities.
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<TABLE>
<CAPTION>
DATE TITLE AMOUNT CONSIDERATION PURCHASER
---- ----- ------ ------------- ---------
<S> <C> <C> <C> <C>
12/29/99 Common Stock issued 38,988 (1) Private investor
upon conversion of 20
shares of Series D
Preferred Stock
12/29/99 Common Stock issued 58,481 (1) Private investor
upon conversion of 30
shares of Series D
Preferred Stock
12/31/99 Common Stock issued 194,938 (1) Private investor
upon conversion of 100
shares of Series D
Preferred Stock
12/31/99 Common Stock issued 194,938 (1) Private investor
upon conversion of 100
shares of Series D
Preferred Stock
1/5/00 Common Stock issued 58,481 (1) Private investor
upon conversion of 30
shares of Series D
Preferred Stock
2/9/00 Common Stock issued 91,103 (1) Private investor
upon conversion of 50
shares of Series D
Preferred Stock
2/10/00 Common Stock issued 85,815 (1) Private investor
upon conversion of 45
shares of Series D
Preferred Stock
2/14/00 Common Stock issued 343,259 (1) Private investor
upon conversion of 180
shares of Series D
Preferred Stock
2/21/00 Common Stock issued 417,976 (1) Private investor
upon conversion of 222
shares of Series D
Preferred Stock
2/21/00 Common Stock issued 313,483 (1) Private investor
upon conversion of
166.5 shares of Series
D Preferred Stock
2/23/00 Common Stock issued 511,919 (1) Private investor
upon conversion of
284.75 shares of Series
D Preferred Stock
2/23/00 Common Stock issued 513,933 (1) Private investor
upon conversion of
284.75 shares of Series
D Preferred Stock
2/23/00 Common Stock issued 398,874 (1) Private investor
upon conversion of 220
shares of Series D
Preferred Stock
2/23/00 Common Stock issued 26,777 (1) Private investor
upon conversion of 15
shares of Series D
Preferred Stock
</TABLE>
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<TABLE>
<CAPTION>
DATE TITLE AMOUNT CONSIDERATION PURCHASER
---- ----- ------ ------------- ---------
<S> <C> <C> <C> <C>
2/23/00 Common Stock issued 35,701 (1) Private investor
upon conversion of 20
shares of Series D
Preferred Stock
3/6/00 Common Stock issued 131,776 (1) Private investor
upon conversion of 75
shares of Series D
Preferred Stock
3/10/00 Common Stock issued 184,728 (1) Private Investor
upon conversion of
118.75 shares of Series
D Preferred Stock
3/10/00 Common Stock issued 106,170 (1) Private Investor
upon conversion of
68.25 shares of Series
D Preferred Stock
</TABLE>
(1) In February 1999, the Company completed an offering of 1500 shares of Series
D Preferred Stock. In October 1999, the investors in the February 1999
offering purchased an additional 500 shares of Series D Preferred Stock. In
connection with the February and October 1999 offerings, the Company issued
an additional 60 shares of Series D Preferred Stock in payment of placement
agent fees. Each share of Series D Preferred Stock had a stated value of
$1,000. As of March 10, 2000, all previously issued and outstanding shares
of Series D Preferred Stock, having an aggregate stated value of $2,060,000,
plus accrued and unpaid dividends on such shares, were 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 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.
The holders of the Series D Preferred Stock were granted warrants to
purchase a total of 83,333 shares of the Company's Common Stock, all of
which remain outstanding as of the date hereof. Of this number, 60,000 may
be exercised at any time prior to February 5, 2004 at an exercise price of
$4.125 per share. The remaining 23,333 may be exercised at any time until
September 30, 2004 at an exercise price of $1.82 per share.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed in this Annual Report on Form 10-KSB/A 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 "Certain Trends and Uncertainties," below, and which could
cause actual results to differ materially from those anticipated as of the date
of this report. Shareholders, potential investors, and other readers are urged
to consider these factors in evaluating the forward-looking statements, and are
cautioned not to rely on such forward-looking statements. The forward-looking
statements included herein are only made as of the date of this report and the
Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
GENERAL
From 1990 until 1996, the Company operated primarily as a motorcycle
superstore retailer. Prior to 1997 the Company was attempting to establish a
network of franchised Bikers Dream stores, but suspended such efforts at the end
of 1996. In 1997 the Company established its Motorcycle Manufacturing and
Distribution ("Motorcycle") division by completing the acquisition of the
motorcycle and parts manufacturing assets of Ultra Kustom Cycles (see Item 1 --
"Description of Business -- General Business Development"). Since the
acquisition of the
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Motorcycle Division, the Company has devoted a significant amount of resources
to restructuring and repositioning the Company from a retailer to a premier
custom motorcycle manufacturer and distributor.
Between 1997 and 1999, the Company operated two divisions: Motorcycle
and Retail Stores (the "Retail Division"). The Retail Division sold motorcycles,
after-market parts and accessories and performed service work on motorcycles at
five Superstores in Santa Ana, Sacramento and San Diego, California, Farmers
Branch, Texas, and Conover, North Carolina, licensed the Company's intellectual
property and use of its business model and operating manuals to approximately 16
independently owned Bikers Dream Superstores, and operated an e-commerce site
for the sale of motorcycle parts, accessories and apparel. On January 31, 2000,
the Company sold to V-Twin Holdings, Inc. ("V-Twin") the assets related to the
operation of the Retail Division. The assets sold included all fixed assets,
inventory and equipment used in the Retail Division, the right to operate the
Retail Division under the assumed name "Bikers Dream", all intellectual property
assets relating to the Retail Division, the right to use the domain name
"bikers-dream.com", all rights under license agreements with independently owned
Bikers Dream Superstores, and rights under real property leases and equipment
leases. The sale of the Retail Division will enable the Company to focus on
strengthening its core motorcycle manufacturing business.
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.
The Company's operations are impacted by general seasonal trends that it
believes are characteristic of the motorcycle industry. The Company historically
has not been affected by seasonal trends because it began manufacturing
operations in February 1997, and by the fall and winter months of 1997 and early
1998, had sufficient dealer demand to absorb all of the production the Company
was able to achieve at that time. In 1998 and 1999, however, production was
substantially increased to a point that the Company expects some effect due to
seasonal trends. The Company therefore expects higher revenues to occur in the
second and third quarters in future years.
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, the results of operations of the
Retail Division have been reclassified as discontinued operations and prior
periods have been restated.
COMPARISON OF THE FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Total revenues for the fiscal year ended December 31, 1999,
were $22,308,983 as compared to $15,853,481 for the same period in 1998,
representing an increase of $6,455,502 or 40.7%. The increase was gained through
the addition of new dealers in the latter part of 1998 and early 1999 and wide
acceptance of the introduction of a new "Groundpounder ST" model.
In 1999, the Company sold 1,606 motorcycles that it manufactured to
unaffiliated customers, representing an increase of 254 units or an increase of
18.8% units over the prior year of 1,352. The increase in units sold was
attributable, in part, to a restructuring of the Company's dealer base of
approximately 100 dealers in the latter part of 1999 to eliminate non-performing
dealers. Consequently, 12 new dealers were added during the year and 32 were
eliminated, bringing the total number of dealers to approximately 80.
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Currently, the Company has the capability to assemble from 120 to 240
units per month without additional capital expenditures or implementing a second
shift. The Company seeks to stimulate demand for its motorcycles through its
marketing efforts, advertising through different media and national advertising
of its products, which the Company believes will aid in attracting new dealers
and will promote increased sales from existing dealers.
Cost of Goods Sold/Gross Profit. Cost of goods sold for the fiscal year
ended December 31, 1999, was $18,251,001 (i.e., 81.8% of revenues) compared to
$15,328,365 (i.e., 96.7% of revenues) for the comparable period a year earlier,
representing an increase of $2,922,636 or 19.1%. The Company's gross profit
improved by $3,532,866, to $4,057,982 for the fiscal year ended December 31,
1999, from $525,116 for the comparable period a year earlier.
Gross profit improved from the prior year as a result of the
introduction of three new models in 1999: the Groundpounder ST, the Jackhammer
ST and the Avenger. The increase in gross profit attributable to these three
products was over $3,700,000. Other product sales in 1999 were less than same
model sales in 1998 and as a result reduced the favorable impact of the new
models.
Cost of goods sold for the fiscal year ended December 31, 1998 included
approximately $2,000,000 due to the recording of a charge during the fourth
quarter of the Company's 1998 fiscal year, resulting from the difference between
the Company's inventory total as of December 31, 1998 as shown in its internal
accounting records and a lesser amount observed in the physical inventory review
conducted in connection with the Company's annual audit. Management believes,
based on an internal inquiry assisted by an independent forensic accounting
firm, that accounting transactions for parts returned to vendors were not
completed and that parts shipped for use as warranty replacement parts were not
taken out of inventory. Management also believes that there was a loss of
inventory due to theft. The Company has notified its insurance carriers of the
situation, and the Company believes that its claim for approximately $300,000
will be honored, although no assurances can be given.
Cost of goods sold for the fiscal year ended December 31, 1998 also
includes, in addition to the charge specifically referenced above, certain
adjustments made during the fourth quarter of the year which may pertain, in
part, to operations of the Company during prior quarters of the year. These
adjustments include approximately $679,000 of intercompany profit elimination
and approximately $356,000 of warranty expense.
As a consequence of the foregoing charges and adjustments, the gross
profit of the Company for the first three quarters of the fiscal year ended
December 31, 1998 are lower than were shown in the Company's unaudited interim
financial statements for such periods.
Cost of goods sold for the fiscal year ended December 31, 1999 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. In April 1999, Company relocated from its Riverside, California
facility to its current facility in Mira Loma, California. Although the move
disrupted the manufacturing process, costs incurred as a result of the move were
recovered through improved productivity and efficiency. After the move to Mira
Loma, the assembly process was changed to a "cellular" configuration. The cell
process was subsequently upgraded to assembly lines in January 2000.
The Company experienced a significant increase in warranty expense from
$841,977 for the fiscal year ended December 31, 1998 to $1,795,048 for the
fiscal year ended December 31, 1999, representing an increase of $953,701 or
approximately 113%. Included in the $1,795,048 figure is a charge of $247,310 in
the fourth quarter of 1999 to provide for the contingency of liabilities on
units sold and under warranty. The warranty costs increased as result of
failures on several vendor-supplied parts. While the Company has taken steps to
improve quality of the product by inspecting vendor parts upon receipt, adding
quality testing before shipment, holding quality review meetings and initiating
a reporting process for factory personnel to submit assembly quality problems,
no assurances can be given that product warranty problems will not occur in the
future.
Other costs of sales for 1999, while in total were less than similar
costs for 1998, were higher than expected during the fourth quarter of 1999.
During the fourth quarter, the Company implemented several previously purchased
manufacturing software packages used for production control, production planning
and purchasing. As a result of these changes, certain items were not charged to
the product cost or taken out of inventory. These charges were approximately
$400,000 for the fiscal year ended 1999. The Company has identified many of the
transactions
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that caused this to occur and is implementing procedures and controls to prevent
its reoccurrence. While this adjustment is believed to be a single occurrence,
no assurance can be given that a similar adjustment will not occur in the
future.
In addition to the above charges to product cost, the Company also
incurred during the fiscal year ended December 31, 1999 a cost penalty of
$321,979 to reduce inventory to its net realizable value on parts that are no
longer used in current production. This charge is reserved against the Company's
gross inventory and reduces it to $4,354,194 for the fiscal year ended December
31, 1999. In addition, the amount of $321,979 was expensed in cost of goods
sold. In 1998, the Company recognized a similar cost for specific parts known to
have a value less than their purchased cost. As a consequence of the foregoing
charge, the gross profit of the Company for the first three quarters of the
fiscal year ended December 31, 1999 may be lower than were shown in the
Company's unaudited interim financial statements for such periods.
Expenses. Selling, general and administrative expenses were $5,289,597
(i.e., 23.7% of total revenues), for the fiscal year ended December 31, 1999,
compared to $3,741,693 (i.e., 23.6% of total revenues), for the fiscal year
ended December 31, 1998, representing a increase of $1,547,904. Selling,
general, and administrative expenses consist primarily of corporate operating
expenses, professional fees, and salaries.
Selling, general, and administrative expenses for the fiscal year ended
December 31, 1999 were higher than for the prior period as result of increased
salaries resulting from the addition of corporate counsel, sales, marketing and
finance positions and increased advertising costs incurred to develop national
brand recognition. The Company also incurred additional professional fees
required to comply with reporting requirements and secure additional debt
financing, as well as to implement changes in the manufacturing process. Rent
expense also increased as a result of the relocation of the business to the new
manufacturing facility in Mira Loma, California.
Depreciation and amortization expense for the fiscal year ended December
31, 1999, totaled $508,816 compared to $415,212 for the same period in 1998. The
increase is attributable to the leasehold improvements made in the new facility
and the purchase and implementation of new information technology software and
hardware.
As a consequence of the foregoing, the Company's operating loss was
$1,740,431 for the fiscal year ended December 31, 1999, as compared to an
operating loss of $3,631,789 for the comparable period a year earlier.
OTHER EXPENSE (INCOME). Interest expense increased by $146,378 from
$650,261 for the fiscal year ended December 31, 1998, to $796,639 for the fiscal
year ended December 31, 1999. The increase is primarily attributable to more
debt outstanding in 1999 than in 1998.
OTHER EXPENSE (INCOME) LEGAL SETTLEMENT. The Company has accrued
$813,000 for estimated costs in connection with pending lawsuits, as described
in detail in note 7 of the Company's financial statements.
There is no material provision for income taxes in 1999. The Company has
fully reserved for the deferred tax asset related to its net operating loss
carry-forwards beginning in the second quarter of 1995. The Company's management
has concluded that, based upon its assessment of all available evidence, the
future benefit of this asset cannot be projected accurately at this time.
LOSS BEFORE DISCONTINUED OPERATIONS, PREFERRED STOCK DIVIDENDS, AND
BENEFICIAL CONVERSION. For the fiscal year ended December 31, 1999 the Company
reported a loss before discontinued operations, preferred stock dividends, and
beneficial conversion of $3,345,139 as compared to a loss of $4,205,038 for the
fiscal period ending December 31, 1998, or a decrease of $859,899. The
improvement resulted from the increased gross profit generated by the
introduction of new models, offset by the increased costs of warranty, accruals
for costs in connection with pending lawsuits, and increases in selling and
general administrative costs.
LOSS ON DISCONTINUED OPERATIONS. For the fiscal year ended December 31,
1999, the Company reported a loss on discontinued operations, net of provision
for income taxes, of $532,050, compared to the loss on discontinued operations
for the fiscal year ending December 31, 1998 of $281,589. The Company reported a
loss on the disposal of the Retail Division, net of income taxes, of $1,782,144.
Included in the loss on discontinued operations is a charge of $416,814
attributable to a reduction in the Retail division's inventory as a result of
the annual physical inventory. Causes of this loss have been assigned to poor
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control of operations by the store director at each location, unprocessed
service and warranty repairs. and untrained use of the stores' information
technology system. The stores were not included in the Company's information
technology system upgrades made in 1998 and 1999.
NET LOSS. For the fiscal year ended December 31, 1999, the Company
reported a net loss of $6,054,187 available to common shareholders, compared to
a net loss of $5,693,716, for the comparable period a year earlier. The
decreased profitability of $360,471 is the result of the discontinuance and loss
on the disposal of the Retail Division, accruals for costs in connection with
pending lawsuits, and increased warranty costs and charges being reduced by the
increased gross profit from the new product sales.
GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES
EXISTING FINANCING ARRANGEMENTS
The Company finances the manufacture of its motorcycles from proceeds
of sales. Most of the Company's vendors require payment terms of 30 days or
less. Other than for certain extraordinary liabilities or potential liabilities
as described below in the section entitled "Ability of the Company to Continue
as a Going Concern," management believes that the Company can, at its current
level of operations, adequately meet its liabilities, including liabilities to
vendors, by using available internal cash.
In the past, the Company has also looked to outside funding sources to
address its liquidity and working capital needs. These include private equity
placements and secured debt-financing arrangements with lenders.
In 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
Common Stock, after giving effect to the Company's 5-for-1 reverse stock split
effective on February 5, 1998. 87,500 of these warrants are exercisable at a
price of $5 per share and expire in November 2002. The remaining 370,000
warrants are exercisable at an initial exercise price equal to $4 1/16 payable
in cash or in-kind by debt cancellation and expire in June 2003. The exercise
price of the 370,000 warrants 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. In June 1999, the Company became obligated to issue a warrant to
purchase 200,000 additional shares of Common Stock in accordance with the terms
of the FINOVA loan agreement as set forth above.
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 is defending the action and is cross-complaining against Cana Capital to
offset the balance
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owed on the floor financing, which, according to the Company's records, is
approximately $309,087 as of December 31, 1999. The Company believes that it has
potential offsets against Cana Capital and Mr. Scott which would reduce this
balance. Advances under the Cana Capital line of credit bear interest at a rate
of 2% over the prime rate if used to finance the acquisition of new vehicles,
and 5% over the prime rate if used to finance the acquisition of used vehicles.
As of March 31, 2000, the interest rate for advances on new vehicles and used
vehicles was 10.83% and 13.83%, respectively. Settlement negotiations as to the
Company's claims against Mr. Scott and Cana Capital are currently pending.
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 is 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. The Company currently is negotiating with W3
Holdings to convert this note into an equity interest in the Company.
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 March 31, 2000. In January 2000, the notes were replaced
by two amended and restated promissory notes in the principal amounts of
$156,638 and $150,000, respectively. The amended and restated $156,638 note
evidences $150,000 of the principal amount of the original $200,000 note, $4,338
of accrued interest on the original $200,000 note and $2,300 of accrued interest
on the original $100,000 note. The amended and restated $150,000 note evidences
the entire principal amount of the original $100,000 note, plus $43,362 of the
original principal amount of the $200,000 note. Both the $156,638 and $150,000
amended and restated notes bear interest at a rate of 12% per annum and mature
on March 31, 2000. Mr. Whalen subsequently assigned the amended and restated
note in the amount of $150,000 to W3 Holdings, while continuing to hold the
amended and restated $156,638 note. The Company plans to negotiate with W3
Holdings and Mr. Whalen to convert both amended and restated notes into an
equity interest in the Company.
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.
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CONSOLIDATED STATEMENT OF CASH FLOWS. Net cash used in operating
activities totaled $1,237,450 for the fiscal year ended December 31, 1999, as
compared to net cash used in operating activities of $7,687,154 for the same
period in 1998. The net cash used in operating activities of $1,237,450
consisted of net cash used in discontinued operating activities of $561,048 and
net cash used in continuing operating activities of $676,402. The decrease in
cash used for operating activities primarily resulted from increased sales of
new product. Significant working capital changes included a decrease of $384,510
in accounts receivable as result of improved collections and an increase in
inventories of $464,108 attributable to an the increased product line offered
for sale, offset, in part, by an increase in accounts payable of $602,286 and an
increase in accrued expenses of $952,053 related to an increase in the accrual
for warranty expense and an increase in the deferred revenue on warranty
replacement parts shipped to dealers. The accrual of $813,000 for legal costs
also increased the cash used in continuing operations.
Net cash used in investing activities totaled $437,163 during the fiscal
year ended December 31, 1999, as compared to cash used in investing activities
of $174,823 during the prior year's period. The net cash used in investing
activities of $437,163 consisted of net cash used in discontinued investing
activities of $211,882 and net cash used in continuing investing activities of
$225,281. The increase in net cash used in investing activities primarily
results from the following: (1) slightly higher investment in property, plant,
and equipment in 1999 (primarily leasehold improvements at the new facility and
computer hardware and software), and is reduced by (2) the $200,634 proceeds
from the sale of marketable securities.
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Net cash provided by financing activities totaled $2,419,715 for the
fiscal year ended December 31, 1999, as compared to net cash provided by
financing activities of $7,884,398 during the fiscal year ended December 31,
1998. Net cash provided by discontinued financing activities was $1,432,395,
while net cash provided by continuing financing activities totaled $987,320. Net
cash provided from continuing financing activities consisted of cash provided by
private placements (net of offering costs) of $1,664,832, cash provided from
issuance of notes payable of $300,000 and cash provided from debt issuance and
exercised warrants of $88,645 and $149,500 respectively. Cash payments were made
on notes payable of $174,297, payment on capital leases of $66,929 and payment
on advances on financing agreements with related parties of $1,177,087.
OUTLOOK AND ABILITY OF COMPANY TO CONTINUE AS A GOING CONCERN
In Note 2 to the Company's financial statements, entitled "Summary of
Significant Accounting Policies -- Going Concern and Basis of Presentation", 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. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Discussed below are certain
existing or potential liabilities that are of primary concern to the Company.
JUDGMENT IN THE KINNICUTT LITIGATION. As described in Part I, Item 3 of
this report on Form 10-KSB, under the caption entitled "Legal Proceedings",
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. In December 1999, a 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 an additional $400,000 in punitive damages against the Company
and lesser amounts against two of its former employees. On March 20, 2000, the
court enter a judgement against the Company in the amount of $683,601. There is
currently in effect a stay that would prevent enforcement of this judgment
against the Company until ten days after the last day on which the Company may
file an appeal. Currently, the stay will expire on May 29, 2000. The Company is
in the process of filing certain post trial motions, one of which, if granted,
may strike that portion of the judgment based on a finding of fraud, leaving
only that portion of the judgment based on a finding of a breach of contract.
This would have the effect of reducing the amount of the judgment to
approximately $70,000, which has already been set aside by the Company for
payment. The Court may also grant the Company a new trial.
These post trial motions may have the effect of extending the time for
appeal,which in turn may extend the stay of the enforcement of the judgment
beyond May 29, 2000. If an appeal bond is posted, enforcement of the judgment
will be stayed during the pendency of an appeal. The Company's insurance carrier
recently has informed the Company that it will not post an appeal bond to stay
enforcement of the judgment after the expiration of the original stay period.
It is uncertain at this time whether the Company will be able to post
the appeal bond, and if it cannot post the appeal bond, what effect the
unsatisfied portion of any judgment may have on the Company. If the Company is
required to pay the judgment in the Kinnicutt case, the Company's ability to
continue to operate its business may be materially impaired.
REPAYMENT OR CONVERSION OF BRIDGE LOANS. The Company became obligated on
March 31, 2000 to repay bridge loans from W3 Holdings, Inc. and William Whalen,
a shareholder of the Company, in the approximate principal amounts of $450,000
and $156,638, respectively. Accrued and unpaid interest under both bridge loans
as of April 14, 2000 is approximately $103,511. The Company currently does not
have the resources to repay these loans. The Company is negotiating with w3
Holdings and Mr. Whalen to convert their bridge loans plus accrued interest on
such loans into an equity interest in the Company. However, there can be no
assurances that these negotiations will be successful. If the Company is
required to repay the bridge loans, this will have a material adverse effect on
the Company's financial condition.
REPAYMENT OF FINOVA LOAN. The Company's $4.5 million term secured loan
with FINOVA Mezzanine Capital expires in June 2001. 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 the ability of the Company to achieve and
maintain profitability by the loan's maturity date. However, there is no
assurance that the Company will be able to achieve profitability in the future.
The inability of the Company to extend or refinance the FINOVA loan will have a
material adverse effect on the Company's financial condition.
The Company's potential liability in the Kinnicutt case, as well as the
Company's obligations to repay the loans from W3 Holdings and William Whalen,
which became due on March 31, 2000, raise substantial doubt about the Company's
ability to continue as a going concern. Currently, the Company does not have
sufficient cash on hand to post an appeal bond in the Kinnicutt case, or pay the
judgment in that case if required to do so. Nor does the Company have sufficient
cash on hand to repay the loans from W3 Holdings and Mr. Whalen. In addition, in
June 2001, the Company will become obligated to repay the principal amount of
the FINOVA loan, which is $4.5 million.
The Company is attempting to address the foregoing concerns by taking
the measures described below. The Company is filing certain post trial motions
in the Kinnicutt case which, if granted, may have the effect of reducing the
judgment to approximately $70,000, which amount has been set aside by the
Company for payment. These motions are described in detail above under the
caption "Judgment in the Kinnicutt litigation." In addition, the Company is also
filing other post trial motions which may have the effect of extending the time
for appeal, which in turn may extend the stay of enforcement of the judgment
beyond May 29, 2000. Such an extension would give the Company additional time to
arrange for financing to post an appeal bond. However, there are no assurances
that the Company will be successful in winning any of its post trial motions or
obtaining financing to post an appeal bond. If the Company is not successful in
its efforts to post the appeal bond and the Company is required to pay the
judgment, the Company's financial condition and ability to continue to
operate may be adversely affected.
The Company is in the process of negotiating with W3 Holdings and Mr.
Whalen to convert their notes into an equity interest in the Company. However,
there are no assurances that these negotiations will be successful.
The ability of the Company to generate a profit is paramount to solving
its liquidity issues and obtaining an extension or refinancing of the FINOVA
loan when that loan matures in June 2001. The Company's ability to improve its
profitablility in future periods will depend upon a number of factors, including
the ability of the Company to maintain a level of production sufficent to meet
current demand. Management believes that several steps can be taken to improve
profitability. These include implementation of better internal controls,
reduction of expenses, and improvements in purchasing, cash management, and
inventory control. The Company believes that the sale of its Retail Division
will allow management to focus on implementing these changes. 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.
IMPACT OF THE YEAR 2000 ISSUE
Prior to January 1, 2000, the Company completed its review of all
equipment and systems of the corporate offices and Motorcycle division in order
to determine and remedy any potential Year 2000 issues. Prior to January 1,
2000, the Company also completed its review of the Year 2000 compliance status
of the Company's vendors and
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customers. The Company has not experienced any service disruptions as a result
of the Year 2000 issues. The Company made upgrades to software and hardware used
by the Retail division which were effective in preventing Year 2000 operating
problems.
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
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. The inclusion of this explanatory
paragraph regarding the ability of the Company to continue as a going concern
could have a material adverse effect on the results of the operations and
financial condition of the Company. 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 this report in Part II, Item 7.
THE INABILITY OF THE COMPANY TO FIND A SUITABLE CANDIDATE TO SERVE AS
CHIEF EXECUTIVE OFFICER MAY HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S
RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On April 3, 2000, Herm Rosenman
resigned as the Company's President and Chief Executive Officer. The inability
of the Company to find a suitable permanent replacement for Mr. Rosenman could
jeopardize the effective management of the Company, which could have a material
adverse effect on its results of operations.
IF THE COMPANY IS REQUIRED TO PAY PUNITIVE DAMAGES IN THE KINNICUTT
CASE, THE COMPANY'S ABILITY TO CONTINUE TO OPERATE ITS BUSINESS MAY BE
MATERIALLY IMPAIRED. As described in Part I, Item 3 of this report, entitled
"Legal Proceedings", 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. In December 1999, a 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 an additional $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. There is currently in effect a stay which
would prevent enforcement of this judgment against the Company until ten days
after the last day on which the Company may file an appeal. Currently, the stay
will expire on May 29, 2000. The Company is in the process of filing certain
post trial motions, one of which, if granted, may strike that portion of the
judgment based on a finding of fraud, leaving only that portion of the judgment
based on a finding of breach of contract. This would have the effect of reducing
the amount of the judgment to approximately $70,000, which amount has already
been set aside by the Company for payment. The court may also grant the Company
a new trial.
These post trial motions may have the effect of extending the time for
appeal, which in turn
15
<PAGE> 17
may extend the stay of the enforcement of the judgment beyond May 29, 2000. If
an appeal bond is posted, enforcement of the judgment will be stayed during the
pendency of the appeal. The Company's insurance carrier recently has informed
the Company that it will not post an appeal bond to stay enforcement of the
judgment after the expiration of the original stay period. It is uncertain at
this time whether the Company will be able to post the appeal bond, and if it
cannot post the appeal bond, what effect the unsatisfied portion of any judgment
may have on the Company. If the Company is required to pay the judgment in the
Kinnicutt case, the Company's ability to continue to operate its business may be
materially impaired. See Item 6 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations.
THE COMPANY MAY NOT BE ABLE TO REPAY OR REFINANCE ITS EXISTING
INDEBTEDNESS OR CONVERT SUCH INDEBTEDNESS TO EQUITY ON TERMS ACCEPTABLE TO THE
COMPANY. The Company's $4.5 million term secured loan with FINOVA Mezzanine
Capital expires in June 2001. The Company also became obligated on March 31,
2000 to repay bridge loans from w3 Holdings, Inc. and William Whalen, a
shareholder of the Company, in the approximate principal amounts of $450,000 and
$156,638, respectively. See discussion in Part II, Item 6 of this report,
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations -General Discussion of Liquidity and Capital Resources."
Accrued and unpaid interest under the w3 Holdings and Whalen loans as of April
14, 2000 is approximately $103,511. The Company currently does not have the
resources to repay the loans from w3 Holdings and Mr. Whalen. The Company will
not be able to repay the FINOVA loan unless it obtains an extension or
refinancing on terms acceptable to the Company. The Company is negotiating with
w3 Holdings and Mr. Whalen to convert their bridge loans plus accrued interest
on such loans into an equity interest in the Company. However, there is no
assurance that the Company will be able either to refinance the FINOVA loan or
to convert the w3 Holdings and Whalen bridge loans into equity on terms
acceptable to the Company. The inability of the Company to reach an agreement
with w3 Holdings and Mr. Whalen on the conversion to equity of their respective
loans, or the inability of the Company to obtain an extension or refinancing of
the FINOVA loan, will have a material adverse effect on the Company's financial
condition.
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.
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
16
<PAGE> 18
- 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 MAY NOT BE ABLE TO IMPLEMENT THE CHANGES NECESSARY TO
ACHIEVE AND MAINTAIN PROFITABILITY IN FUTURE PERIODS. The Company has a history
of operating losses and accumulated deficits. The Company had operating net
losses of approximately $6.1 million and $5.7 million for the fiscal years ended
December 31, 1999 and 1998, respectively. As of December 31, 1999, the Company's
accumulated deficit was approximately $23,800,000. The Company may not be able
to implement the changes necessary to achieve and maintain profitability in
future periods. These changes include implementation of better internal
controls, reduction of expenses, and improvements in purchasing, cash
management, and inventory control. There can be no assurances that the Company
will be able to successfully implement any of these changes, or that the Company
will in fact achieve profitablity in future periods.
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
$19,000 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 81 independent Ultra
Cycles dealers, of which approximately 50 are currently active. The Company may
not be able to maintain or increase its current level of sales if it does not
continue to expand its dealer network, and there is no assurance that the
Company will be able to do so.
THE COMPANY'S COMPETITIVE POSITION WITHIN ITS NICHE OF THE HEAVYWEIGHT
CRUISER MOTORCYCLE MARKET COULD SUFFER IF EXISTING COMPETITORS EXPAND OPERATIONS
OR OTHER MOTORCYCLE MANUFACTURERS INSTITUTE SIMILAR PRODUCT OFFERINGS. The
Company seeks to avoid direct competition with Harley-Davidson, which has the
largest share of the heavyweight cruiser motorcycle market, by competing within
a specialized niche. The Company's competitive strategy focuses on product
performance and style, pricing and service. For example, the Company offers on
all models, at no additional charge over base prices, customized features like
polished or painted high-performance engines and a four-year, unlimited mileage
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 and California Motorcycle Corp. 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 were outstanding at exercise prices
ranging from $1.82 to $5.00. As of the same date, 1,266,387 options were
outstanding at prices ranging from $1.75 to $15.00, and 770,527 of the options
were fully vested. In addition, 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
17
<PAGE> 19
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. In June 1999, the Company became
obligated to issue a warrant to purchase 200,000 additional shares of Common
Stock pursuant to the foregoing provision. 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.
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 60% 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 March 31, 2000, total estimated outstanding obligations of
all 81 dealers is estimated to range between $2,900,000 and $4,400,000. 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-KSB in Item
1 -- "Description of Business", and Item 6 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
ITEM 7. FINANCIAL STATEMENTS
See financial statements appended to the back of this report.
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<PAGE> 20
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers consist of the following
persons:
<TABLE>
<CAPTION>
NAME OFFICE
- ---- ------
<S> <C>
Harold L. Collins......... Interim Chief Operating Officer,
Vice President and General Counsel;
Director
Michael J. Fisher......... Chief Financial Officer
Humbert Powell............ Director
John K. Russell........... Director
Kenneth Schwartz.......... Director
Anne Todd................. Controller
</TABLE>
Set forth below is certain biographical information, present occupation
and business experience for the past five years of each director and executive
officer of the Company. Officers of the Company are elected by the Board of
Directors and hold office until their successors are chosen and qualified, until
their death or until they resign or have been removed from office. All corporate
officers serve at the discretion of the Board of Directors.
HAROLD L. COLLINS, age 49, has served as general counsel of the Company
since November 1998. In April 1999, the board of directors appointed Mr. Collins
as a vice president of the Company. In February, 2000, the Board of Directors
appointed Mr. Collins as a director to fill a vacancy on the board of directors,
and in April 2000 the Board appointed Mr. Collins as interim Chief Operating
Officer upon the resignation of Herm Rosenman, former President and CEO of the
Company. From 1977 until the time he joined the Company, Mr. Collins maintained
a private law practice. His areas of practice included business litigation,
personal injury litigation, family law and adversary proceedings in bankruptcy.
MICHAEL J. FISHER, age 52, was appointed in July 1999 to serve as chief
financial officer. From 1997 until the time he joined the Company, Mr. Fisher
was chief financial officer of Pro-Mart Industries, a consumer laundry and
clothing storage products company. From 1989 to 1996, Mr. Fisher was Vice
President Operations, Service and Finance at Thermador Corporation, a
manufacturer of high-end cooking products.
HUMBERT POWELL, III, age 61, has been a director since December 1995.
Mr. Powell has been an associate with Sanders, Morris and Mundy, an investment
banker and broker/dealer, since December 1996. Prior to joining Sanders, Morris
and Mundy, Mr. Powell held a variety of positions in corporate finance and
investment banking, including Chairman of Marleau, Lemire USA from 1995 to
November 1996 and Senior Managing Director of Bear Stearns & Co. from 1984 to
1994. Mr. Powell also serves on the Board of Directors of Osicom Technologies.
JOHN K. RUSSELL, age 49, has been a director since May 1997. Mr. Russell
is President of the Antique Dealers Association of America, Inc. and owns and
operates a fine arts business. Mr. Russell has over twenty years of retail
experience and an extensive background managing, supervising and consulting in
motorcycle related businesses.
KENNETH SCHWARTZ, age 64, was appointed as a director in April 2000 to
fill a vacancy on the board of directors. From 1990 to 1998, Mr. Schwartz served
as a director of Deloitte & Touche LLP, an accounting and consulting firm. Mr.
Schwartz is also a director of Prospect Medical Holdings, Inc., a company which
manages and administers physician organizations.
ANNE TODD, age 34, was named Controller and appointed corporate
secretary in 1997. Ms. Todd was previously assistant controller for the Company
from 1995 to 1997. Prior to joining the Company she was assistant controller for
American Standard from 1993 to 1995.
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<PAGE> 21
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid by the Company for services rendered in all capacities during
the fiscal years ended December 31, 1999, 1998 and 1997, respectively, to the
Company's chief executive officer and other executive officers named below
during the fiscal year ended December 31, 1999. Where applicable, the figures
set forth below have been adjusted to reflect the Company's reverse stock split
effected as of February 5, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
ANNUAL COMPENSATION SECURITIES
------------------------- RESTRICTED UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS OPTIONS/SARS
--------------------------- ---- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Herm Rosenman, CEO/President(1) ....... 1999 $208,332(2) 0 $ 0 100,000(3)
1998 $208,332(2) $12,800(4) $ 76,875(6) 478,334(7)
1997 $ 69,444(2) 0 $158,646(5) 473,334(8)
Harold L. Collins, Interim 1999 $150,000 0 $ 0 0
Operating Officer, Vice President
and General Counsel(1) ................
1998 $ 12,500 $ 0 $ 0 30,000(9)
1997 $ 0 $ 0 $ 0 $ 0
Michael J. Fisher, CFO (10) ........... 1999 $ 44,717 $ 0 $ 0 $ 0
1998 $ 0 $ 0 $ 0 $ 0
1997 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ----------
(1) Herm Rosenman was appointed CEO and President in September 1997. Harold L.
Collins was appointed Vice President and General Counsel in April 1999. On
April 3, 2000, Mr. Rosenman resigned as President and Chief Executive
Officer and the Board of Directors appointed Mr. Collins as interim Chief
Operating Officer until a replacement for Mr. Rosenman is hired. Other than
the officers listed in the table, no other executive officer earned salary
and bonus at a rate in excess of $100,000 per annum during the fiscal year
ended December 31, 1999.
(2) Mr. Rosenman's employment agreement with the Company, as amended, provides
for salary to be paid in monthly installments of $17,361 for the first,
second and third years of the agreement and not less than $20,000 for the
fourth through seventh years of the agreement. The term of the agreement
commenced in September 1997. In accordance with the terms of the employment
agreement and as previously agreed to by the parties, the Company deferred
payment of $7,361 each month for the months of September and October 1997,
$4,861 each month for the months of November and December 1997 and $2,361
each month during the year of 1998. Therefore, Mr. Rosenman received only
$45,000 in 1997 and $180,000 in 1998, in lieu of the sums of $69,444 and
$208,332, respectively, which he earned during those years under the terms
of his employment agreement. Pursuant to the employment agreement, amounts
deferred in 1997 and 1998 are to be paid in equal monthly installments
throughout the remainder of the term commencing January 1999, determined by
dividing the total amount of payments deferred by the total number of
monthly payments remaining during the term as of January 1, 1999. As of
January 1, 1999, the total amount deferred was $52,778, (the "Deferred
Amount"). During the fiscal year ended December 31, 1999, Mr. Rosenman was
paid $240,000, of which $208,332 was attributable to salary owed to Mr.
Rosenman under the employment agreement and the remainder of $31,668 was
attributable to partial payment of the Deferred Amount. As of December 31,
1999, $21,110 of the Deferred Amount remained outstanding. As set forth in
footnote (1) above, Mr. Rosenman resigned as President and Chief Executive
Officer of the Company on April 3, 2000. The Company is considering
whether any additional sums, other than the remaining portion of the
Deferred Amount, may be due and owing to Mr. Rosenman under his
agreements with the Company subsequent to the date of his resignation.
(3) In May 1999, the Compensation Committee of the Board of Directors granted
to Mr. Rosenman options to purchase 100,000 shares of the Company's common
stock. 50,000 of these options vest upon the sooner to
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<PAGE> 22
occur of: (i) the Company's common stock trading at an average of $6.00 or
higher for both: (A) 90 consecutive trading days during any twelve month
period preceding the filing of the Corporation's year end financial
statements with the SEC, and (B) the ten trading days immediately following
the dated on which the Corporation files its year end financial statements
with the SEC, or (ii) the first to occur of: (A) the termination of Mr.
Rosenman's employment with the Company other than for cause; (B) a change
of control of the Company, whereby substantially all of the assets of the
Company are sold or an investor or group buys over 50% of the Company's
fully diluted shares outstanding; or (C) August 31, 2003. The remaining
50,000 options granted to Mr. Rosenman vest upon the sooner to occur of:
(i) the Company's common stock trading at an average of $9.00 or higher for
both: (A) 90 consecutive trading days during any twelve month period
preceding the filing of the Company's year end financial statements with
the SEC, and (B) the ten trading days immediately following the dated on
which the Company files its year end financial statements with the SEC, or
(ii) the first to occur of: (A) the termination of Mr. Rosenman's
employment with the Company other than for cause; (B) a change of control
of the Company, whereby substantially all of the assets of the Company are
sold or an investor or group buys over 50% of the Company's fully diluted
shares outstanding; or (C) August 31, 2003. As set forth in footnote (1)
above, Mr. Rosenman resigned as President and Chief Executive Officer of
the Company on April 3, 2000. It is the Company's position that, as of the
date of Mr. Rosenman's resignation, none of the 100,000 options were
vested.
(4) On December 28, 1998, in lieu of a cash bonus (i) the vesting schedule of
30,000 shares of restricted stock previously granted to Mr. Rosenman in
1997 was changed; and (ii) the exercise price of certain options to
purchase Common Stock previously granted to Mr. Rosenman was reduced and
the vesting schedule for such options was changed. As set forth in footnote
(1) above, Mr. Rosenman resigned as president and chief executive officer
of the Company in April 3, 2000. It is the Company's position that, as of
the date of Mr. Rosenman's resignation, certain of these options were not
vested. See also notes (5), (6) and (7). In addition, at the end of 1998,
the Board of Directors approved the award of 1998 model motorcycles or a
bonus to certain members of senior management, including Mr. Rosenman. Mr.
Rosenman has not yet accepted a 1998 motorcycle which the Company has made
available to him in satisfaction of the Company's obligation to provide him
with a bonus motorcycle. The Company has valued this 1998 model motorcycle
at approximately $12,800, as indicated in the bonus column in 1998 opposite
Mr. Rosenman's name in the executive compensation table above.
(5) Includes 667 shares of Common Stock granted in consideration of Mr.
Rosenman's services as a consultant to the Company that vested on August 1,
1997, and 30,000 shares granted as of September 1, 1997, pursuant to Mr.
Rosenman's stock grant and stock option agreement, of which 10,000 shares
were originally scheduled to vest on each of September 1, 1998, September
1, 1999 and September 1, 2000. As discussed in notes (4) and (6), on
December 28, 1998 the vesting dates for the first two allotments of 10,000
shares (a total of 20,000 shares) were changed to January 1, 1999 and the
vesting date for the last allotment of 10,000 shares was changed to January
1, 2000. Dividends will be paid on such shares (when issued and
outstanding) only to the same extent, if any, that dividends are paid on
all other outstanding shares of Common Stock.
(6) As described in note (5), the vesting dates of the 30,000 shares originally
awarded to Mr. Rosenman in 1997 were changed on December 28, 1998, with
20,000 shares vesting on January 1, 1999 and 10,000 shares vesting on
January 1, 2000. In the table, this change in vesting dates has been
treated as the grant of a new restricted stock award of 30,000 shares in
1998; however, the 1998 award in effect simply replaces, and is not
cumulative with respect to, the prior award of 30,000 shares in 1997. All
of the 30,000 shares, once vested, are not not issuable until September 1,
2000 or upon termination of Mr. Rosenman's employment, whichever occurs
first. Dividends on the 30,000 shares (when issued and outstanding) will be
paid only to the same extent, if any, that dividends are paid on all other
outstanding shares of Common Stock. As of December 31, 1999, Mr. Rosenman
held a total of 667 shares of restricted stock awarded to him as
compensation, and the total value of such shares, based on the Nasdaq
closing sales price for the Company's Common Stock on that date, was
21
<PAGE> 23
$541.94.
(7) Includes non-qualified options to purchase 473,334 shares of Common Stock
that are reflected in this table as securities underlying options
originally granted in the fiscal year ended December 31, 1997. 460,000 of
these options were granted pursuant to a stock grant and stock option
agreement between the Company and Mr. Rosenman. See description under
"Employment Agreements and Repricing of Options." The 473,334 options are
included in the table for 1998 because they were all repriced on October
22, 1998 at an exercise price of $4.00 and subsequently repriced on
December 28, 1998 at an exercise price of $3.00. Pursuant to the amendment
to Mr. Rosenman's stock grant and stock option agreement, the vesting
schedule for 380,000 of the 460,000 options originally granted under that
agreement was amended in December 1998 to provide, in partial substitution
for a cash bonus, for vesting of the remaining then - unvested 380,000
options as follows: 80,000 options (of which 40,000 options were
performance-based options) on December 31, 1998 and 100,000 options (of
which 50,000 options are performance-based options) on each of December 31,
1999, December 31, 2000 and December 31, 2001. It is the Company's
position that, as of the date of Mr. Rosenman's resignation, 210,000 out of
the 460,000 options granted under Mr. Rosenman's stock grant and stock
option agreement, as amended, were vested. The 478,334 figure in the
executive compensation table also includes options to purchase 5,000 shares
of Common Stock granted in 1998 in consideration of Mr. Roseman's services
as a director of the Company.
(8) Includes non-qualified options to purchase 3,334 shares of Common Stock
granted on August 1, 1997 in consideration of Mr. Rosenman's services as a
consultant to the Company and non-qualified options to purchase 470,000
shares of Common Stock granted on September 1, 1997, of which 460,000
options were granted pursuant to Mr. Rosenman's stock grant and stock
option agreement, as amended, and 10,000 options were granted in
consideration of Mr. Rosenman's services as a director of the Company. It
is the Company's position that, as of the date of Mr. Rosenman's
resignation, 210,000 out of the 460,000 options granted under Mr.
Rosenman's stock grant and stock option agreement, as amended, were vested.
(9) In November 1998, the Company granted to Mr. Collins options to purchase
30,000 shares of the Company's common stock at an exercise price of $3.63
per share. These options expire in November 2003.
(10) Michael Fisher was appointed Chief Financial Officer in July 1999 at an
annual salary of $100,000 per year.
STOCK OPTIONS
The following table sets forth certain information with respect to stock
options granted to Herm Rosenman during the fiscal year ended December 31, 1999.
Mr. Rosenman resigned as President and Chief Executive Officer on April 3, 2000.
No other executive officer was awarded stock options during the year.
OPTION GRANTS IN THE FISCAL YEAR
ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE
NAME GRANTED 1998(3) ($/SHARE) EXPIRATION DATE
---- ------------- ------------- --------- ---------------
<S> <C> <C> <C> <C>
Herm Rosenman................ 100,000(1) 46.73% $3.06 5/29/04
Herm Rosenman................ 2,000(2) .93% $1.75 7/23/04
</TABLE>
- ----------
(1) In May 1999, the Compensation Committee of the Board of Directors granted to
Mr. Rosenman options to purchase 100,000 shares of the Company's common
stock. 50,000 of these options vest upon the sooner to occur of: (i) the
Company's common stock trading at an average of $6.00 or higher for both:
(A) 90 consecutive
22
<PAGE> 24
trading days during any twelve month period preceding the filing of the
Corporation's year end financial statements with the SEC, and (B) the ten
trading days immediately following the dated on which the Corporation files
its year end financial statements with the SEC, or (ii) the first to occur
of: (A) the termination of Mr. Rosenman's employment with the Company other
than for cause; (B) a change of control of the Company, whereby
substantially all of the assets of the Company are sold or an investor or
group buys over 50% of the Company's fully diluted shares outstanding; or
(C) August 31, 2003. The remaining 50,000 options granted to Mr. Rosenman
vest upon the sooner to occur of: (i) the Company's common stock trading at
an average of $9.00 or higher for both: (A) 90 consecutive trading days
during any twelve month period preceding the filing of the Company's year
end financial statements with the SEC, and (B) the ten trading days
immediately following the dated on which the Company files its year end
financial statements with the SEC, or (ii) the first to occur of: (A) the
termination of Mr. Rosenman's employment with the Corporation other than for
cause; (B) a change of control of the Corporation, whereby substantially all
of the assets of the Corporation are sold or an investor or group buys over
50% of the Corporation's fully diluted shares outstanding; or (C) August 31,
2003. As set forth in footnote (1) to the executive compensation table, Mr.
Rosenman resigned as President and Chief Executive Officer of the Company on
April 3, 2000. It is the Company's position that, as of the date of Mr.
Rosenman's resignation, none of the 100,000 options were vested.
(2) These options are exercisable commencing July 23, 1999. These options were
granted in consideration of Mr. Rosenman's services as a director of the
Company.
(3) Includes, for purposes of this table, the total number of options granted to
Mr. Rosenman as a director.
The following table sets forth certain information as to the fiscal year-end
value of unexercised options of Herm Rosenman, who resigned as the Company's
President and Chief Executive Officer on April 3, 2000, and Harold L. Collins,
Interim Chief Operating Officer, Vice President and General Counsel. No other
named executive officer owned options as of December 31, 1999. Neither Mr.
Rosenman nor Mr. Collins exercised any options during the fiscal year ended
December 31, 1999.
AGGREGATE OPTION EXERCISES IN
FISCAL YEAR ENDED DECEMBER 31, 1999 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN THE MONEY OPTIONS
SHARES OPTIONS AT 12/31/99 AT 12/31/99(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herm Rosenman......... 0 -- 230,334 350,000 0 0
Harold L. Collins..... 0 -- 30,000 0 0 0
</TABLE>
- ----------
(1) The value of the Company's Common Stock for the purposes of the calculation
was based upon the closing sales price for the Company's Common Stock on
December 31, 1999, as reported by The Nasdaq Stock Market, minus the
exercise price.
EMPLOYMENT AGREEMENTS AND REPRICING OF OPTIONS
The Company entered into a three-year employment agreement with Herm
Rosenman in September 1997, pursuant to which Mr. Rosenman was employed as
President and Chief Executive Officer of the Company. The term of this agreement
was extended to five years by amendment in December 1997 and the term was
subsequently extended to seven years by amendment in December 1999. Under the
terms of this agreement, as amended, Mr. Rosenman is to receive base
compensation of $17,361 for each month of the first, second and third years, and
at least $20,000 for each month of the fourth through seventh years, of the
term. In accordance with the terms of the employment agreement and as agreed to
by the parties, the Company deferred payment of $7,361 each month for the months
of September and October 1997, $4,861 each month for the months of November and
December 1997 and $2,361 each month during the year of 1998. Pursuant to the
employment agreement, the Company is to pay all amounts so deferred in equal
monthly installments throughout the remainder of the term commencing January
1999, determined by dividing the total amount of payments deferred by the total
number of monthly payments remaining
23
<PAGE> 25
during the term as of January 1, 1999. As of January 1, 1999, the total amount
deferred was $52,778 (the "Deferred Amount"). As of December 31, 1999, the
Company paid Mr. Rosenman $31,668 in partial payment of the Deferred Amount.
Under the terms of his employment agreement, Mr. Rosenman is also
eligible to participate in any bonus plans applicable to executive officers of
the Company as may be established by the Board. The employment agreement also
provides for reimbursement of Mr. Rosenman for certain automobile expenses and
provides him with a motorcycle manufactured by the Company for his personal use.
If Mr. Rosenman serves the full term of his employment agreement, title to this
motorcycle will be transferred to him at the end of the term. The employment
agreement further provides that in the event that Mr. Rosenman becomes
physically or mentally disabled or incapacitated during any period of the term,
the Company will pay him his base compensation less the aggregate amount of all
income disability benefits that he may, or may be entitled to, receive for such
period. Mr. Rosenman's employment agreement also provides that on the date of
any termination without cause of Mr. Rosenman's employment under his employment
agreement arising from a change in control, the Company is obligated to pay to
Mr. Rosenman an amount equal to 18 months' salary, as determined according to
the amount paid to Mr. Rosenman at the time of termination, payable on a monthly
basis.
As set forth in footnote (1) to the executive compensation table, Mr.
Rosenman resigned as President and Chief Executive Officer of the Company on
April 3, 2000. The Company is considering whether any additional sums, other
than the remaining portion of the Deferred Amount, may be due and owing to Mr.
Rosenman under his agreements with the Company subsequent to the date of his
resignation.
In connection with Mr. Rosenman's employment agreement, the Company and
Mr. Rosenman entered into a stock grant and stock option agreement in December
1997. Pursuant to the stock grant and stock option agreement, the Company agreed
to grant 30,000 shares of Common Stock (after giving effect to the reverse stock
split of the Company's Common Stock that was effected as of February 5, 1998) to
Mr. Rosenman, which shares would vest in equal allotments of 10,000 shares on
each of September 1, 1998, September 1, 1999 and September 1, 2000, provided
that Mr. Rosenman was still employed by the Company under his employment
agreement at each such vesting date. Under an amendment to the stock grant and
stock option agreement entered into in December 1998, the vesting dates for the
first two allotments of 10,000 shares (a total of 20,000 shares) were changed to
January 1, 1999, and the vesting date for the last allotment of 10,000 shares
was changed to January 1, 2000 in lieu, partially, of a cash bonus to Mr.
Rosenman. Once vested, none of the 30,000 shares are issuable until September 1,
2000 or upon termination of Mr. Rosenman's employment, whichever occurs first.
Under the original stock grant and stock option agreement, the Company
agreed to grant 460,000 options to Mr. Rosenman at an exercise price of $5.00
per share (as adjusted for the reverse stock split of the Common Stock of the
Company effected as of February 5, 1998), which shares would vest in specified
allotments over a period of five years. In October 1998, these options, together
with 13,334 previously granted options, were canceled and new options were
issued at an exercise price of $4.00 per share, which price included a premium
of approximately 10% above the fair market value of the Common Stock as of the
date of approval by the Compensation Committee. The Compensation Committee
approved the reduction in the exercise price from $5.00 to $4.00 to more closely
reflect the market price of the Common Stock and thereby maintain the value of
the options as an incentive. As a result of this stock option repricing, the
Company canceled a total of 473,334 stock options and granted the same number of
new stock options at the aforementioned exercise price of $4.00 per share.
In December 1998, all 473,334 options were canceled and new options were
issued at an exercise price of $3.00 per share, which price includes a premium
of approximately 20% above the fair market value of the Common Stock as of the
date of approval by the Compensation Committee. In lieu, partially, of a cash
bonus, the Compensation Committee approved the reduction in the exercise price
from $4.00 to $3.00 per share to provide greater economic incentive to Mr.
Rosenman to remain with the Company and to avoid the expense to the Company of a
cash or stock bonus. As a result of this stock option repricing, the Company
canceled a total of 473,334 stock options and granted the same number of new
stock options at the aforementioned exercise price of $3.00 per share. Under the
original stock grant and stock option agreement, the vesting schedule for the
460,000 options granted thereunder provided (after giving effect to the reverse
stock split of the Company's Common Stock that was effected as of February 5,
1998) for vesting of 80,000 options on September 1, 1998, 80,000 options on
September 1, 1999 (of which 40,000 were performance-based options), and 100,000
options (of which 50,000 were performance-based options) on each of September 1,
2000, September 1, 2001 and September 1, 2002. Pursuant to the amendment to Mr.
Rosenman's stock grant and stock option agreement, this vesting schedule was
amended in December 1998 to provide, in partial substitution for a cash bonus,
for vesting of the remaining then - unvested 380,000 options as follows: 80,000
options (of which 40,000 options were performance-based options) on December 31,
1998 and 100,000 options (of which 50,000 options are performance-based options)
on each of December 31, 1999, December 31, 2000 and
24
<PAGE> 26
December 31, 2001. It is the Company's position that, as of the date of
Mr. Rosenman's resignation, 210,000 out of the 460,000 options granted under
Mr. Rosenman's stock grant and stock option agreement, as amended, were vested.
At the end of 1998, the Board of Directors approved the award of 1998
model motorcycles or a bonus to certain members of senior management, including
Mr. Rosenman. Mr. Rosenman has not yet accepted a 1998 motorcycle which the
Company has made available to him in satisfaction of the Company's obligation to
provide him with a bonus motorcycle. The Company has valued this 1998 model
motorcycle at approximately $12,800.
In May 1999, the Compensation Committee of the Board of Directors
granted to Mr. Rosenman options to purchase 100,000 shares of the Company's
common stock. 50,000 of these options are to vest upon the sooner to occur of:
(i) the Company's common stock trading at an average of $6.00 or higher for
both: (A) 90 consecutive trading days during any twelve month period preceding
the filing of the Corporation's year end financial statements with the SEC, and
(B) the ten trading days immediately following the dated on which the
Corporation files its year end financial statements with the SEC, or (ii) the
first to occur of: (A) the termination of Mr. Rosenman's employment with the
Company other than for cause; (B) a change of control of the Company, whereby
substantially all of the assets of the Company are sold or an investor or group
buys over 50% of the Company's fully diluted shares outstanding; or (C) August
31, 2003. The remaining 50,000 options granted to Mr. Rosenman are to vest upon
the sooner to occur of: (i) the Company's common stock trading at an average of
$9.00 or higher for both: (A) 90 consecutive trading days during any twelve
month period preceding the filing of the Company's year end financial statements
with the SEC, and (B) the ten trading days immediately following the dated on
which the Company files its year end financial statements with the SEC, or (ii)
the first to occur of: (A) the termination of Mr. Rosenman's employment with the
Corporation other than for cause; (B) a change of control of the Corporation,
whereby substantially all of the assets of the Corporation are sold or an
investor or group buys over 50% of the Corporation's fully diluted shares
outstanding; or (C) August 31, 2003. It is the Company's position that, as of
the date of Mr. Rosenman's resignation, none of the 100,000 options were vested.
In November 1998, the Company entered into a three year employment
agreement with Harold L. Collins, pursuant to which Mr. Collins is employed as
the Company's general counsel at an initial annual salary of $150,000. Mr.
Collins' salary will be adjusted annually based on a review of his performance
and the Company's financial condition at the time of such adjustment. The
employment agreement provides that Mr. Collins shall be eligible to participate
in such bonus plans, stock grant and stock option plans applicable to executive
officers of the Company as may be established by the Board of Directors from
time to time, pursuant to the terms of such plans. Upon termination upon a
change of control, Mr. Collins is entitled to payment equal to six months
salary, based on his then current rate of compensation. If he is terminated for
any other reason, he is entitled to receive six months of severance pay if he
has been employed for one year or less, and one year of severance pay if he has
been employed for more than one year. In November 1998, the Company also granted
to Mr. Collins options to purchase 30,000 shares of the Company's common stock
at an exercise price of $3.63 per share. These options expire in November 2003.
COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 1999, no cash compensation was
paid to directors of the Company for their services as directors.
As partial consideration for Mr. Rosenman's services as a director of
the Company, on September 1, 1997, the Company granted to Mr. Rosenman options
to purchase 10,000 shares of Common Stock at an exercise price of $5.00 per
share,
25
<PAGE> 27
which were repriced at $4.00 per share on October 22, 1998 and repriced again
at $3.00 per share on December 28, 1998.
In October 1998, options to purchase 10,000 shares at a price of $7.90
that were previously granted to Humbert Powell and options to purchase 10,000
shares at a price of $7.05 that were previously granted to John Russell were
canceled and new options were issued to each of them at an exercise price of
$4.00 per share, which price includes a premium of approximately 10% above the
fair market value of the Common Stock as of the date of approval by the
Compensation Committee. The Compensation Committee approved the reductions in
the exercise price from $7.90 and $7.05 to $4.00 to more closely reflect the
market price of the Common Stock and thereby maintain the value of the options
as an incentive. As a result of this stock option repricing, the Company
canceled a total of 20,000 stock options and granted the same number of new
stock options (10,000 options to each of Humbert Powell and John Russell) at the
aforementioned exercise price of $4.00 per share.
In July 1998, the Company's stockholders approved a stock option plan
(the "Plan") that authorizes incentive stock options for employees (including
officers) and non-qualified stock options for non-employee directors and
consultants. A total of 50,000 shares of Common Stock were reserved for issuance
to directors upon exercise of options granted under the Plan.
Under the Plan, as of the date of their first election or appointment as
directors, each director of the Company is automatically granted non-qualified
stock options to purchase 5,000 shares of the Company's Common Stock, and
thereafter on each anniversary of their first election or appointment as
director, each director of the Company will automatically be granted
non-qualified stock options to purchase 2,000 shares of the Company's Common
Stock. Except as expressly authorized by the Plan, directors of the Company who
are members of the committee that administers the Plan are not otherwise
eligible to participate in the Plan. The exercise price for each non-qualified
stock option granted under the Plan is the fair market value of the Company's
Common Stock on the date of grant. Each such non-qualified stock option has a
term of five years, subject to earlier termination. If a holder of any
non-qualified stock option granted under the Plan no longer serves on the Board,
then the outstanding non-qualified stock options of such holder will expire one
year after such termination, or their stated expiration date, whichever occurs
first.
In September 1999, the Company's five directors were each awarded
options under the Plan for the purchase of 2,000 shares of Common Stock, all
with an exercise price of $1.75 per share, none of which were exercised during
that year. The options expire in September 2004.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who beneficially own
more than ten percent of a registered class of the Company's equity securities
("reporting persons"), to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Reporting persons
are required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
reports and amendments thereto on Forms 3, 4 and 5 furnished to the Company by
reporting persons during, and with respect to, its fiscal year ended December
31, 1999, and on a review of written representations from reporting persons to
the Company that no other reports were required to be filed for such fiscal
year, all Section 16(a) filing requirements applicable to the Company's
directors, executive officers and greater than ten percent beneficial owners
during such period were satisfied in a timely manner.
26
<PAGE> 28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership
of the Company's voting securities, which include its Common Stock and Series B
Preferred Stock, as of April 11, 2000, by each director of the Company, the
chief executive officer of the Company, each person known by the Company to be
the beneficial owner of more than five percent of any class of the Company's
voting securities, and all of the directors and the chief executive officer of
the Company as a group, excluding in each case rights under options or warrants
not exercisable within 60 days. All persons named have sole voting power and
investment power over their shares except as otherwise noted. The figures set
forth below have been adjusted to reflect the Company's reverse stock split as
of February 5, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER SHARES OWNED CLASS
- -------------- ------------------- ------------ ----------
<S> <C> <C> <C>
Common Stock Humbert Powell, III(1) 17,000(2) *(3)
712 Fifth Avenue, 11th Floor
New York, NY 10019
Common Stock John K. Russell(4) 17,000(5) *(3)
3810 Wacker Drive
Mira Loma, CA 91752
Common Stock Harold L. Collins (6) 30,000(7) *(3)
3810 Wacker Drive
Mira Loma, CA 91752
Common Stock Michael J. Fisher (8) 0 *(3)
3810 Wacker Drive
Mira Loma, CA 917523
Common Stock Kenneth Schwartz(9) 0 *
3810 Wacker Drive
Mira Loma, CA 91752
Common Stock Bulldog Capital Management 470,168(10) 5.2%(3)
Limited Partnership
33 Garden Avenue North
Suite 750
Clearwater, FL 34615
Common Stock Austost Anstalt Schaan 694,263(11) 7.8%
7440 Fuerstentum
Lichenstein, Landstrasse 163
Common Stock Tusk Investments Inc. 607,705 6.8%
P.O. Box 4603
Zurich, Switzerland
Common Stock Directors and Officers as a Group(5) 64,000 *%(3)
Series B Pfd. Stock Mull Acres Investments, Inc. 600,000 85.4%(12)(13)
c/o Furman Selz
230 Park Avenue
New York, NY 10169
Series B Pfd. Stock Len Lichter 102,194 14.6%(14)(13)
405 Park Avenue
New York, NY 10022
Series B Pfd. Stock Directors and Officers as a Group(5) 0 0%(13)
</TABLE>
27
<PAGE> 29
- ----------
* Represents less than 1% of the outstanding shares of Common Stock of the
Company as of April 11, 2000.
(1) Mr. Powell is a director of the Company.
(2) Issuable upon exercise of presently exercisable options.
(3) Percent of class calculation based on 8,947,493 shares of Common Stock
outstanding as of April 11, 2000, plus number of shares of Common Stock, if
any, issuable to the named securityholders upon conversion of preferred
stock and/or exercise of options and warrants exercisable within 60 days.
(4) Mr. Russell is a director of the Company.
(5) Issuable upon exercise of presently exercisable options.
(6) Mr. Collins is a director, interim chief operating officer, vice president
and general counsel of the Company.
(7) Issuable upon the exercise of currently exercisable options.
(8) Mr. Fisher is chief financial officer of the Company.
(9) Mr. Schwartz is a director of the Company.
(10) Bulldog Capital Management Limited Partnership ("BCM, L.P."), Bulldog
Capital Management, Inc.("BCM, Inc."), the general partner of BCM, L.P.,
Ronald J. Pollack ("Pollack"), the controlling shareholder of BCM Inc., and
Foxhound Fund Limited Partnership ("Foxhound"), of which BCM, L.P. is the
general partner, filed an Amendment No. 1 to Schedule 13G dated December
31, 1999 indicating that BCM, L.P., BCM, Inc., and Pollack share voting
power and dispositive power with respect to 470,168 shares, and that BCM,
L.P., BCM, Inc., Pollack and Foxhound share voting power and dispositive
power with respect to 343,834 shares. The Amendment No. 1 to Schedule 13G
also states that BCM, L.P. is a registered investment adviser whose clients
have the right to receive or the power to direct the receipt of dividends
from, or the proceeds from the sale of the shares, and that no individual
client's holdings are more than 5% of the class. The principal offices of
BCM, L.P., BCM, Inc., Foxhound and Pollack are located at 33 Garden Avenue
North, Suite 750, Clearwater, Florida 34615.
(11) Based on Amendment No. 2 to Schedule 13A filed by Austost Anstalt Schaan on
April 7, 2000.
(12) Represents 1.3% of the outstanding Common Stock of the Company as of March
7, 2000, assuming conversion of said 600,000 shares of Series B Preferred
Stock to Common Stock on such date.
(13) Percent of class calculation based on 702,194 shares of Series B Preferred
Stock outstanding as of April 11, 2000.
(14) Represents less than 1% of the outstanding Common Stock of the Company as
of April 11, 2000, assuming conversion of said 102,194 shares of Series B
Preferred Stock to Common Stock on such date.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996 and 1997, the Company incurred a total of $115,603 fees to
Meyer, Duffy & Associates, Inc. ("Meyer, Duffy"), for consulting services with
respect to capital raising. Mr. Don Duffy, a former director of the Company, is
a principal of Meyer, Duffy. Mr. Duffy resigned from the board of directors on
December 31, 1999. The fees were paid by the Company in May and June of 1998.
In private offerings in January and June of 1997, the Company sold
$2,210,000 principal amount of 12% promissory notes and $2,710,000 principal
amount of 9.75% promissory notes, respectively. MD Strategic L.P. ("MD
Strategic"), PV II L.P. ("PV II") and MD Ventures III ("MDV III"), partnerships
in which Mr. Duffy is a
28
<PAGE> 30
general partner, purchased an aggregate of $1,480,000 of such notes. In August
1998, the notes held by the partnerships plus accrued interest thereon were
converted into a total of 1,559,742 shares of Series B Preferred Stock. These
shares were subsequently converted into a total of 311,950 shares of Common
Stock, after giving effect to the Company's reverse stock split which became
effective on February 5, 1998 (the "reverse split").
In connection with the January 1997 issuance of the 12% promissory
notes, the Company issued 1,105,000 warrants ("C Warrants") to purchase an
equivalent number of shares of Common Stock (221,000 shares of Common Stock on a
post-reverse split basis). Of this number, a total of 375,000 C Warrants were
issued to MD Strategic and PV II. In September 1997, MD Strategic and PV II
received 275,000 shares of Common Stock (55,000 shares on a post reverse split
basis) upon the exercise of an equivalent number of warrants. PV II continues to
hold Series C Warrants entitling it to purchase 20,000 shares of Common Stock on
a post-reverse split basis.
In connection with the June 1997 issuance of the 9.75% promissory notes,
the Company issued 1,367,501 warrants ("E Warrants") to purchase an equivalent
number of shares of Common Stock of the Company (273,500 shares of Common Stock
on a post-reverse split basis). Of this number, a total of 365,000 E Warrants
were issued to MD Strategic and MDV III. These warrants entitle MD Strategic and
MDV III to purchase a total of 73,000 shares of Common Stock on a post reverse
split basis.
In February 1998, pending the completion of the Company's Series C
Preferred Stock offering, the Company obtained unsecured bridge loans in the
amounts of $500,000 and $300,000, respectively, from MD Strategic and MDV IV,
L.P. ("MDV IV"), partnerships in which Mr. Duffy is a principal. Both loans bore
interest at 12%. MD Strategic and MDV IV also received a total of 150,000
warrants at an exercise price $5.00 per share, pending completion of the Series
C Preferred Stock offering. In April 1998, MD Strategic was issued 48 units of
Series C Preferred Stock and 60,000 additional warrants for total consideration
of $1.2 million consisting of $700,000 in cash and conversion of its $500,000
promissory note. In August 1998, these 48 units were converted into 396,040
shares of Common Stock. In April 1998, MDV IV was issued 12 units of Series C
Preferred Stock and 15,000 additional warrants in exchange for conversion of its
$300,000 promissory note. In August 1998, these 12 units were converted into
99,010 shares of Common Stock.
On April 1, 1998, Meyer, Duffy entered into a Consulting Agreement with
the Company pursuant to the terms of which Meyer, Duffy agreed to provide the
Company consulting services with respect to capital raising and providing
industry research in exchange for a fee of $117,600 (payable in monthly
installments of $4,900 over a period of two years) and warrants to purchase
25,000 shares of Common Stock of the Company with an exercise price of $4.00 per
share. The Company has made payments totaling $67,691 under the Consulting
Agreement through the date hereof.
In October 1998, the Company obtained another bridge loan from MD
Strategic in the amount of $300,000. The loan is 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 has agreed to extend the term of the note to March 31, 2000.
The Company is currently negotiating with W3 Holdings to convert its notes into
an equity interest in the Company.
In November 1999, the Company obtained another 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 March 31, 2000. In January 2000, the notes were replaced by two
amended and restated promissory notes in the principal amounts of $156,638 and
$150,000, respectively. The amended and restated $156,638 note evidences
$150,000 of the principal amount of the original $200,000 note, $4,338 of
accrued interest on the original $200,000 note and $2,300 of accrued interest on
the original $100,000 note. The amended and restated $150,000 note evidences the
entire principal amount of the original $100,000 note, plus $43,362 of the
original principal amount of the $200,000 note. Both the $156,638 and $150,000
amended and restated notes bear interest at a rate of 12% per annum and mature
on March 31, 2000. Mr. Whalen subsequently assigned the amended and restated
note in the amount of $150,000 to W3 Holdings, while continuing to hold the
amended and restated $156,638 note. The Company is currently negotiating with W3
Holdings and Mr. Whalen to convert both amended and restated notes into an
equity interest in the Company.
In May 1998, the Company entered into an agreement with Cana Capital
Corporation, a company owned by Bruce Scott, a former director, 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 in whole or in part 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 is defending the action and is cross-complaining against Cana Capital to
offset the balance owed on the floor financing, which, according to the
Company's records, is approximately $309,087 as of December 31, 1999. The
Company believes that it has potential offsets against Cana Capital and Mr.
Scott which would reduce this balance. Advances under the Cana Capital line of
credit bear interest at a rate of 2% over the prime rate if used to finance the
acquisition of new vehicles, and 5% over the prime rate if used to finance the
acquisition of used vehicles. As of March 31, 2000, the interest rate for
advances on new vehicles and used vehicles was 10.83% and 13.83%, respectively.
Settlement negotiations as to all claims against Mr. Scott, Cana Capital and
other affiliated companies of Mr. Scott (see discussion of Big Bike matter
below) are currently pending.
29
<PAGE> 31
In February 1998, the Company entered into a license agreement with Big
Bike Boutique, Inc. ("BBB"), a company owned by Bruce Scott, a director of the
Company and owner of four independently operated Bikers Dream dealerships,
pursuant to which the Company licensed its name to BBB for the purpose of
selling apparel and accessories. The agreement was terminated in October 1998
pursuant to a termination of license agreement and mutual release. In connection
with the termination agreement, the Company issued to Mr. Scott in February 1999
16,000 shares of Common Stock.
In September 1998, the Company entered into a sublease agreement and a
repayment agreement with Big Bike of Daytona, Inc. ("Big Bike"), a Florida
corporation owned by Mr. Scott. Pursuant to the terms of the sublease agreement,
the Company agreed to sublease to Big Bike, for an original term of three years,
with an option to renew for an additional three years, premises to be used by
Big Bike for the operation of an independent motorcycle retail business. Under
the repayment agreement, the Company agreed to reimburse Big Bike for a portion
of the cost of certain tenant improvements advanced by Big Bike; such
reimbursement to be made by an offset by Big Bike against the rent otherwise due
under the sublease. All profits made by Big Bike on sales of motorcycles, parts
and other inventory consigned by the Company were to be applied to rent due
under the sublease until the amount paid under the sublease in any given year
equaled the rent the Company is obligated to pay on the master lease for the
premises; thereafter, Big Bike was obligated to pay the Company half of net
profits on sales of consigned inventory from the Company. Total rent due under
the sublease was capped at the lesser of actual net profits from the sale of
consigned inventory from the Company or the amount owed by the Company under the
master lease. Due to a dispute with Mr. Scott, the Company withheld payment on
the master lease, causing Mr. Scott to declare a default on his sublease and
repayment agreement and to repudiate any further obligations under these
agreements. Settlement negotiations as to all claims against Mr. Scott and Big
Bike are currently pending.
The Company has entered into an employment agreement and a stock grant
and stock option agreement with Herm Rosenman, president and chief executive
officer of the Company. See Item 10 -- "Executive Compensation." The Company has
also entered into an employment agreement with Harold L. Collins, vice president
and general counsel of the Company. See Item 10 -- "Executive Compensation."
In May 1998, the Company entered into a three-year employment agreement
with Diana Rosenman pursuant to which Ms. Rosenman is employed as Director of
Marketing and Public Relations. Ms. Rosenman is the wife of Herm Rosenman, the
Company's former president and chief executive officer. Under the terms of the
employment agreement, Ms. Rosenman earns an annual minimum salary of $110,000,
subject to annual review by the Board's compensation committee. In addition, the
Company agreed to grant Ms. Rosenman an option to purchase 16,000 shares of the
Company's Common Stock at $4.00 per share, vesting over a period of three years.
Upon termination other than for cause, Ms. Rosenman is entitled to payment equal
to six months salary, based on her then current rate of compensation. In May
1999, the compensation committee of the board of directors elected to grant Ms.
Rosenman a salary increase of $10,000 per annum, plus options to purchase an
additional 37,000 shares of the Company's Common Stock at an exercise price of
$3.06 per share.
In November 1999, the Company issued Mr. Duffy the compensation due to
him for time served as co-CEO in 1997. Mr. Duffy was entitled to receive a
motorcycle valued at $20,000. In lieu of a motorcycle Mr. Duffy received a Cobra
replica sports car that was exchanged for three motorcycles valued on the
Company's books at approximately $26,000. The Company incurred the expense of
$500 for the transportation of the motor vehicle to Mr. Duffy.
In January 2000, the Company provided Mr. Rosenman with a non-bearing
interest loan for $60,000. The loan was repaid in March 2000.
During the fiscal year ended 1999, certain managers were awarded a
motorcycle as additional compensation for 1998.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
a. LIST OF EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization dated August 4, 1994 among HDL Communications (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 18, 2000 between Bikers Dream, Inc. and V-Twin
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
Holdings, Inc.(12)
2.3 Asset Purchase Agreement dated January 30, 1997 among the Company, Ultra Acquisition Corporation and Mull Acres
Investments, Inc.(3)
3.1 Articles of Incorporation, as amended, of the Company (formerly known as HDL Communications).(1)
3.1.1 Certificate of Amendment of Articles of Incorporation dated June 21, 1996.(4)
3.1.2 Certificate of Correction of Certificate of Amendment of Articles of Incorporation dated July 25, 1997.(5)
3.1.3 Certificate of Ownership of HDL Communications (now known as 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.(7)
3.1.6 Certificate of Determination of Series D Convertible Preferred Stock.(10)
3.2 Bylaws, as amended, of the Company.(1)
4.1 Form of Certificate of Common Stock of the Company.(11)
4.2 Articles of Incorporation of Company, as amended (included as Exhibits 3.1, 3.1.1, 3.1.2, 3.1.4, 3.1.5 and 3.1.6).
4.3 Bylaws, 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 (included as Exhibit 10.25).
4.5 First Amendment to Loan Agreement and Loan Documents dated as of January 31, 2000 between FINOVA Mezzanine Capital
Inc. and the Company and Ultra Motorcycle Company (f/k/a Ultra Acquisition Corporation) as Borrowers (included as
Exhibit 10.26).
10.1 Lease dated August 5, 1993 between the Company and McFadden Plaza.(1)
10.2 Lease dated November 1, 1994 between the Company and Valley View Partnership.(1)
10.3 Lease dated February 8, 1995 between the Lily Company and Jim Kinnicutt and Susan Rasmussen d/b/a Bikers Dream of
Sacramento.(4)
10.4 Lease dated October 30, 1996 between the Company and Inland Industries.(4).
10.5 Form of Series D Preferred Stock Subscription Agreement dated February 5, 1999.(10)
10.6 Form of Series D First Put Stock Subscription Agreement dated October 12, 1999. (13)
10.7 The 1995 Incentive Stock Option Plan of the Company, as amended.(2)+
10.8 The 1995 Non-Qualified Stock Option Plan of the Company, as amended.(2)+
10.9 The 1995 Non-Qualified Directors' Stock Option Plan of the Company, as amended.(2)+
10.10 1998 Stock Compensation Plan.(9)+
10.11 Bikers Dream, Inc. 1998 Stock Option Plan.(8)+
10.12 Security Agreement dated January 30, 1997 between the Company and Mull Acres Investments, Inc.(4)
10.13 Lease dated February 12, 1996 between Mull Acres Investments, Inc. and Lincoln Riverside Business Center.(4)
10.14 Lease dated October 11, 1996 between Mull Acres Investments, Inc. and Lincoln Riverside Business Center.(4)
10.15 Employment Agreement dated August 31, 1997 between the Company and Herm Rosenman.(6)+
10.16 Amendment to Employment Agreement dated August 31, 1997 between the Company and Herm Rosenman.(6)+
10.17 Stock Grant and Stock Option Agreement dated December 24, 1997 between the Company and Herm Rosenman.(6)+
10.18 Amendment to Stock Grant and Stock Option Agreement dated as of December 28, 1998 between the Company and Herm
Rosenman.(11)
10.19 Second Amendment to Employment Agreement dated as of December 31, 1999 between the
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
Company, Ultra Acquisition Corporation and Herm Rosenman.
10.20 Employment Agreement, dated as of November 1, 1998 between the Company and Harold L. Collins.
10.21 Amended and Restated Promissory Note dated October 13, 1998 payable to the order of MD Strategic L.P. in the amount of
$300,000.(14)
10.22 Allonge dated January 24, 2000 assigning to w3 Holdings, Inc. Amended and Restated Promissory Note dated October 13,
1998 payable to the order of M.D. Strategic L.P.
10.23 Letter Agreement from w3 Holdings, Inc. extending term of Amended and Restated Promissory Note dated October 13, 1998
payable to the order of M.D. Strategic L.P.
10.24 Consulting Agreement dated April 1, 1998 between the Company and Meyer Duffy & Associates.(11)
10.25 Loan Agreement dated June 22, 1998 between Sirrom Capital Corporation d/b/a Tandem Capital and the Company and Ultra
Acquisition Corporation as Borrowers.(11)
10.26 First Amendment to Loan Agreement and Loan Documents dated as of January 31, 2000 between FINOVA Mezzanine Capital
Inc. and the Company and Ultra Motorcycle Company (f/k/a/ Ultra Acquisition Corporation) as Borrower.
10.27 12% Secured Promissory Note Due June 22, 2001 by the Company and Ultra Acquisition Corporation payable to the order of
Sirrom Capital Corporation d/b/a Tandem Capital.(11)
10.28 Stock Purchase Warrant by the Company dated June 22, 1998 issued by the Company to Sirrom Capital Corporation d/b/a
Tandem Capital.(11)
10.29 Registration Rights Agreement dated as of June 22, 1998 between the Company and Sirrom Capital Corporation d/b/a
Tandem Capital.(11)
10.30 Stock Purchase Warrant by Bikers Dream, Inc. dated November 17, 1997 issued by the Company to Sirrom Capital
Corporation d/b/a Tandem Capital.(11)
10.31 Registration Rights Agreement dated as of November 17, 1997 between the Company and Sirrom Capital Corporation d/b/a
Tandem Capital.(11)
10.32 Collateral Assignment of Promissory Note dated as of January 31, 2000 between Bikers Dream, Inc. and FINOVA Mezzanine
Capital Inc.
10.33 Pledge and Security Agreement dated as of January 31, 2000 between Bikers Dream, Inc. and FINOVA Mezzanine Capital
Inc.
10.34 Form of Loan and Security Agreement dated May 28, 1999 in series of loan agreements between the Company and Cana
Capital Corporation in connection with loans to the Company in an aggregate maximum principal amount of
$1,500,000.(11)
10.35 Form of Promissory Note dated May 28, 1999 in series of promissory notes between the Company and Cana Capital
Corporation evidencing loans to the Company in an aggregate maximum principal amount of $1,500,000.(11)
10.36 Form of Manufacturer's Recourse Agreement dated May 28, 1999 in series of agreements between the Company and Cana
Capital Corporation in connection with loans to the Company in an aggregate maximum principal amount of
$1,500,000.(11)
10.37 Form of Program Letter dated May 28, 1999 in series of agreements between the Company and Cana Capital Corporation in
connection with loans to the Company in an aggregate maximum principal amount of $1,500,000.(11)
10.38 Lease dated as of January 15, 1999 between LDT Company, Carol M. Carson, David Carson and Tim Carson as Partners and
Bikers Dream International, together with addendum (relating to Mira Loma facilities).(11)
10.39 Sublease dated as of January 15, 1999 between PrimeLine Products Company and Bikers Dream International and LDT
Company, Carol M. Carson, David Carson and Tim Carson, together with addendum (relating to Mira Loma facilities).(11)
10.40 Termination of License Agreement and Mutual Release dated as of October 29, 1998 between the Company and Big Bike
Boutique, Inc.(11)
10.41 Sublease Agreement dated September, 1998 between the Company and Big Bike of Daytona, Inc.(11)
10.42 Agreement dated September 10, 1998 between Bikers Dream, Inc. and Big Bike of Daytona,
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
Inc.(11)
10.43 Promissory Note dated November 18, 1999 in the principal amount of $100,000 from the Company payable to Bill Whalen.
10.44 Promissory Note dated November 22, 1999 in the principal amount of $200,000 from the Company payable to Bill Whalen.
10.45 Amended and Restated Promissory Note dated January 27, 2000 in the principal amount of $150,000 from the Company
payable to Bill Whalen.
10.46 Amended and Restated Promissory Note dated January 27, 2000 in the principal amount of $156,638 payable to Bill
Whalen.
10.47 Allonge dated January 26, 2000 assigning to w3 Holdings Amended and Restated Promissory Note dated January 27, 2000 in
the principal amount of $150,000.
21.1 List of subsidiaries.(2)
23.1 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.
</TABLE>
- ----------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 33-92294) filed with the Commission on May 31,
1995 and Amendment No. 1 thereto filed with the Commission on October 16,
1995.
(2) Previously filed as an exhibit to the Company's Form 10-KSB dated April 12,
1996 for the fiscal year ended December 31, 1995 filed with the Commission
on April 15, 1996.
(3) Previously filed as an exhibit to the Company's Form 8-K dated January 30,
1997 filed with the Commission on February 14, 1997.
(4) Previously filed as an exhibit to the Company's Form 10-KSB for the fiscal
year ended December 31, 1996 filed with the Commission on April 15, 1997.
(5) Previously filed as an exhibit to the Company's Form 10-QSB for the fiscal
quarter ended September 30, 1997 filed with the Commission on November 14,
1997.
(6) Previously filed as an exhibit to the Company's Form 10-KSB for the fiscal
year ended December 31, 1997 filed with the Commission on April 15, 1998.
(7) Previously filed as an exhibit to the Company's Form 10-QSB for the fiscal
quarter ended March 31, 1998 filed with the Commission on May 15, 1998.
(8) Previously filed as an exhibit to the Company's proxy statement filed with
the Commission on July 8, 1998.
(9) Previously filed as an exhibit to the Company's registration statement on
Form S-8 filed with the Commission on December 15, 1998.
(10) Previously filed as an exhibit to the Company's registration statement on
Form S-3 filed with the Commission on February 11, 1999.
(11) Previously filed as an exhibit to the Company's Form 10-KSB dated April 15,
1999 for the fiscal year ended December 31, 1998, filed with the Commission
on April 15, 1999.
(12) Previously filed as an exhibit to the Company's Form 8-K dated January 18,
2000 filed with the Commission on January 26, 2000.
(13) Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 filed with the Commission on November 12, 1999.
33
<PAGE> 35
(14) Previously filed as an exhibit to the Company's Form 10-QSB for the fiscal
quarter ended September 30, 1999 filed with the Commission on November 22,
1999.
+ A compensatory plan or arrangement.
b. REPORTS ON FORM 8-K.
(1) Report on Form 8-K dated October 20, 1999 filed with the Commission
on October 21, 1999
34
<PAGE> 36
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Bikers Dream, Inc.
Dated: April 14, 2000 By: /s/ Harold L. Collins
---------------------------------
Harold L. Collins, Interim Chief
Operating Officer, Vice President,
General Counsel and Director
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Harold L. Collins Interim Chief Operating Officer, April 14, 2000
- ---------------------------------- Vice President, General Counsel and
Harold L. Collins Director (Principal Executive
Officer)
/s/ Michael Fisher Chief Financial Officer April 14, 2000
- ---------------------------------- (Principal Financial and
Michael Fisher Accounting Officer)
/s/ John Russell April 14, 2000
- ----------------------------------
John Russell
/s/ Humbert Powell Director April 14, 2000
- ----------------------------------
Humbert Powell
/s/ Kenneth Schwartz Director April 14, 2000
- ----------------------------------
Kenneth Schwartz
</TABLE>
35
<PAGE> 37
BIKERS DREAM, INC.,
DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<PAGE> 38
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONTENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet 2 - 3
Consolidated Statements of Operations 4 - 5
Consolidated Statements of Shareholders' Equity 6 - 8
Consolidated Statements of Cash Flows 9 - 11
Notes to Consolidated Financial Statements 12 - 45
</TABLE>
<PAGE> 39
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Bikers Dream, Inc., dba Ultra Motorcycle Company
We have audited the accompanying consolidated balance sheet of Bikers Dream,
Inc., dba Ultra Motorcycle Company and subsidiaries as of December 31, 1999, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the two years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bikers Dream, Inc.,
dba Ultra Motorcycle Company and subsidiaries as of December 31, 1999, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred recurring losses from operations,
its total liabilities exceed its total tangible assets, and the Company is
involved in several lawsuits, which could have a negative impact on the Company.
This raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 4, 2000
<PAGE> 40
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,434,781
Accounts receivable, net of allowance for doubtful accounts of $312,376 2,250,939
Other receivables 54,175
Inventories 4,354,194
Prepaid expenses and other current assets 240,279
Net assets of discontinued operations 1,248,088
-----------
Total current assets 9,582,456
FURNITURE AND EQUIPMENT, net of accumulated depreciation and
amortization of $602,317 988,248
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of accumulated
amortization of $614,448 2,404,907
DEBT ISSUANCE COSTS, net of accumulated amortization of $80,887 80,888
DEPOSITS AND OTHER ASSETS 346,413
-----------
TOTAL ASSETS $13,402,912
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 41
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Current portion of notes payable $ 153,881
Current portion of capital lease obligations 62,584
Accounts payable 2,685,624
Accrued expenses 1,949,426
Accrued legal and settlement costs 813,000
Advances on financing agreements - related party 309,087
Notes payable - related parties 600,000
------------
Total current liabilities 6,573,602
NOTES PAYABLE, less current portion 4,564,562
CAPITAL LEASE OBLIGATIONS, less current portion 90,324
------------
Total liabilities 11,228,488
------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Series A, convertible preferred stock, no par value
Aggregate liquidation preference of $175,000
30 shares authorized
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 shares issued and outstanding 702,194
Series C, convertible preferred stock, no par value
Cumulative dividends, aggregate liquidation preference of $25,000
300 shares authorized
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
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
5,725,896 issued and outstanding 23,831,804
Accumulated deficit (23,798,118)
------------
Total shareholders' equity 2,174,424
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,402,912
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 42
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
REVENUES $ 22,308,983 $ 15,853,481
COST OF GOODS SOLD 18,251,001 15,328,365
------------ ------------
GROSS PROFIT 4,057,982 525,116
------------ ------------
EXPENSES
Selling, general, and administrative expenses 5,289,597 3,741,693
Depreciation and amortization 508,816 415,212
------------ ------------
Total expenses 5,798,413 4,156,905
------------ ------------
OPERATING LOSS FROM CONTINUING OPERATIONS (1,740,431) (3,631,789)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (796,639) (650,261)
Legal and settlement costs (813,000) -
Other income, net 5,731 77,812
------------ ------------
Total other income (expense) (1,603,908) (572,449)
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES, DISCONTINUED
OPERATIONS, PREFERRED STOCK DIVIDENDS, AND BENEFICIAL
CONVERSION (3,344,339) (4,204,238)
PROVISION FOR INCOME TAXES 800 800
------------ ------------
LOSS BEFORE DISCONTINUED OPERATIONS, PREFERRED STOCK
DIVIDENDS, AND BENEFICIAL CONVERSION (3,345,139) (4,205,038)
LOSS ON DISCONTINUED OPERATIONS
Loss on discontinued operations, net of provision for income
taxes of $0 (532,050) (281,589)
Loss on disposal of Retail Division, net of provision for income
taxes of $0 (1,782,144) -
------------ ------------
LOSS BEFORE PREFERRED STOCK DIVIDENDS AND BENEFICIAL
CONVERSION (5,659,333) (4,486,627)
PREFERRED STOCK DIVIDENDS, net of forfeited dividends - 128,445
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 43
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
BENEFICIAL CONVERSION FEATURE GRANTED ON PREFERRED STOCK $ (394,854) $ (1,335,534)
------------- -------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (6,054,187) $ (5,693,716)
============= =============
BASIC AND DILUTED LOSS PER SHARE
From continuing operations $ (0.72) $ (1.31)
From discontinued operations (0.45) (0.07)
------------- -------------
TOTAL BASIC AND DILUTED LOSS PER SHARE $ (1.17) $ (1.38)
============= =============
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 5,183,186 4,125,309
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 44
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Paid-In
Series A, B, C, and D Capital
Convertible Preferred Stock Series D Common Stock
--------------------------------- Preferred -------------------------------
Shares Amount Stock Shares Amount
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 5,751,388 $ 6,223,885 $ - 2,544,926 $ 11,199,995
PRIVATE PLACEMENTS, net of
offering costs 123 2,944,985
RELATED PARTY DEBT CONVERTED
TO SERIES C PREFERRED STOCK 32 800,000
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES CONVERTED
TO EQUITY 57,062 250,000
CONVERSION OF SERIES A
PREFERRED STOCK (2) (315,000) 46,667 315,000
CONVERSION OF SERIES B
PREFERRED STOCK (5,049,191) (5,049,191) 1,009,838 5,049,191
CONVERSION OF SERIES C
PREFERRED STOCK (155) (3,744,985) 1,255,599 3,744,985
CONVERSION OF SERIES A
PREFERRED STOCK DIVIDENDS 4,667 35,000
EXERCISE OF SERIES D
WARRANTS FOR CASH 20,000 80,000
EXERCISE OF SERIES F
WARRANTS FOR CASH 55,000 275,000
EXERCISE OF STOCK OPTIONS
FOR CASH 76,167 228,500
</TABLE>
<TABLE>
<CAPTION>
Subscriptions Accumulated
Receivable Deficit Total
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ - $(11,752,191) $ 5,671,689
PRIVATE PLACEMENTS, net of
offering costs 2,944,985
RELATED PARTY DEBT CONVERTED
TO SERIES C PREFERRED STOCK 800,000
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES CONVERTED
TO EQUITY 250,000
CONVERSION OF SERIES A
PREFERRED STOCK -
CONVERSION OF SERIES B
PREFERRED STOCK -
CONVERSION OF SERIES C
PREFERRED STOCK -
CONVERSION OF SERIES A
PREFERRED STOCK DIVIDENDS 35,000
EXERCISE OF SERIES D
WARRANTS FOR CASH 80,000
EXERCISE OF SERIES F
WARRANTS FOR CASH 275,000
EXERCISE OF STOCK OPTIONS
FOR CASH (90,000) 138,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 45
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Paid-In
Series A, B, C, and D Capital
Convertible Preferred Stock Series D Common Stock
------------------------------- Preferred ------------------------------
Shares Amount Stock Shares Amount
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK
FOR SERVICES RENDERED $ $ 43,000 $ 129,000
ISSUANCE OF PREFERRED
STOCK AS A BENEFICIAL
CONVERSION FEATURE 1,335,534
DIVIDENDS ACCRUED ON
PREFERRED STOCK
NET LOSS
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 702,195 859,694 - 5,112,926 22,642,205
CASH RECEIVED ON
SUBSCRIPTIONS RECEIVABLE
PRIVATE PLACEMENTS, net of
offering costs 2,060 21 1,664,811
ACCRUED EXPENSES
CONVERTED TO EQUITY 16,000 60,000
CONVERSION OF SERIES A
PREFERRED STOCK (1) (157,500) 23,334 157,500
CONVERSION OF SERIES A
PREFERRED STOCK DIVIDEND 12,570 52,500
CONVERSION OF SERIES D
PREFERRED STOCK (280) (3) (226,285) 508,457 226,288
</TABLE>
<TABLE>
<CAPTION>
Subscriptions Accumulated
Receivable Deficit Total
------------- ------------ ------------
<S> <C> <C> <C>
ISSUANCE OF COMMON STOCK
FOR SERVICES RENDERED $ $ $ 129,000
ISSUANCE OF PREFERRED
STOCK AS A BENEFICIAL
CONVERSION FEATURE (1,335,534) -
DIVIDENDS ACCRUED ON
PREFERRED STOCK (20,353) (20,353)
NET LOSS
(4,486,627) (4,486,627)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 (90,000) (17,594,705) 5,817,194
CASH RECEIVED ON
SUBSCRIPTIONS RECEIVABLE 90,000 90,000
PRIVATE PLACEMENTS, net of
offering costs 1,664,832
ACCRUED EXPENSES
CONVERTED TO EQUITY 60,000
CONVERSION OF SERIES A
PREFERRED STOCK -
CONVERSION OF SERIES A
PREFERRED STOCK DIVIDEND 52,500
CONVERSION OF SERIES D
PREFERRED STOCK -
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 46
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Paid-In
Series A, B, C, and D Capital
Convertible Preferred Stock Series D Common Stock
--------------------------------- Preferred --------------------------------
Shares Amount Stock Shares Amount
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CONVERSION OF SERIES D
PREFERRED STOCK DIVIDENDS $ $ 20,109 $ 11,301
EXERCISE OF SERIES C WARRANTS
FOR CASH, net of costs 25,000 117,000
EXERCISE OF SERIES E WARRANTS
FOR CASH 1,000 5,000
EXERCISE OF SERIES F WARRANTS
FOR CASH 7,500 37,500
CANCELLATION OF COMMON
SHARES (1,000) (5,000)
ISSUANCE OF 100,000 STOCK
OPTIONS FOR CONSULTING
SERVICES RENDERED 25,000
CONTRIBUTED CAPITAL BY A
RELATED PARTY 107,656
ISSUANCE OF PREFERRED
STOCK AS A BENEFICIAL
CONVERSION FEATURE 394,854
DIVIDENDS ACCRUED ON
PREFERRED STOCK
NET LOSS
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1999 703,974 $ 702,212 $ 1,438,526 5,725,896 $ 23,831,804
============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Subscriptions Accumulated
Receivable Deficit Total
------------- ------------- -------------
<S> <C> <C> <C>
CONVERSION OF SERIES D
PREFERRED STOCK DIVIDENDS $ $ $ 11,301
EXERCISE OF SERIES C WARRANTS
FOR CASH, net of costs 117,000
EXERCISE OF SERIES E WARRANTS
FOR CASH 5,000
EXERCISE OF SERIES F WARRANTS
FOR CASH 37,500
CANCELLATION OF COMMON
SHARES (5,000)
ISSUANCE OF 100,000 STOCK
OPTIONS FOR CONSULTING
SERVICES RENDERED 25,000
CONTRIBUTED CAPITAL BY A
RELATED PARTY 107,656
ISSUANCE OF PREFERRED
STOCK AS A BENEFICIAL
CONVERSION FEATURE (394,854) -
DIVIDENDS ACCRUED ON
PREFERRED STOCK (149,226) (149,226)
NET LOSS (5,659,333) (5,659,333)
------------- ------------- -------------
BALANCE, DECEMBER 31, 1999 $ - $ (23,798,118) $ 2,174,424
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 47
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations $(3,345,139) $(4,205,038)
Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities
Depreciation and amortization 508,816 415,212
Issuance of common stock for services rendered - 129,000
Issuance of stock options for services rendered 25,000 -
(Increase) decrease in
Accounts receivable 384,510 (1,672,379)
Other receivables (11,077) (43,098)
Inventories (464,108) (1,886,374)
Prepaid expenses and other current assets (19,183) (121,336)
Deposits and other assets (122,560) (51,831)
Increase (decrease) in
Accounts payable 602,286 1,462,542
Accrued expenses 952,053 16,913
Accrued legal and settlement costs 813,000 -
----------- -----------
Net cash used in continuing operating activities (676,402) (5,956,389)
Net cash used in discontinued operating activities (561,048) (1,730,765)
----------- -----------
Net cash used in operating activities (1,237,450) (7,687,154)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture and equipment (430,893) (132,849)
Sale of marketable securities 200,634 (302)
Other 4,978 23,895
----------- -----------
Net cash used in continuing investing activities (225,281) (109,256)
Net cash used in discontinued investing activities (211,882) (65,567)
----------- -----------
Net cash used in investing activities (437,163) (174,823)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 48
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable $ - $ 4,575,000
Payments on notes payable (174,297) (2,580,922)
Payments on capital lease obligations (66,929) (28,783)
Proceeds from notes payable - related parties 300,000 1,100,000
Payments on notes payable - related parties - (36,000)
Advances on financing agreements - related party, net (1,177,087) 1,486,174
Debt issuance costs 88,645 (69,556)
Exercise of Series C warrants 112,000 -
Exercise of Series D warrants - 80,000
Exercise of Series E warrants 5,000 -
Exercise of Series F warrants 37,500 275,000
Exercise of stock options - 138,500
Additional paid-in capital received from related parties 107,656 -
Payment on subscriptions receivable 90,000 -
Private placements, net of offering costs 1,664,832 2,944,985
----------- -----------
Net cash provided by continuing financing activities 987,320 7,884,398
Net cash provided by discontinued financing activities 1,432,395 -
----------- -----------
Net cash provided by financing activities 2,419,715 7,884,398
----------- -----------
Net increase in cash and cash equivalents 745,102 22,421
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 689,679 667,258
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,434,781 $ 689,679
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For the years ended December 31, 1999 and 1998, approximately $747,000 and
$544,000, respectively, of cash was paid for interest expense.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1998, the Company converted accounts payable
of $50,000 into 14,286 shares of common stock.
During the year ended December 31, 1998, the Company converted notes payable to
a related party of $800,000 into 32 shares of Series C preferred stock.
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 49
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED)
During the years ended December 31, 1999 and 1998, the Company converted accrued
expenses of $60,000 and $200,000, respectively, into 16,000 and 42,776 shares,
respectively, of common stock.
During the years ended December 31, 1999 and 1998, the Company converted one and
two shares, respectively, of Series A convertible preferred stock into 23,334
and 46,667 shares, respectively, of common stock.
During the year ended December 31, 1998, the Company converted 5,049,191 shares
of Series B convertible preferred stock into 1,009,838 shares of common stock.
During the year ended December 31, 1998, the Company converted 155 shares of
Series C convertible preferred stock into 1,255,599 shares of common stock.
During the year ended December 31, 1999, the Company converted 280 shares of
Series D convertible preferred stock into 508,457 shares of common stock.
During the years ended December 31, 1999 and 1998, the Company paid dividends of
$63,801 and $35,000, respectively, by issuing 32,679 and 4,667 shares,
respectively, of common stock.
During the year ended December 31, 1998, the Company acquired an automobile of
$20,208 for a note payable.
During the years ended December 31, 1999 and 1998, the Company entered into
capitalized lease obligations of $163,198 and $42,380, respectively.
During the year ended December 31, 1999, the Company transferred an automobile
with a net book value of $34,929 to a related party, who also assumed the lease
obligation of approximately the same amount.
During the year ended December 31, 1998, the Company recorded an exercise of
stock options of 30,000 in exchange for a subscription receivable of $90,000.
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 50
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION
Line of Business and Business Change
Bikers Dream Inc., dba Ultra Motorcycle Company ("BDI") has operated in
the manufacturing and retail business segments of the motorcycle
industry since 1997 through its Manufacturing and Retail Divisions.
BDI's Manufacturing Division manufactures and sells heavyweight cruiser
motorcycles to motorcycle dealerships throughout the United States.
BDI's Retail Division, which has been in existence since 1990, sold
motorcycles, parts and accessories, and services to consumers through
company-owned retail stores. As discussed in Note 2, the Retail Division
was sold on January 31, 2000.
Organization
On March 13, 1995, BDI acquired a publicly-traded dormant entity
formerly known as HDL Communications ("HDL"), which was incorporated in
California in October 1985. After the acquisition, BDI was merged into
HDL, and HDL changed its name to Bikers Dream, Inc. At the time of the
acquisition, there was no active trading market for BDI's stock, and
management of BDI and HDL determined in an arm's length negotiation that
the market value of the combined entities was approximately $4,000,000
(or approximately $5 per share), which was evidenced by the number of
shares issued (820,000) in connection with the acquisition as follows:
- 660,000 shares to former BDI shareholders
- 60,000 shares to former HDL shareholders
- 100,000 shares to holders of $500,000 of convertible notes of HDL,
who converted them into shares of BDI at a price of $5 per share
immediately prior to the closing of the acquisition
At the time of the merger, HDL's assets and liabilities consisted of a
note receivable of $500,000 from BDI and notes payable in the amount of
$500,000. As the notes were converted into shares concurrent with the
acquisition, the 60,000 shares issued to former HDL shareholders were
issued in consideration for the public entity HDL. The substance of the
transaction was a recapitalization of BDI's shares for those of HDL's
shares.
In September 1996, BDI entered into an agreement with Mull Acres
Investments, Inc. ("Mull Acres") to become a member of Ultra Bikers,
LLC, a newly-formed California limited liability company (the "LLC").
BDI contributed $1,525,000 in cash for a 49% interest in the LLC, and
Mull Acres received a 51% interest for its expertise in the business of
manufacturing, distributing, and selling custom motorcycles.
12
<PAGE> 51
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION (CONTINUED)
Organization (Continued)
BDI's investment in the LLC was loaned to the Ultra Kustom Cycles
division ("UKC") of Mull Acres to be used to manufacture motorcycles and
related parts and accessories. UKC sold the motorcycles and related
parts and accessories to the LLC at cost, and the LLC then sold the
motorcycles to BDI and unrelated parties. The operations of UKC began
substantially on September 19, 1996 after receiving the necessary
capital from the LLC to fund its production activities.
On January 30, 1997, through its newly-created subsidiary, Ultra
Acquisition Corporation, BDI entered into an Asset Purchase Agreement
with Mull Acres to purchase the net assets, which included the employee
base and manufacturing expertise, of UKC for $3,800,000, which consisted
of $1,100,000 in cash and a note payable of $2,700,000. After the close
of the transaction, the LLC was dissolved, and BDI owned 100% of the
assets of UKC. The acquisition of UKC was accounted for by the purchase
method of accounting, and accordingly, the purchase price has been
allocated to the assets acquired based on the estimated fair values at
the date of the acquisition.
The estimated fair value of the assets purchased and liabilities assumed
at the acquisition date is summarized as follows:
<TABLE>
<S> <C>
Furniture and equipment $ 310,270
Other assets 108,928
Excess cost over fair value of net assets acquired 3,749,355
Other liabilities (368,553)
-------------
PURCHASE PRICE $ 3,800,000
=============
</TABLE>
On June 30, 1997, BDI and Mull Acres entered into an agreement (the
"Note Conversion Agreement"). Under the terms of the Note Conversion
Agreement, Mull Acres agreed to exercise 274,000 of its then outstanding
stock options to purchase BDI's common stock in satisfaction of
$1,370,000 of the note payable and to accept 1,330,000 of BDI's Series B
convertible preferred stock in satisfaction of the remaining principal
balance due under the note payable.
13
<PAGE> 52
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION (CONTINUED)
Organization (Continued)
In addition, on October 7, 1997, BDI, Mull Acres, and several
individuals affiliated with Mull Acres entered into another agreement
(the "Mutual Release and Settlement Agreement"). Under the terms of the
Mutual Release and Settlement Agreement, certain terms of the Asset
Purchase Agreement and Note Conversion Agreement were clarified and
modified. Some of the terms that were clarified and modified related to
non-competition, non-solicitation of customers, and non-interference
with BDI's employees by Mull Acres and certain specified individuals
affiliated with Mull Acres. To secure Mull Acres and the individuals
affiliated with Mull Acres performance under the Mutual Release and
Settlement Agreement, 730,000 shares of Series B convertible preferred
stock were retained by BDI in escrow. Upon the completion of the
Settlement Agreement, BDI reduced the excess cost over fair market value
for $730,000, the book value of the preferred shares, and effectively
retired the preferred shares.
During the year ended December 31, 1998, management of BDI and its legal
counsel concluded that the individuals affiliated with Mull Acres
violated the terms of the Mutual Release and Settlement Agreement
sufficiently enough to allow BDI to reacquire the 730,000 shares of
Series B convertible preferred stock that were retained in escrow.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Bikers
Dream, Inc., dba 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, Inc., and Bikers Dream Eagle Enterprises, Inc.
(collectively, the "Company"). All significant intercompany accounts and
transactions are eliminated in consolidation.
Going Concern and Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. However, as
shown in the accompanying consolidated financial statements, the Company
has incurred recurring losses from operations, its total liabilities
exceed its tangible assets as of December 31, 1999, and the Company is
involved in several lawsuits, which could have a negative impact on the
Company. In addition, the Company does not have the resources to repay
its outstanding indebtedness on a $4,500,000 loan with a bank due on
June 2001, loans to related parties of $600,000, and a legal judgment
of $683,000 on a lawsuit. Also, if the Company were to appeal the
verdict on the lawsuit, the Company would not have the resources to post
a bond without significantly disrupting its operations. These factors
raise substantial doubt about the Company's ability to continue as a
going concern.
14
<PAGE> 53
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going Concern and Basis of Presentation (Continued)
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or amounts and classifications of liabilities that might be
necessary should the Company be unable to continue its existence. The
recovery of the Company's assets is dependent upon continued operations
of the Company.
Management plans to ensure that the Company remains a going concern by:
1. Obtaining additional debt financing or equity financing.
2. Converting related party notes payable of $600,000 into the
Company's preferred stock (see Note 16).
There is no certainty whether management of the Company will be
successful in achieving any of the above plans.
In addition, management of the Company believes that the profitability
of its operations will improve in the future based upon the following:
1. The Company has sold its five unprofitable retail stores
subsequent to the year ended December 31, 1999 that were operated
by its Retail Division, and it has focused solely on its
Manufacturing Division.
2. The net loss of the year ended December 31, 1999 includes
$813,000 of charges for legal and settlement costs. Management of
the Company believes that such significant legal and settlement
costs to be an anomaly.
3. The Company expects the average warranty expense per motorcycle
sold will decrease in the future through improvements in quality
control of its manufacturing and purchasing of parts.
4. The Company expects inventory write-down charges due to
obsolescence to decrease in the future through improvements in
purchasing, material handling, and the storing of inventories.
15
<PAGE> 54
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going Concern and Basis of Presentation (Continued)
5. The Company expects an overall improvement in its profitability
in the future through improved budgeting and monitoring of costs.
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. Advertising costs for the
years ended December 31, 1999 and 1998 were $651,134 and $205,822,
respectively.
Catalog Costs
Internal costs associated with the development of mail order catalogs
are expensed as incurred. External costs, excluding printing, relating
to the development of the catalog are capitalized and amortized over 12
to 24 months from the first publication. Costs associated with printing
catalogs are inventoried when purchased and expensed as catalogs are
sold or distributed.
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.
16
<PAGE> 55
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Loss Per Share
The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per
share is computed by dividing the net loss by the weighted-average
number of common shares available. Diluted 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. Since the Company had a
net loss for the years ended December 31, 1999 and 1998, basic and
diluted loss per share are the same.
Stock Split
Effective February 5, 1998, the Company effected a 1-for-5 reverse stock
split of its common stock. All shares and per share data have been
retroactively restated to reflect the stock split.
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 the straight-line
method over the estimated useful lives or the term of the lease,
whichever is less, as follows:
<TABLE>
<S> <C>
Furniture and fixtures 7 years
Equipment 5 to 7 years
Computers 5 years
Autos and trucks 7 years
Leasehold improvements 7 years
</TABLE>
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.
17
<PAGE> 56
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations
For the years ended December 31, 1999 and 1998, the Company purchased
certain motorcycle parts primarily from a single vendor. There could be
a negative economic impact to the Company if conditions arise so that
the Company could no longer purchase the certain parts from the vendor.
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 December 31, 1999, 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 1998 financial statements have been
reclassified to conform with the 1999 presentation.
18
<PAGE> 57
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. For the years ended December 31, 1999 and 1998,
amortization expense was $184,494 and $218,653, respectively. When
events and circumstances so indicate, all long-term assets, including
the excess cost over fair value of net assets acquired, are assessed for
recoverability based upon cash flow forecasts. As of December 31, 1999,
the Company has not recognized any impairment losses.
Comprehensive Income
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting comprehensive income
and its components in a financial statement. Comprehensive income as
defined includes all changes in equity (net assets) during a period from
non-owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income, include foreign currency
translation adjustments and unrealized gains and losses on
available-for-sale securities. Comprehensive income is not presented in
the Company's financials statements since the Company did not have any
of the items of comprehensive income in any period presented.
Recently Issued Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 136, "Transfer of Assets to a Not-for-Profit Organization or
Charitable Trust that Raises or Holds Contributions for Others." This
statement is not applicable to the Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." The Company does not expect
adoption of SFAS No. 137 to have a material impact, if any, on its
financial position or results of operations.
19
<PAGE> 58
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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." In exchange for
the sale of the assets, the Company received the following
consideration: 83,333 shares of common stock of V-Twin, a $1,000,000
note receivable, assumption by V-Twin of the outstanding balance of the
Company's line of credit of $1,432,395, which was with an affiliate of
V-Twin, and assumption by V-Twin of other liabilities of the retail
stores, which included the facility leases of the five retail stores.
The note receivable accrues interest at 5% per annum beginning on
February 1, 2001 and requires quarterly principal payments beginning on
May 1, 2001 of $62,500, with the final principal payment due on February
1, 2005. For purposes of calculating the loss on the disposal of the
Retail Division, the note receivable has been discounted at an interest
rate of 10% per annum, compounded monthly.
Related to the 83,333 shares of common stock of V-Twin, the sale
agreement included provisions that allow V-Twin to call and repurchase
all or a portion of the common shares issued to the Company at a price
of $6 per share within two years after the date of the sale, at a price
of $7 per share within three years after the date of the sale, and at a
price of $8 per share within four years after the date of the sale. In
addition, before any of the V-Twin shares can be sold by the Company,
the Company must give written notice to V-Twin of its intent to sell
such shares. Thereupon, V-Twin has the option to repurchase the common
shares at the above stated prices.
The estimated loss on the disposal of the Retail Division is $1,782,144,
which includes an operating loss of the Retail Division of $1,683,113
for the period as of the measurement date, October 1, 1999, through
December 31, 1999, and an operating loss of the Retail Division for the
period from January 1, 2000 through January 31, 2000 of $211,700. The
results of operations of the Retail Division have been classified as
discontinued operations, and prior periods have been restated.
The net assets of the Retail Division at December 31, 1999 are
summarized as follows:
<TABLE>
<S> <C>
Current assets $ 2,660,814
Furniture and equipment, net 205,574
Current liabilities (1,618,300)
-------------
NET ASSETS OF THE DISCONTINUED OPERATIONS $ 1,248,088
=============
</TABLE>
20
<PAGE> 59
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Discontinued Operations (Continued)
The operating results of the discontinued Retail Division are summarized
as follows for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenues $ 11,628,569 $ 11,881,139
Costs and expenses (12,075,594) (12,162,728)
Other expense (85,025) -
------------ ------------
Loss from operations (532,050) (281,589)
Estimated loss on disposal, net of provision of
income taxes of $0 (1,782,144) -
------------ ------------
TOTAL LOSS ON DISCONTINUED OPERATIONS $ (2,314,194) $ (281,589)
============ ============
</TABLE>
NOTE 3 - CASH AND CASH EQUIVALENTS
The Company maintains cash deposits at several banks. Deposits at each
bank are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of December 31, 1999, the uninsured portions amounted to
$1,236,605. The Company has not experienced any losses in such accounts
and believes it is not exposed to any significant credit risk on cash
and cash equivalents.
NOTE 4 - INVENTORIES
Inventories at December 31, 1999 consisted of the following
<TABLE>
<S> <C>
Parts, net of a reserve of $425,000 $3,043,455
Work-in-process 47,496
Finished motorcycles 1,263,243
----------
TOTAL $4,354,194
==========
</TABLE>
21
<PAGE> 60
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 5 - FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1999 consisted of the following:
<TABLE>
<S> <C>
Furniture and fixtures $ 49,114
Equipment 363,211
Computers 270,963
Autos and trucks 660,296
Leasehold improvements 246,981
-------------
1,590,565
Less accumulated depreciation and amortization 602,317
TOTAL $ 988,248
=============
</TABLE>
Included in the above are $295,477 of assets acquired through capital
leases, which is net of accumulated amortization of $330,647.
NOTE 6 - ACCRUED LEGAL AND SETTLEMENT COSTS
At December 31, 1999, accrued legal and settlement costs aggregated to
$813,000. See Note 7 for a description of litigation and claims against
the Company.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating and Capital Leases
The Company subleases a facility in Mira Loma, California which serves
as its administrative and corporate office and as its manufacturing
facility. The sublease expires in September 2000, at which time a lease
agreement that the Company has with the owner of the facility will
commence. This lease is scheduled to expire in February 2004, but the
Company has the option to extend the lease for an additional five years.
Total rent expense incurred for the years ended December 31, 1999 and
1998 was $229,773 and $138,316, respectively.
The Company also has six capital leases with several finance companies
for computer equipment, vehicles, and other equipment. The capital
leases have been discounted to the present value of the future minimum
lease payments at rates between 9.9% and 20%. The monthly lease payments
range between $690 to $2,493 per month and terminate between May 2000
through September 2003.
22
<PAGE> 61
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Operating and Capital Leases (Continued)
The future minimum lease payments under capital and operating leases
were as follows:
<TABLE>
<CAPTION>
Year Ending Operating Capital
December 31, Lease Leases
----------- ------------- -------------
<S> <C> <C>
2000 $ 236,040 $ 82,270
2001 252,900 59,666
2002 256,272 21,127
2003 256,272 21,151
2004 42,712 -
------------- -------------
Total minimum lease payments $ 1,044,196 184,214
=============
Less amounts representing interest 31,306
-------------
152,908
Less current portion 62,584
LONG-TERM LEASE OBLIGATIONS $ 90,324
=============
</TABLE>
In addition, as part of the sale of its Retail Division, the Company
assigned the five lease agreements for the facilities of the retail
stores to V-Twin. Although V-Twin assumed the liability of the leases,
the Company will continue to remain liable with the lessor for the lease
payments under the remaining terms of the lease agreements should V-Twin
discontinue making payments on the leases. The leases expire at various
times through 2003, and the monthly lease payments under the lease
agreements range from $2,500 to $13,900. At December 31, 1999 the future
minimum lease payments under these leases aggregated to $705,000.
Litigation
As of December 1999, the Company was a defendant in a lawsuit involving
the former owners of its retail store in Sacramento, California. In
1994, the Company sold a "Bikers Dream" franchise to two individuals and
did not strictly comply with the Franchise Investment Law of California.
Thereafter, the two individuals elected to rescind the franchise
agreement with the Company, and the parties entered into an agreement in
which the Company would repurchase the franchise and assets of the
store, retain the two individuals as managers of the store, assume the
store's lease, and pay off the Small Business Administration ("SBA")
loan that the two individuals had in connection with the retail store.
Afterward, the Company continued to make monthly payments on the SBA
loan in accordance with the loan agreement, but did not fully pay-off
the loan under the terms of the purchase agreement. In addition, the
Company failed to assume the store's lease. In 1997, the two individuals
were terminated as managers of the store. Thereafter, they filed a
lawsuit against the Company for breach of the asset purchase agreement,
fraud, slander, gender discrimination, and wrongful termination.
Settlement agreements between the two individuals and the Company
failed, and trial for the lawsuit commenced in December 1999. As of
December 1999, the Company accrued $613,000 in estimated damages to be
paid on the lawsuit, which was in addition to the SBA loan of $70,642
already recorded on the books of the Company. Further, even though the
Company believes that it is unlikely, it is possible that the Company
will have to compensate the two individuals for their legal fees, which
may be as high as $250,000. See Note 16 for subsequent events to the
year ended December 31, 1999.
23
<PAGE> 62
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation (Continued)
In July 1998, the Company signed a lease agreement for a commercial
building to be used as its corporate office and manufacturing facility.
In October 1998, before the Company took possession of the building, the
Company discovered what it believed to be a number of structural
deficiencies in the building. As a result, the Company rescinded the
lease agreement and then leased another facility to be used as its
corporate office and manufacturing facility. As a result of the
Company's repudiation of the lease, the lessor filed a lawsuit against
the Company, seeking damages for lost rents, late charges, interest,
attorney's fees, and the costs of re-leasing the building, which was
still on the market for lease as of December 31, 1999. The plaintiff's
alleged damages as of December 31, 1999 were approximately $250,000, and
estimated total damages could grow over the term of the lease to
$790,000 if the property is unable to be leased to another party. As of
December 31, 1999, the Company accrued $150,000 for estimated costs on
the lawsuit.
In May 1998, the Company entered into a financing agreement with CCC
(see Note 8), a corporation owned by an individual who was a director of
the Company at that time. In April 1999, CCC elected to terminate the
financing agreement. The owner of CCC also owned several motorcycle
dealerships in Florida that did business with the Company. In August
1999, at about the time the owner of CCC resigned as a director of the
Company, a dispute arose as to claims that the Company believed it had
against CCC and the retail motorcycle dealerships and claims that the
motorcycle dealerships, owned by the former director, had with the
Company for failure to pay on certain warranty claims. During 1999,
there were several lawsuits filed by CCC and the motorcycle dealerships,
owned by the former director, against the Company that seek full payment
of the finance agreement balance, which was $309,087 as of December 31,
1999, and payment on certain warranty claims. As of December 31, 1999,
the Company has left the full balance of the financing agreement on its
books, even though it believes that this balance will ultimately be
reduced by the offsets which it feels it has against the debt. In
addition, the Company has accrued an additional $20,000 for estimated
costs related to the lawsuits.
A motorcycle dealership in Scottsdale, Arizona filed a lawsuit against
the Company in October 1999 alleging that the Company had violated terms
of a dealer agreement that the dealership had with the Company and
unlawfully refused to renew its dealership agreement. Management of the
Company believes it is unlikely that the dealership will prevail.
Because of the factors that would be involved in considering a potential
award, should the plaintiff prevail, the range of a potential loss in
connection with the lawsuit could not be determined as of December 31,
1999.
24
<PAGE> 63
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation (Continued)
As described in Note 13, the Company entered into a sublease agreement
and repayment in September 1998 with a motorcycle dealership in Daytona
Beach, Florida owned by an individual that was a director of the Company
at that time. In September 1999, the Company and the motorcycle
dealership had a dispute, and as a result, the Company withheld the rent
on the facility. Subsequently, the lessor declared the Company in
default of the lease agreement, and under an acceleration clause
contained in the lease agreement, the lessor elected to accelerate the
lease payments due under the remaining term of the lease, which
aggregated to approximately $225,000 at that time. However, since that
time, the Florida motorcycle dealership has been paying the lessor
directly, and there has been no legal action by the lessor against the
Company. Counsel for the Company believes that there will be no
financial exposure to the Company as long as the Florida dealership
continues to occupy the facility and make payments on the facility.
During the year ended December 31, 1999, the Company terminated the
employment of its Director of Dealer Development and Sales. The former
employee has alleged wrongful termination and has threatened legal
action against the Company. However, the former employee has not
specified the monetary damages that he is seeking.
On March 18, 1998, the Company and its co-defendants finalized a
settlement (the "Settlement") agreement with Harley-Davidson Motor
Company, relating to certain trademark and other infringements and a
breach of a 1991 Consent Judgment. Under the terms of the Settlement,
the Company and its co-defendants were required to pay $400,000, of
which $300,000 was paid by insurance and $100,000 was paid by the
Company.
The Company is also subject to various employee, warranty and other
claims, and proceedings which arise in the ordinary course of its
business. As of December 31, 1999, the Company accrued a total of
$30,000 for costs on such claims. Although occasional adverse decisions
(or settlements) may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on
the financial position or results of operations of the Company.
25
<PAGE> 64
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements
The Company has entered into three employment agreements, expiring
through August 31, 2004 with certain key employees, including its Chief
Executive Officer/President. As of December 31, 1999, these officers
will receive aggregate annual salaries over the years as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000 $ 496,429
2001 391,429
2002 226,429
2003 226,429
2004 150,952
-------------
TOTAL $ 1,491,668
=============
</TABLE>
See Note 16 for subsequent events to the year ended December 31, 1999.
Other Commitments and Contingencies
During August 1998, the Company signed a letter of intent with two
individuals to purchase technology that would be used by the Company for
the enhancement and development of proprietary parts. Under the terms of
the letter of intent, the Company would purchase the technology for a
total of $1,100,000 with $1,000,000 to be paid over three years after a
definitive agreement takes effect. As of April 2000, a definitive
agreement has not been completed, and it is doubtful whether one will
ever be completed. Under the terms of the letter of intent, in the event
the Company discontinues use of the technology either because it fails
to continue to perform as represented or does not achieve reasonable
acceptance in the market, the Company has the right to discontinue
payments and share ownership of the technology on a pro rata basis with
the individuals.
In connection with the sale of the Retail Division as described in Note
2, the Company, through an oversight, did not obtain resale sales tax
exemption certificates for the inventories at each one of the retail
stores. If the Company fails to obtain the necessary resale sales tax
exemption certificates, it could be liable to pay sales tax of
approximately $250,000 in connection with the sale.
Many of the Company's dealers have floor plan agreements through various
lending institutions for the motorcycles purchased from the Company. The
dealers are obligors of these floor plan agreements and are responsible
for all principal and interest of the floor plan agreements. However,
the Company has entered into standard repurchase agreements with the
financial institutions of these floor plan agreements that require the
Company to repurchase its motorcycles at the wholesale price in the
event that the dealer defaults on their floor plan agreement and the
motorcycles purchased under the floor plan agreement are repossessed by
the lender. Since August 1997 the Company has only repurchased ten
motorcycles under these agreements. The Company has estimated that its
contingent liability under these repurchase agreements to be in the
range of $2,900,000 to $4,400,000 as of December 31, 1999.
26
<PAGE> 65
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 8 - ADVANCES ON FINANCING AGREEMENTS - RELATED PARTY
In May 1998, the Company entered into five separate motorcycle
floor-plan financing agreements with Cana Capital Corporation ("CCC"), a
corporation owned by a director of the Company at that time (see Note
13), for an aggregate total of $1,500,000. Under the terms of the
agreement, the Retail Division of the Company can borrow on the
facilities to finance the purchase of specific bikes for its
inventories. Repayments on the advances are the earlier of one year
after the advance is made or immediately after the specific bike for
which an advance was made is sold. The advances carry an interest rate
of 2% per annum over the prime rate, or 10.5% at December 31, 1999, for
new motorcycles, and 5% per annum over the prime rate, or 13.5% at
December 31, 1999, for used motorcycles. In addition, an administrative
fee of 0.25% is charged on outstanding advances. The advances are
secured by the Company's inventories, accounts receivable, chattel
paper, furniture and equipment, and general intangibles. As described in
Note 7, the outstanding balance on the finance agreement was called by
CCC during 1999, and as of December 31, 1999, the Company was in dispute
with CCC, its owner, and its affiliated motorcycle dealerships. At
December 31, 1999, advances on the credit facilities aggregated
$309,087.
NOTE 9 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties at December 31, 1999 consisted of the
following:
<TABLE>
<S> <C>
Note payable to MD Strategic, LP, a partnership of which a
shareholder and former director of the Company is a
principal. Interest accrues on the note at 18% per annum
The note and all accrued interest were due on March 31, 2000
See Note 16 regarding subsequent events to the year ended
December 31, 1999 $300,000
Notes payable to a shareholder. The notes bear interest at a rate
of 12% per annum. The notes and all accrued interest were due
on March 31, 2000. See Note 16 regarding subsequent events
to the year ended December 31, 1999 300,000
--------
CURRENT PORTION $600,000
========
</TABLE>
27
<PAGE> 66
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 10 - NOTES PAYABLE
Notes payable at December 31, 1999 consisted of the following:
<TABLE>
<S> <C>
Note payable to bank, dated June 1998, with interest at 12% per
annum, due and payable quarterly, collateralized by a first
lien on all assets of the Company, and payable in June 2001
As described in Note 12 under "Other Warrants," certain stock
purchase warrants were issued in connection with this note. $4,500,000
Note payable to bank assumed in conjunction with the acquisition
of a former franchise operation, guaranteed by the SBA and
collateralized by all of the assets of the Sacramento store,
with interest at prime plus 2.5% per annum, or 10% at December
31, 1999, payable in monthly principal and interest payments of
$1,440 through April 2005. As described in Note 7, as part of the
agreement to acquire the former franchise, the Company
committed itself to repay the note payable shortly after acquiring
the former franchise operation 70,642
Note payable to a finance company collateralized by a diesel tractor,
requiring principal and interest payments of $1,870 per month,
with interest at 10% per annum through January 2001 17,850
Note payable to a finance company collateralized by a truck,
requiring principal and interest payments of $612 per month,
with interest at 10% per annum through August 2001 11,145
Note payable to a finance company, collateralized by a trailer,
requiring principal and interest payments of $5,739 per month,
with interest at 10.75% per annum through February 2001 118,806
----------
4,718,443
Less current portion 153,881
----------
LONG-TERM PORTION $4,564,562
==========
</TABLE>
28
<PAGE> 67
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 10 - NOTES PAYABLE (CONTINUED)
The following is a schedule by years of future maturities of notes
payable:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000 $ 153,881
2001 4,564,562
-------------
TOTAL $ 4,718,443
=============
</TABLE>
NOTE 11 - INCOME TAXES
The following table presents the current and deferred income tax
provision for federal and state income taxes for the years ended
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Current
Federal $ - $ -
State 800 800
------------- -------------
800 800
------------- -------------
Deferred
Federal - -
State - -
------------- -------------
- -
------------- -------------
PROVISION FOR INCOME TAXES $ 800 $ 800
============= =============
</TABLE>
29
<PAGE> 68
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES (CONTINUED)
The tax effects of temporary differences which give rise to the deferred
tax provision (benefit) at December 31, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Furniture and equipment $ 36,414 $ 34,339
Accrued liabilities 377,806 49,358
Accounts receivable allowance (34,133) 241
Inventory reserve 158,063 (40,855)
Net operating losses 2,231,836 1,257,981
Other (1,236) (6,517)
Valuation allowance (2,768,750) (1,294,547)
----------- -----------
TOTAL $ -- $ --
=========== ===========
</TABLE>
The provision for income taxes differs from the amount that would result
from applying the federal statutory rate for the years ended December
31, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Statutory regular federal income tax rate (34.0)% (34.0)%
Change in valuation allowance 33.8 33.8
Other 0.2 0.2
----------- -----------
TOTAL -% -%
=========== ===========
</TABLE>
The components of the deferred income tax assets (liabilities) as of
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
State taxes $ (289,070) $ (185,620)
Furniture and equipment 36,375 854
Accrued expenses 701,477 299,858
Accounts receivable allowance 112,963 155,664
Inventory reserve 307,448 141,303
Net operating loss carryforwards 7,839,814 5,715,903
Other 2,964 26,777
----------- -----------
8,711,971 6,154,739
Valuation allowance 8,711,971 6,154,739
----------- -----------
TOTAL $ -- $ --
=========== ===========
</TABLE>
30
<PAGE> 69
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES (CONTINUED)
As of December 31, 1999, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately
$21,019,000 and $7,843,000, respectively. The net operating loss
carryforwards begin expiring in 2007 and 2000, respectively. The
utilization of net operating loss carryforwards may be limited due to
the ownership change under the provisions of Internal Revenue Code
Section 382 and similar state provisions.
NOTE 12 - SHAREHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue preferred stock in series and to
determine the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of preferred stock and to
fix the number of shares and designation of any such series.
Series A Convertible Preferred Stock
Each share of preferred stock accrues annual dividends of 10% (based
upon a purchase price of $175,000 per unit) and is convertible at the
option of the holder, after the effective date of the Registration
Statement with respect to the common stock, into 10,000 shares of the
Company's common stock at a conversion rate of $17.50 per share. If at
the time of conversion, 75% of the current bid price is less than $17.50
per share, the holder will receive a greater number of shares, but in no
case will the conversion rate be less than $7.50 per share. In addition,
the Company may call for the conversion of the preferred stock if the
average closing price of the Company's common stock is $37.50 per share
for 10 consecutive trading days or any time after the third anniversary
of the private placement. The preferred stock has a per share
liquidation preference of $175,000.
During the year ended December 31, 1999, the one remaining share of
preferred stock with accrued dividends thereon of $52,500 was converted
into 35,904 shares of common stock.
Series B Convertible Preferred Stock
Each share of Series B preferred stock is convertible at the option of
the holder. The preferred shares may be redeemed by the corporation at
the option of the Board of Directors on a pro rata basis at any time or
from time to time in whole or in part commencing one year after the date
of issuance at a redemption price of $1.125 per share, plus all
accumulated and unpaid dividends. Dividends on the preferred stock are
cumulative and accrue whether declared on each preferred share at the
annual rate of $0.0975 per preferred share. The preferred stock has a
per share liquidation preference of $1 per share, which aggregated to
$702,194 at December 31, 1999. Accrued dividends on Series B preferred
shares were $71,317 in the aggregate at December 31, 1999.
31
<PAGE> 70
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Series C Convertible Preferred Stock
The Company is authorized to issue 300 shares of Series C convertible
preferred stock. Each share is convertible, at the option of the holder,
at any time after the date of issuance (the "Conversion Date") into
shares of the Company's common stock. The price at which the preferred
stock converts into the Company's common stock (the "Conversion Price")
is determined by dividing $25,000 by the greater of 1) 75% of the
average closing price of the Company's common stock for the 10 trading
days immediately preceding the Conversion Date or 2) $2.50, provided,
however, that under no circumstances shall the Conversion Price exceed
$4. Under certain circumstances, the Conversion Price is subject to
adjustment. Each share shall be automatically converted into the
Company's common stock in the event the closing price equals or exceeds
$8 per share for any period of 20 consecutive days. Dividends are
cumulative and accrue whether declared on each share of Series C
convertible preferred stock at an annual rate of $2.25 per preferred
share.
During the year ended December 31, 1998, the Company completed a private
placement of its Series C convertible preferred stock, selling 123 units
at $25,000 per unit, for gross proceeds of $3,075,000. The Company
netted $2,944,985 after offering costs. In addition, the Company
converted $800,000 in notes payable to a related party into 32 units.
Each unit consists of one share of Series C convertible preferred stock
and 1,250 Series F warrants for an aggregate price of $3,875,000
($25,000 per unit). (Series F warrants are described below under "Stock
Purchase Warrants.") At the time of the issuance of the preferred stock,
the conversion price of the preferred stock was less than the fair
market value of the common stock. Since the preferred shares were
convertible immediately, the Company recorded a beneficial conversion
feature upon their issuance of $1,335,534. All of these 155 shares of
the Series C convertible preferred stock were converted into the
Company's common stock during the year ended December 31, 1998.
Series D Convertible Preferred Stock
The Company is authorized to issue 3,500 shares of Series D cumulative
preferred stock. The preferred stock has a par value of $0.01 per share
and a stated value of $1,000 per share. The preferred stock is
convertible, at the option of the holder, at any time after the date of
issuance into shares of the Company's common stock. The number of shares
of common stock issuable upon the conversion of the preferred stock is
calculated by adding $1,000 to the amount of accrued and unpaid
dividends on such shares and dividing the resulting sum by the
conversion price. The conversion price is equal to the lesser of 1) 110%
of the closing bid price of the common stock on the last trading day
before the date of issuance of the share of Series D preferred stock
being converted or 2) 90% of the average of the four lowest closing bid
prices of the common stock during the last 22 trading days before the
date of conversion. The preferred stock has a per share liquidation
preference of $1,000, which aggregated to $1,780,000 at December 31,
1999. Cumulative dividends accrue on the preferred stock at 5% per
annum. At December 31, 1999, accrued dividends on the preferred stock
aggregated to $60,711.
32
<PAGE> 71
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Series D Convertible Preferred Stock (Continued)
During the year ended December 31, 1999, the Company issued 2,060 shares
of Series A convertible preferred stock for $1,664,832, net of related
issuance costs, of which 280 shares and accrued dividends of $11,301
were converted into 528,566 shares of common stock. At the time of the
issuance of the preferred stock, the conversion price of the preferred
stock was less than the fair market value of the common stock, and since
the preferred shares were convertible immediately, the Company recorded
a beneficial conversion feature upon their issuance of $394,854.
As described in Note 12 under "Other Warrants," the Company issued a
total of 83,333 warrants to the purchasers of the Series D preferred
stock.
Common Stock
During the year ended December 31, 1998, the Company converted notes
payable to a related party of $800,000 into 32 shares of Series C
convertible preferred stock.
During the year ended December 31, 1998, the Company converted accounts
payable of $50,000 into 14,286 shares of common stock.
During the year ended December 31, 1998, the Company converted accrued
expenses of $200,000 into 42,776 shares of common stock.
During the year ended December 31, 1998, the Company converted two
shares of Series A convertible preferred stock into 46,667 shares of
common stock.
During the year ended December 31, 1998, the Company converted 5,049,191
shares of Series B convertible preferred stock into 1,009,838 shares of
common stock.
During the year ended December 31, 1998, the Company converted 155
shares of Series C convertible preferred stock into 1,255,599 shares of
common stock.
During the year ended December 31, 1998, Series D and Series F warrants
were exercised, whereby 20,000 and 55,000 shares, respectively, of
common stock were issued in exchange for cash of $80,000 and $275,000,
respectively.
During the year ended December 31, 1998, 46,167 stock options were
exercised for cash of $138,500. In addition, 30,000 shares of common
stock were issued in exchange for a subscription receivable of $90,000,
which was collected during the year ended December 31, 1999.
33
<PAGE> 72
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Common Stock (Continued)
During the year ended December 31, 1998, the Company issued 43,000
shares of common stock in exchange for services rendered valued at
$129,000, or $3 per share, which represents the fair market value of the
services rendered.
During the year ended December 31, 1998, the Company issued 4,667 shares
of common stock in exchange for accrued preferred stock dividends of
$35,000.
During the year ended December 31, 1999, the Company converted accrued
expenses of $60,000 into 16,000 shares of common stock.
During the year ended December 31, 1999, the Company converted one share
of Series A convertible preferred stock into 23,334 shares of common
stock.
During the year ended December 31, 1999, the Company converted 280
shares of Series D convertible preferred stock into 508,457 shares of
common stock.
During the year ended December 31, 1999, Series C, Series E, and Series
F warrants were exercised, whereby 33,500 shares of common stock were
issued in exchange for cash of $159,500, net of issuance costs.
During the year ended December 31, 1999, the Company converted accrued
dividends on Series A and Series D preferred stock of $52,500 and
$20,109, respectively, into 12,570 and 11,301 shares of common stock,
respectively.
During the year ended December 31, 1999, the Company issued 100,000
stock options to a consultant in exchange for services rendered valued
at $25,000, which represents the fair market value of the services
rendered.
During the year ended December 31, 1999, a related party contributed
$107,656 in cash.
34
<PAGE> 73
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Common Stock (Continued)
At December 31, 1999, common shares were reserved for issuance as
follows:
<TABLE>
<S> <C>
Assuming exercise or conversion of:
1995 Incentive Stock Option Plan 31,200
1995 Non-Qualified Stock Option Plan 203,000
1995 Non-Qualified Director's Stock Option Plan 181,000
1998 Stock Option Plan 232,000
Other stock options 619,187
Stock purchase warrants 1,347,583
Convertible preferred stock 1,030,000
---------
TOTAL 3,643,970
=========
</TABLE>
Stock Purchase Warrants
At December 31, 1999, the Company had the following stock purchase
warrants outstanding:
1) Series C Warrants
In connection with the issuance of $2,210,000 of notes payable
during 1997, the holder of the notes received 221,000 Series C
warrants. Each warrant gives the holder the right to purchase one
share of the Company's common stock at an exercise price of $5.
At December 31, 1999, there were 71,000 Series C warrants
outstanding.
2) Series D Warrants
The holders of certain notes issued in June 1996 received 77,000
Series D warrants to purchase the Company's common stock at an
exercise price of $5 per share. The warrants expire three years
after issuance. In addition, the warrants are callable if the
Company's common stock closes at $7.50 per share for 10
consecutive trading days after registration of the preferred
stock. At December 31, 1999, there were 57,000 Series D warrants
outstanding.
3) Series E Warrants
Under the terms of a series of 9.75% notes payable that were
issued in June 1997 with an aggregate principal of $2,710,000,
investors of the notes received an aggregate of 273,500 Series E
warrants to purchase common stock at a purchase price of $5 per
share. At December 31, 1999, there were 272,500 Series E warrants
outstanding.
35
<PAGE> 74
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Purchase Warrants (Continued)
4) Series F Warrants
As part of the sale of the 155 shares of convertible Series C
preferred stock sold in April 1998, the Company also issued an
aggregate of 193,750 Series F warrants (1,250 warrants per
preferred share). Each warrant entitles the holder to purchase
one share of the Company's stock at a purchase price of $5 per
share. At December 31, 1999, there were 131,250 Series F warrants
outstanding.
5) Other Warrants
Under the terms of a $2,500,000 loan agreement during 1997, the
Company issued to the bank an initial stock purchase warrant to
purchase up to 87,500 shares of the Company's common stock at an
exercise price of $5 per share, which is exercisable on or before
November 17, 2002. The warrant was outstanding at December 31,
1999.
Additionally, as part of the above loan agreement, the Company
issued to the bank a stock purchase warrant to purchase 75,000
shares of the Company's common stock at an exercise price of
$5.25 per share, which is exercisable on or before June 1, 2003.
At December 31, 1999, the warrant was outstanding.
Other Warrants
In connection with a $4,500,000 loan agreement during June 1998, the
Company issued to the bank a stock purchase warrant to purchase up to
370,000 shares of the Company's common stock at $4.0625 per share at any
time during a five-year period beginning June 15, 1998. The exercise
price of the warrant is automatically reset on the first anniversary
date of closing date at the lesser of 1) $4.0625 per share or 2) the
average closing bid price of the Company's common stock for the 20
trading days immediately preceding the anniversary date.
In addition, the terms of the loan agreement for the $4,500,000 note
issued in June 1998 entitled the bank to receive a stock purchase
warrant to purchase up to 200,000 shares of common stock at an exercise
price equal to the greater of 1) $4.00 per share or 2) 80% of the
average closing bid price of the Company's common stock for the 20
trading days preceding the loan's first anniversary in June 1999. The
warrants are exercisable for a five-year period beginning in June 1999.
In connection with 2,060 shares of Series D convertible preferred stock
issued during the year ended December 31, 1999, which netted proceeds of
$1,664,832 after costs, the Company issued at total of 83,333 warrants
to the purchasers of the preferred shares. Of the 83,333 warrants 60,000
are exercisable at any time prior to February 5, 2004 at an exercise
price of $4.125 per share, and the remaining 23,333 warrants are
exercisable at any time until September 30, 2004 at $1.82 per share.
36
<PAGE> 75
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Other Warrants (Continued)
The Company occasionally lowers the exercise prices on its warrants as
an incentive to have holders of the warrants exercise them.
Stock Option Plans
The Company has adopted five stock option plans, the 1995 Incentive
Stock Option Plan, the 1995 Non-Qualified Stock Option Plan, the 1995
Non-Qualified Directors' Stock Option Plan, the 1998 Stock Option Plan,
and the 1998 Stock Compensation Plan. The shares issued pursuant to the
plans are restricted shares until or unless registered by the Company.
In addition, the Company from time to time will issue non-qualified
stock options outside of these five plans.
Under the 1995 Incentive Stock Option Plan, options may be granted by
the Compensation Committee to its officers, key employees, and other
employees according to responsibility and length of service. Options may
not be granted to employees owning more than 10% of the total combined
voting power of the stock of the Company. Options granted under the plan
shall be granted within 10 years of the date of the adoption of the plan
and must be exercised within 10 years of the grant. The aggregate number
of shares that may be issued pursuant to the plan is 100,000 over the
life of the plan, and the aggregate fair market value of the stock for
exercise for the first time during any calendar year is $100,000 per
individual. The exercise price of the options is determined by the
Compensation Committee, but in any case, the exercise price may not be
less than 100% of the fair market value on the date of grant. Options
vest pro rata over a four-year period.
The 1995 Non-Qualified Stock Plan provides for incentives to management,
executive personnel of the Company, and others. The plan limits the
number of shares to 200,000, and the aggregate value of the underlying
shares granted in any year for any single employee may not exceed
$100,000 in value. The option price is fixed by the bid price of the
Company's shares as quoted on NASDAQ or the Bulletin Board at the close
of business on the date of the grant. Options must be exercised within
10 years of the date of grant thereof and shall vest at such time or
times as the Board of Directors shall fix on the date of grant.
The 1995 Director's plan is a non-qualified plan and provides for 60,000
shares in total, with 10,000 shares to be granted to each director on
assuming office. The underlying share price is determined by the bid
price on NASDAQ or the Bulletin Board on the date of the grant. The
options vest over a five-year period. Options must be exercised within
10 years of the date of grant.
37
<PAGE> 76
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
Under the 1998 Stock Option Plan (the "1998 Plan"), options may be
granted by the Compensation Committee to officers, employees, directors,
and consultants. Options granted under the 1998 Plan may either be
incentive stock options or non-qualified stock options. The aggregate
number of shares that may be issued pursuant to the 1998 Plan is
1,000,000 over the life of the 1998 Plan, of which 50,000 shares shall
be issued to directors, 750,000 to employees as incentive stock options,
and 200,000 to non-employees as non-qualified stock options. No
incentive stock option may be granted to any person who owns more than
10% ("10% Shareholders") of the total combined voting power of all
classes of the Company's stock, unless the exercise price is at least
equal to 110% of the fair market value on the date of grant. Options may
be granted under the 1998 Plan for terms of up to 10 years, except for
incentive stock options granted to 10% shareholders, which are limited
to the five-year terms. No incentive stock options may be granted to an
optionee if the aggregate fair market value of the stock with respect to
which incentive stock options are exercisable by the optionee in any
calendar year under all such plans of the Company and its affiliates
exceeds $100,000.
The 1998 Stock Compensation Plan was adopted to provide the Company with
a means of compensating key employees, including directors and
consultants of the Company, for their services with shares of common
stock. The plan became effective April 1, 1998 and shall terminate on
March 31, 2008. It is administered by the Board of Directors, who is
authorized to award up to 150,000 shares of common stock for a value of
no less than par as consideration for services rendered. As of December
31, 1999, no options have been granted under the 1998 Stock Compensation
Plan.
The following summarizes the stock option transactions under the stock
option plans:
<TABLE>
<CAPTION>
Weighted- Weighted-
1995 Average Average
Incentive Granted Granted
Stock Price Other Price
Option Plan Per Share Options Per Share
----------- --------- -------- --------
<S> <C> <C> <C> <C>
Outstanding, December
31, 1997 200 $ 8.75 661,187 $ 3.76
Granted 50,000 $ 4.00 -- $ --
Exercised -- $ -- (112,000) $ 5.00
Canceled (4,000) $ 4.00 (30,000) $ 4.40
-------- --------
Outstanding,
December 31, 1998 46,200 $ 4.02 519,187 $ 3.45
Granted -- $ -- 100,000 $ 2.63
Canceled (15,000) $ 4.00 -- $ --
-------- --------
</TABLE>
38
<PAGE> 77
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
<TABLE>
<CAPTION>
Weighted- Weighted-
1995 Average Average
Incentive Granted Granted
Stock Price Other Price
Option Plan Per Share Options Per Share
----------- --------- ------- ---------
<S> <C> <C> <C> <C>
OUTSTANDING,
DECEMBER 31, 1999 31,200 $ 4.03 619,187 $ 3.32
====== =======
EXERCISABLE AT
DECEMBER 31, 1999 13,200 $ 4.07 326,927 $ 3.18
====== =======
</TABLE>
<TABLE>
<CAPTION>
1995
Non- Weighted- 1995 Weighted- Weighted-
Qualified Average Non- Average Average
Directors' Granted Qualified Granted 1998 Granted
Stock Price Stock Price Stock Price
Option Per Option Per Option Per
Plan Share Plan Share Plan Share
---------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
December 31, 1997 158,000 $ 7.75 30,000 $ 8.85 -- $ --
Granted ........ 25,000 $ 3.75 175,000 $ 4.01 30,000 $ 3.63
Canceled ....... (10,000) $ 7.05 (2,000) $ 5.00 -- $ --
------- ------- ------
Outstanding,
December 31, 1998 173,000 $ 7.21 203,000 $ 4.72 30,000 $ 3.63
Granted ........ 8,000 $ 1.75 -- $ -- 212,000 $ 3.13
Canceled ....... -- $ -- -- $ -- (10,000) $ 3.13
------- ------- ------
OUTSTANDING AT
DECEMBER 31, 1999 181,000 $ 6.97 203,000 $ 4.72 232,000 $ 3.19
======= ======= =======
EXERCISABLE AT
DECEMBER 31, 1999 181,000 $ 6.97 203,000 $ 4.72 46,400 $ 3.23
======= ======= ======
</TABLE>
On October 22, 1998, certain non-qualified options to purchase 473,334
shares of common stock, originally granted during the year ended
December 31, 1997, were repriced at an exercise price of $4.
Subsequently, these options were repriced on December 31, 1998 at an
exercise price of $3.
39
<PAGE> 78
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting
Principles Bulletin ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its plans
and does not recognize compensation expense for its stock-based
compensation plans other than for restricted stock and options issued to
outside third parties. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed by
SFAS No. 123, the Company's net loss and loss per share would be reduced
to the pro forma amounts indicated below for the years ended December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Net loss
As reported $ (6,054,187) $ (5,693,716)
Pro forma $ (6,830,370) $ (6,278,493)
Basic and diluted loss per common share
As reported $ (1.17) $ (1.38)
Pro forma $ (1.32) $ (1.52)
</TABLE>
The fair value of these options was estimated at the date of grant using
the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 1999 and
1998: dividend yields of 0% and 0%, respectively; expected volatility of
100% and 99%, respectively; risk-free interest rates of 6.3% and 4.7%,
respectively; and expected lives of three and 2.95 years, respectively.
The weighted-average fair value of options granted during the years
ended December 31, 1999 and 1998 was $2 and $2.93, respectively, and the
weighted-average exercise price was $3.08 and $4.42, respectively.
For options granted during the year ended December 31, 1999 where the
exercise price equaled the stock price at the date of the grant, the
weighted-average fair value of such options was $2, and the
weighted-average exercise price of such options was $3.08. No options
were issued during the year ended December 31, 1999 where the exercise
price exceeded the stock price at the date of the grant, nor where the
exercise price was less than the stock price at the date of grant.
40
<PAGE> 79
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued)
The weighted-average remaining contractual life of the options
outstanding at December 31, 1999 is 3.09 years. The exercise prices of
the options outstanding at December 31, 1999 ranged from $1.75 to $15,
and information relating to these options is as follows:
<TABLE>
<CAPTION>
Weighted- Weighted-
Weighted- Average Average
Average Exercise Exercise
Range of Stock Stock Remaining Price of Price of
Exercise Options Options Contractual Options Options
Prices Outstanding Exercisable Life Outstanding Exercisable
-------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 1.75 - 4.50 599,000 395,400 2.84 years $ 3.50 $ 3.62
$ 4.51 - 6.00 486,667 202,667 2.67 years $ 3.11 $ 3.18
$ 6.01 - 10.00 175,720 167,460 5.11 years $ 8.18 $ 8.19
$10.01 - 15.00 5,000 5,000 2.00 years $ 15.00 $ 15.00
--------- -------
1,266,387 770,527
========= =======
</TABLE>
NOTE 13 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1998, the Company incurred $220,248
in legal and consulting fees from a law firm of which Rowland W. Day,
ll, a shareholder, a former member of the Board of Directors, and former
Co-Chairman of the Company, is a partner.
During the years ended December 31, 1999 and 1998, the Company engaged
the services of Meyer Duffy & Associates ("Meyer Duffy"), a management
consulting firm whose principal partner is a shareholder, a director,
and former Co-Chairman of the Company. Meyer Duffy was retained by the
Company to provide consulting, financial advisory, and investment
banking services. The latest written consulting agreement was
consummated and became effective January 1, 1998. Under the terms of the
agreement, Meyer Duffy will continue its consulting services and
services related to raising capital for the Company for a two-year
period for $5,000 per month, and in addition, would receive a total of
75,000 options, exercisable at $4 per share.
41
<PAGE> 80
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED)
In February 1998, the Company entered into a license agreement with Big
Bike Boutique, Inc., ("BBB") a company owned by an individual who was
also at that time a director of the Company, owner of four independently
operated Bikers Dream dealerships, and owner of CCC, pursuant to which
the Company licensed its name to BBB for the purpose of selling apparel
and accessories. The agreement was terminated in October 1998 pursuant
to a termination of license agreement and mutual release.
In September 1998, the Company entered into a sublease agreement and
repayment agreement with Big Bike of Daytona, Inc. ("Big Bike"), a
Florida Corporation owned by Bruce Scott. Pursuant to the terms of the
sublease agreement, the Company agreed to sublease to Big Bike the
rights to operate an independent motorcycle dealership at the facility
for an original term of three years. Under the repayment agreement, the
Company has agreed to reimburse Big Bike for a portion of the cost of
certain tenant improvements advanced by Big Bike. The reimbursement is
to be made by an offset against the rent otherwise due under the
sublease. All profits made by Big Bike on sales of motorcycles, parts,
and other consigned inventories by the Company shall be applied to rent
due under the sublease until the amount paid under the sublease in any
given year equals the rent the Company is obligated to pay on the master
lease for the premises. Thereafter, Big Bike is obligated to pay the
Company half of its net profits on sales of consigned inventories from
the Company. Total rent due under the sublease is capped at the lesser
of actual net profits from the sale of consigned inventories from the
Company or the amount owed by the Company under the master lease.
A shareholder/former director also owns four other motorcycle
dealerships in the state of Florida. The Company had sales to these
stores during the years ended December 31, 1999 and 1998 of $934,000 and
$1,684,015, respectively. At December 31, 1999, the stores owned by this
individual owed the Company an aggregate of $26,778 in accounts
receivable.
42
<PAGE> 81
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 14 - OTHER UNUSUAL ADJUSTMENTS
During the fourth quarter of 1999, the Company had the following
significant accounting adjustments, which may have been attributed to
prior quarters in 1999:
1. A charge of $400,000 to cost of goods sold at the Manufacturing
Division for an adjustment to reduce inventories as a result of
reconciling the inventory items and quantities counted during
the year-end physical inventory count to the inventory items and
quantities included in the year-end perpetual inventory listing.
Management has identified that a significant amount of the
adjustment relates to an accumulation of errors related to
improperly reducing its parts inventory as motorcycles are
produced and manufactured. Management attributes these errors to
be the result of implementing several new manufacturing software
programs for its production control and production planning
during 1999, while failing to establish strong controls over
these programs to prevent human error. Management of the Company
plans on implementing controls to prevent such errors from
occurring in the future.
2. A charge of $322,000 to cost of goods sold at the Manufacturing
Division to increase the inventory reserve for obsolete and
slow-moving inventory items based upon the Company's review of
its inventories at December 31, 1999, which identified a
significant amount of items included in its inventories that
were either no longer in current production or slow-moving
inventory.
3. A charge of $247,000 to cost of goods sold at the Manufacturing
Division to increase the provision for accrued warranty
expenses. Actual warranty charges during the year ended December
31, 1999 were higher than anticipated due to several motorcycle
parts and components failing to perform to specifications. As a
result, management of the Company has considered such
unexpectedly high warranty expenses that were incurred during
the year ended December 31, 1999 in estimating its future
warranty obligations as of December 31, 1999.
4. A charge of $417,000 to reduce the carrying value of inventories
at the Retail Division as a result of reconciling the inventory
items and quantities counted during the year-end physical
inventory count to the inventory items and quantities included
in the year-end perpetual inventory listing. Since the charge
occurred after the measurement date related to the discontinued
operations of the Retail Division, the effect of the charge is
reflected in the loss on the disposal of the Retail Division of
$1,782,144. Management attributes the misstatement of the
perpetual inventory listing to be the result of a lack of
employee training at the retail stores on the Retail Division's
computerized sales and order-processing systems, lack of
oversight at each one of the retail stores by their directors,
and inadequate internal controls of the inventories at the
retail stores.
43
<PAGE> 82
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 14 - OTHER UNUSUAL ADJUSTMENTS (CONTINUED)
Management of the Company has not yet determined which quarters in 1999
for which the above adjustments relate. If such charges do relate to
prior quarters in 1999, the net loss of the prior quarters may have been
higher than as reported.
During the fourth quarter of 1998, the Company had the following
significant accounting adjustments:
1. A charge of approximately $2,000,000 to cost of goods sold,
resulting from the difference between the inventory quantities
per the Company's perpetual inventory records at December 31,
1998 to a lesser amount counted during the physical year-end
inventory. In order to determine the reason or reasons for the
difference, the Company engaged the services of forensic
accountants. However, the specific causes for the difference
were not determined.
2. A charge of $679,000 to cost of goods sold for the elimination
of intercompany gross profit included in inventories that
resulted from the Retail Division purchasing motorcycles from
the Manufacturing Division at a price above the Manufacturing
Division's actual cost.
3. A charge of approximately $356,000 to cost of goods sold that
related to the Company reconciling its intercompany warranty
receivable and payable balances and accruing warranty costs.
Management of the Company has not yet determined which quarters in 1998
for which the above adjustments relate. If such charges do relate to
prior quarters in 1998, the net loss of the prior quarters may have been
higher than as reported.
NOTE 15 - YEAR 2000 ISSUE
The Company has completed a comprehensive review of its computer systems
to identify the systems that could be affected by ongoing Year 2000
problems. Upgrades to systems judged critical to business operations
have been successfully installed. To date, no significant costs have
been incurred in the Company's systems related to the Year 2000.
Based on the review of the computer systems, management believes all
action necessary to prevent significant additional problems has been
taken. While the Company has taken steps to communicate with outside
suppliers, it cannot guarantee that they have all taken the necessary
steps to prevent any service interruption that may affect the Company.
44
<PAGE> 83
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTE 16 - SUBSEQUENT EVENTS
As described in Note 3, the Company completed the sale of its Retail
Division on January 31, 2000.
As described in Note 7, the Company was a defendant in a lawsuit by two
individuals who were former owners of the Company's retail store in
Sacramento, California, which commenced trial in December 1999. In
January 2000, the trial concluded, and a verdict was rendered against
the Company on the breach of contract and fraud causes of action. The
jury awarded to the plaintiff compensatory damages of $283,000 and
punitive damages of $400,000. A judgment of approximately $683,000 was
subsequently entered with the court. The Company denies that it
committed any fraud or misrepresentations and plans to appeal the
verdict.
As of March 10, 2000, the remaining 1,780 shares of the Series D
convertible preferred stock and all accrued dividends on the preferred
stock were converted into common stock. A total of 3,219,995 shares of
common stock were issued as a result of the conversion during 2000.
In January 2000, a $300,000 note payable that the Company had with MD
Strategic LP, a partnership of which a shareholder and former director
of the Company is a principal, was assigned to W3 Holdings, Inc. In
addition, two other notes payable that the Company had with another
shareholder of the Company, which aggregated to $300,000, were replaced
by two amended and restated promissory notes of $156,638 and $150,000.
Both of these notes carried an interest rate of 12% per annum and were
to mature on March 31, 2000. After the notes payable were amended and
restated, the $150,000 note was assigned by a shareholder to W3
Holdings, Inc. As of April 2, 2000, all three of the notes payable were
still outstanding, and the Company was in negotiation with the holders
of the notes to either extend the maturity date of the notes or convert
the outstanding balance into shares of preferred or common stock.
However, it was unknown at that time whether the holders of the notes
would agree to do so or if they would demand immediate payment on the
notes.
In April 2000, the Company's Chief Executive Officer/President resigned
his position with the Company. At that time, he had an employment
contract with the Company that compensated him $226,429 per year, which
would expire in August 2004. The Company is considering whether any
additional amounts other than the remaining portion of deferred
compensation, may be due to its former Chief Executive
Officer/President, under this agreement with the Company subsequent to
the date of his resignation.
45
<PAGE> 1
EXHIBIT 10.19
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (the "Amendment"), made
and entered into as of December 31, 1999, is by and between Ultra Acquisition
Corporation, a Nevada corporation, and its affiliated companies, including
Bikers Dream, Inc., a California corporation (collectively, the "Company") and
Herm Rosenman, the Company's President and Chief Executive Officer (the
"Executive").
RECITALS
WHEREAS, the Company and Executive have entered into an Employment
Agreement dated August 31, 1997, as amended by a certain Amendment to Employment
Agreement dated as of December 31, 1997 (collectively, the "Agreement"),
pursuant to which the Company agreed to retain the Executive's services as
President and Chief Executive Officer pursuant to the terms thereof; and
WHEREAS, the parties desire to amend the Agreement to extend the term
thereof;
NOW, THEREFORE, the parties hereto agree as follows:
1. All terms defined in the Agreement and used herein shall have the
meaning given them in the Agreement.
2. Paragraph 1 of the Agreement shall be amended by extending the five
(5) year term to a seven (7) year term ending August 31, 2004.
3. Paragraph 3(a) shall be amended to read in full as follows:
(a) Salary. During the Term, the Company shall pay to Executive
a total salary of not less than $1,585,000, payable in monthly installments of
$17,361.11 for the first, second and third years of this Agreement, and payable
in monthly installments of not less than $20,000 for years four through seven of
this Agreement. Notwithstanding the foregoing, the Company may in its sole
discretion elect to defer payment of a portion of the monthly installments in
amounts not to exceed $2,361,11 each month during the year of 1998, provided,
however, that the total amount of payments deferred shall be payable to
Executive in equal monthly installments during the remainder of the term
commencing January 1, 1999, in an amount determined by dividing the total amount
of payments deferred by the total number of monthly payments remaining during
the term as of January 1, 1999.
<PAGE> 2
4. Except as expressly set forth herein, the Agreement shall remain in
full force and effect.
5. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first above written.
COMPANY
/s/ M. J. Fisher
------------------------------------
Michael J. Fisher
Chief Financial Officer
EXECUTIVE
/s/ H. Rosenman
------------------------------------
Herm Rosenman
2
<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of November 1, 1998 by and between Bikers Dream, Inc., a
California corporation, and its affiliated companies (collectively, the
"Company" "Corporate Group"), and Harold L. Collins, an individual, residing at
XXXXXXXXXXXXXXXXXXXXXXXXX, California XXXXXXXXXX ("Executive").
W I T N E S S E TH:
WHEREAS, the Company is in the business of manufacturing, retailing, selling,
distributing, and servicing of heavyweight motorcycles, parts, and accessories
(the "Business");
WHEREAS, the Company wishes to avail itself of the advice and services of
Executive, and Executive wishes to be employed by the Company;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
set forth herein, the parties hereto agree as follows:
1. Retention and Term. Subject to the terms and conditions of this
agreement, the Company agrees to employ Executive, and Executive hereby
accepts employment by the Company, as its General Counsel, commencing on
the date hereof and continuing for a period of three (3) years (the
"Term"), unless extended or earlier terminated pursuant to this
Agreement.
2. Duties.
(a) During the Term, Executive shall render his services to the
Company as General Counsel, and shall have such powers and shall
perform such duties as usually pertain to such office and as may
reasonably be requested by the Company commensurate with his
position and consistent with the requirements of this Agreement.
Executive shall report directly to the President and CEO of the
Company. Executive's performance shall be periodically reviewed
to assess Executive's performance for the purpose of determining
such matters as salary increases, additional stock option
awards, bonuses, etc.
(b) Executive agrees to devote his full working time and efforts to
the business and affairs of the Corporate Group, subject to the
following with respect to the "Initial Period," and hold such
offices in members of the Corporate Group to which he shall
accept, such acceptance not to be unreasonably withheld and to
which from
<PAGE> 2
time to time he may be elected or appointed, provided that they
are of the same character and of at least the same degree of
responsibility as the offices in the Company he shall hold
pursuant to the terms of this Agreement.
(c) The Initial Period will run from the effective date hereof until
Executive informs the Company that he has reached a point, with respect to his
former private law practice, that he is able to devote his full-time efforts to
the affairs of the Company. Until such time, Executive will devote half-time to
the affairs of the Company, with his compensation therefore adjusted
proportionally. Thereafter, Executive will devote his full-time efforts to the
affairs of the Company and his compensation will increase to the annual amount
set forth herein.
3. Compensation.
(a) Salary. During the Term, unless otherwise stated, the Company
shall pay to Executive an annual salary of $150,000 payable in
monthly installments of $12,500. Executive's performance will be
reviewed annually and his salary adjusted based on such review
and the Company's financial condition.
(b) Executive shall be eligible to participate in such bonus plans,
stock grants and/or stock option plans applicable to executive
officers of the Company as may be established by the Board from
time to time, pursuant to the terms of such plans.
4. Benefits.
(a) Executive shall be entitled to health and hospitalization
benefits without a waiting period, unless such benefits are
already covered. In addition, Executive shall be entitled to
disability and such other benefits as are made available from
time to time to any executive employee of the Company. The
Company's Director & Officer Liabilities Insurance shall be
extended to the Executive.
(b) Executive shall be entitled to reimbursement for all normal and
reasonable travel, entertainment and other expenses necessarily
incurred by him in the performance of his duties hereunder, in
all cases in accordance with Internal Revenue Service
guidelines. Executive shall submit on a timely basis such
itemized accounts of such expenses, together with such vouchers
or receipts for individual expense items, as the Company may
from time to time require under its established policies and
procedures.
(c) Executive shall be entitled to two non-consecutive weeks'
vacation each calendar year during the Term. No compensation
shall be paid to Executive for any vacation not taken in respect
of any calendar year, and Executive shall not be
2
<PAGE> 3
entitled to carry over into any succeeding year any vacation
time unused in the prior year.
5. Termination on Death. If Executive dies during the Term, this Agreement
shall thereupon immediately terminate.
6. Termination for Certain Causes. In the event of Executive's (a)
malfeasance, gross neglect or willful misconduct in the performance of
his duties under this Agreement, b) failure to perform substantially his
obligations under this Agreement (other than by reason of death or
disability contemplated by Section 4(e) or (5) or (c) act of fraud,
gross dishonesty or harassment against the Company or any of its
employees, which default under clause (a) or b) (if susceptible to cure)
continues uncured 30 days after written notice from the Company to
Executive, this Agreement and Executive's employment hereto terminated
by the Company without notice except as contemplated by this sentence.
6.a. Other Termination. In the event Executive's employment is terminated for
any other reason, Executive will be entitled to six (6) months
severance, if then employed for one (1) year or less, and one (1) year
severance if then employed for more than one (1) year.
7. Payments Upon a Change in Control.
(a) On the date of any termination of Executive's employment
hereunder arising pursuant to a Change in Control (as
hereinafter defined), if there exists no basis for termination
pursuant to Section 6 of this Agreement, the Company shall pay
to Executive an amount equal to six (6) month's salary, as
determined according to the amount paid to Executive at the time
of termination, payable on a monthly basis.
b) A "Change in Control" shall occur when:
(i) any person (as such term is used in Sections 3(a)(9) and
13d(3) of the Securities Exchange Act of 1934 as in
effect on the date hereof, herein called the "Act"),
other than a person beneficially owning (as such term is
used in Section (d)(1) of the Act) 15% or more of the
voting securities of the Company on May 1, 1998 or any
person substantially all of the equity of which is owned
by the persons who beneficially owned the voting
securities of the Company on May 1, 1998, becomes the
beneficial owner, directly or indirectly, of securities
representing at least 25% of the combined voting power
of the then outstanding securities of the Company;
3
<PAGE> 4
(ii) During any period of twenty-four consecutive months
(commencing before or after the date of this Agreement),
individuals who, at the beginning of such period
constituted the Company's Board of Directors, cease for
any reason to constitute at least a majority thereof,
unless the election, or the nomination for election, of
each new director (A) was approved by a vote of at least
two-thirds of the directors then still in office who
were directors at the beginning of the period or B) was
pursuant to an arrangement the same or substantially
similar to any arrangement pursuant to which such new
director's predecessor was nominated;
(iii) unless theretofore approved by a vote of at least two
thirds of the Continuing Directors (as hereinafter
defined), there is the approval by the stockholders of
the Company of any merger or consolidation, or any sale,
lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of
transactions) of any assets of the Company or any
subsidiary with or to (A) any Interested Stockholder
hereinafter defined) or B) any other person which is, or
after such transaction would be, an Affiliate (as
hereinafter defined) of an Interested Stockholder; or
(iv) there is the approval by the stockholders of the Company
of any plan or proposal for the Company to be Acquired
(as hereinalter defined) or for the liquidation or
dissolution of the Company.
(c) The Company shall be considered to be "Acquired" only if the
owners of their respective voting securities immediately prior
to the effective date of any sale, reorganization, merger,
consolidation, liquidation or similar transaction will not own
immediately thereafter, as a result of having owned such voting
securities, securities representing a majority of the combined
voting power of the then outstanding securities of the Company
or the entity that then owns, directly or indirectly, the
Company or all or substantially all of its assets.
(d) "Interested Stockholder" shall mean any person (other than the
Company, any subsidiary thereof, any person owning any voting
securities of the Company on May 1, 1998 or any person
substantially all of the equity of which is owned by the persons
beneficially owned the voting securities of the Company on May
1, 1998) who or which:
(i) is the beneficial owner, directly or indirectly, of
securities representing 10% or more of the combined
voting power of the then outstanding securities of the
Company;
4
<PAGE> 5
(ii) is an Affiliate of the Company, and at any time within
the two year period immediately prior to the date in
question was the beneficial owner, directly or
indirectly, of securities representing 10% or more of
the combined voting power of the then outstanding
securities of the Company;
(iii) is an assignee of or has otherwise succeeded to any
voting securities of the Company which were at any time
within the two year period immediately prior to the date
in question beneficially owned by an Interested
Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of
transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(e) "Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Act.
(f) "Continuing Director" means any member of the Company's Board of
Directors who is unaffiliated with the Interested Stockholder
and was a member of the board prior to the time that the
Interested Stockholder became an Interested Stockholder and any
successor or a Continuing Director who is unaffiliated with the
Interested Stockholder and is recommended to succeed a
Continuing Director by a vote of at least two-thirds of the
Directors then on the Board.
8. Confidentiality.
(a) Executive understands and acknowledges that, as a result of
Executive's employment with the Company, he shall necessarily
become informed of, and shall have access to, confidential
information of the Company's products, including, without
limitation, inventions, trade secrets, technical information,
know-how, plans, specifications, marketing plans and
information, pricing information, identity of customers and
prospective customers, identity of suppliers, and that such
information, even though it may have been or may be developed or
otherwise acquired by Executive, is the exclusive property of
the Company, to be held by Executive in a fiduciary capacity and
solely for the Company's benefit. Executive shall not at any
time, either during or subsequent to his employment hereunder,
reveal, represent (transfer or otherwise disclose to any person,
Company or other entity, or use, any of the Company's
confidential information which Executive, in the exercise of
reasonable diligence knows to be confidential, without the
written consent of the members of the Company other than
Executive), except for use on behalf of the Company in
connection with the Business and except for such information
which legally and legitimately is or becomes of general public
knowledge from authorized sources other than Executive. The duty
5
<PAGE> 6
of confidentiality does not apply to generic legal knowledge or
expertise acquired during the period of employment or legal
strategies or techniques employed during this time. This
obligation of confidentiality is in addition to the obligation
that an attorney owes to a client as to confidential
communications.
b) Upon the termination of his employment with the Company for
reason, Executive shall promptly deliver to the Company all
drawings, manuals, letters, notebooks, reports and copies
thereof and all other materials, including, without limitation
those of a secret or confidential nature, relating to the
Business which are in Executive's possession or control. The
Company shall reimburse Executive for any packing or moving
costs reasonably incurred by Executive in connection with the
foregoing delivery. This does not apply to legal forms or
pleadings used or developed by Executive.
(c) For purposes of this Section 8 and Sections 9 and 10, the term
includes the Company, any predecessor company, and any of their
respective affiliates (including, without limitation,
distributors, licensees, subsidiaries and joint ventures).
9. Developments.
(a) Executive shall disclose promptly and fully, in writing whenever
possible, to the Company and to its designated representatives
and agents, all ideas, devices, inventions, improvements,
developments, computer software, product marks and designations,
information and know-how, whether or not patentable,
copyrightable or otherwise protectable relating in any way to
the Business (referred to together herein as "Developments"),
which Executive conceived or made or may conceive or make,
whether solely or jointly with others.
(i) while Executive is or has been employed with the Company
or its predecessors, whether during or out of the usual
hours of work; and
(ii) within one year after termination of Executive's
employment with the Company.
All of such Developments required to be disclosed to the Company are referred to
herein as the "Proprietary Developments." Executive agrees that all of
Executive's right, title and interest in and to the Proprietary Developments
shall be deemed to be held by Executive in a fiduciary capacity and solely for
the Company's benefit, shall be the sole and exclusive property of the Company
and shall be subject to the confidentiality provisions of this Agreement as
confidential
6
<PAGE> 7
information of the Company. This does not apply to general legal expertise,
knowledge, techniques or strategies.
(b) Executive, when requested to do so, either during or after his
tenure with the Company, shall, for no additional compensation
(except as contemplated Section 7(d)):
(i) assign and convey to the Company in writing Executive's
entire right, title and interest in and to the
Proprietary Developments to the extent not owned by the
Company as a matter of law from the time of their
creation;
(ii) execute, acknowledge and deliver all such instruments of
assignment, transfer and conveyance, and any such
further instruments and documents, in form and substance
satisfactory to the Company, as the Company shall
reasonably deem necessary or advisable to evidence the
vesting in the Company of all right, title and interest
of Executive in and to the Proprietary Developments;
(iii) assist the Company and its designated representatives
and agents preparing patent, copyright or other
applications, domestic and foreign, covering the same
and sign and deliver all such applications and
assignments thereof to the Company and;
(iv) generally, give all information and testimony, sign all
papers and do all things which may be needed or
reasonably requested by the Company to the end that the
Company may obtain, extend, reissue, maintain and
enforce United States and foreign patents or copyrights
or other rights or registrations covering the
Proprietary developments.
(v) This section does not apply to general legal advise
rendered which would be subject to the attorney-client
privilege that Bikers Dream, Inc. would otherwise enjoy.
(c) Executive hereby irrevocably nominates and appoints the Company
as his attorney-in-fact to sign and deliver all such papers, and
perform all such acts, mentioned in this Section 9, in the event
of Executive's absence, unavailability, refusal or death, such
and appointment hereby being granted with full authority in the
premises, and such be deemed coupled with a valuable interest
vested in the Company.
7
<PAGE> 8
(d) The Company shall bear all expenses which it causes to be
incurred in obtaining, extending, reissuing, maintaining and
enforcing such patents, copyrights or other rights or
registrations and investing and perfecting title thereto in the
Company, and shall pay Executive for any time which it may
require of him therefore subsequent to the termination of his
employment with the Company, such payment to be at an hourly
rate equivalent to that at which Executive is or was paid (at
her then-current or, if no longer employed by the Company the
most recent, salary) during his employment with the Company.
(e) In the event of the unenforceability of all or part of the
foregoing provisions of this Section 9, as determined by a court
of competent jurisdiction, Executive hereby transfers and
assigns to the Company such lesser interests in the Proprietary
Developments including, without limitation, any and all United
States and foreign patent rights and copy rights therein and
renewals thereof, as may be determined by such a court to be a
reasonable grant of interests under the circumstances, but, in
any event, and without limitation, Executive shall be deemed to
have granted to the Company not less than an irrevocable,
non-exclusive license with the right to sub-license others, to
manufacture, use, lease and sell the Proprietary developments
which have not been assigned to the Company under the provisions
of this Section 9 without payment of any royalty.
(f) Executive shall permit the use in a commercially reasonable
manner of his name or likeness in connection with any use of, or
other dealings by the Company in respect of any Proprietary
Developments during and after the period of his employment
hereunder.
10. Non-Competition. Executive agrees that, for the period commencing on the
date hereof and ending two (2) years after the termination of his
employment with the Company for any reason, he shall not, anywhere in
the United States of America (or lesser area or such lesser period as
may be determined by a court of competent jurisdiction; a reasonable
limitation on the competitive activity of Executive), directly or
indirectly;
(i) engage, as an independent contractor or otherwise, in any
activity for or on behalf of any person or entity in a line of
business competitive with the Business, any aspect thereof,
including any foreign person or entity that has a significant
distribution system within the United States of America, or
engage in any manner in the Business;
(ii) except for the benefit of the Company, solicit or attempt to
solicit business of entities who were customers of the Company
at any time within the prior two years (including prospective
customers solicited by the Company) for products or
8
<PAGE> 9
services the same or similar to those offered, sold, produced or
under development by the Company or dealt in by Executive,
during his employment therewith;
(iii) interfere with the Company, the Business or the conduct thereof
by the Company, or otherwise divert or attempt to divert from
the Company any business whatsoever;
(iv) solicit or attempt to solicit for any business endeavor any
employee of the Company;
(v) use the name of the Company or any name used by the Company or
any name similar to any thereof, or;
(vi) render any services as an officer, director, employee, partner,
consultant or otherwise to, or have any interest as a member,
stockholder, partner, lender or otherwise in, any person which
is engaged in activities which, if performed by Executive would
violate this Section 10.
11. Remedies and Survival. Because the Company does not have an adequate
remedy at law to protect its interest in its trade secrets, privileged,
proprietary or confidential information and similar commercial assets,
including, without limitation, any Proprietary Developments, or its
business from Executive's competition, the Company shall be entitled to
injunctive relief in addition to such other remedies and relief that
would, in the event of a breach in the provisions of Sections 8, 9 or
10, be available to the Company. The provisions 8, 9 and 10 and this
Section 11 shall survive any termination of Executive's employment with
the Company.
12. Indemnification. Executive shall indemnify, defend and hold harmless the
Company from and against, and reimburse the Company for, any loss,
damage, liability (including any liability by reason of any settlement
of a claim, action, suit or proceeding or expense (including reasonable
attorneys' fees and disbursements) arising out of or connected with (a)
any breach or inaccuracy of any covenant of Executive contained in this
A or in any other document simultaneously delivered pursuant to or in
connection with this agreement, or (b) any claim, action, allegation,
suit or proceeding asserted or instituted arising out of any matter or
thing covered by this Agreement or any document or agreement
simultaneously delivered pursuant to or in connection with Agreement.
13. Supersedes Prior Agreement. This Agreement merges any prior or
contemporaneous agreements or understandings with respect to its subject
matter and shall not be modified or terminated except by another
agreement in writing executed by the Company and Executive. Failure of a
party to enforce one or more of the provisions Agreement or to
9
<PAGE> 10
require at any time performance of any of the obligations hereof shall
not be construed to be a waiver of such provisions by such party nor to
in any way affect the validity of this Agreement or such party's right
thereafter to enforce any provision of this Agreement nor to preclude
such party from taking any other action at any time which it would
legally be entitled take.
14. Severability. If any provision of this Agreement is held to be invalid
or unenforceable by any court or tribunal of competent jurisdiction, the
remainder of this agreement shall not be affected by such judgment, and
such provision shall be carried out as nearly as possible according to
its original terms and intent to eliminate such invalidity or
unenforceability.
15. Successors and Assigns. Neither party shall have the right to a personal
Agreement, or any rights or obligations hereunder, without the consent
of the other party; provided, however, that upon the sale or transfer of
all or substantially all of the assets and business of the Company to
another party, or upon the merger or consolidation of the Company with
another Company, this Agreement shall inure to the benefit of, and be
binding upon both the Executive and the party purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the
case may be, in the same manner and to the same extent as though such
other party were the Company. Subject to the foregoing, this Agreement
shall inure to the benefit of, and bind, the parties hereto and their
legal representatives, heirs, successors or assigns.
16. Communications. All notices and other communications under Agreement
shall be in writing and shall be deemed to have been duly given at the
time when mailed in any United States post office enclosed in a
registered or certified postage-paid envelope and addressed as set forth
at the beginning of this Agreement, or to such other as any party may
specify by notice to the other parties, or delivered by Federal Express
similar overnight courier to such address; provided, however, that any
notice of change of address shall be effective only upon receipt.
17. Construction; Counterparts. The headings contained in this Agreement are
for convenience only and shall in no way restrict or otherwise affect
the construct provisions hereof. References in this Agreement to
Sections are to the sections of this agreement. This Agreement may be
executed in multiple counterparts, each of which shall be an original
and all of which together shall constitute one and the same instrument.
18. Governing Law; Consent to Jurisdiction. This Agreement shall be governed
by the laws of the State of California applicable to agreements made and
fully to be performed therein by residents thereof. Executive hereby
consents to the personal jurisdiction of the state and federal courts
located in the State of California in connection with disputes arising
10
<PAGE> 11
out of or in connection with this Agreement, and agrees that venue of
any proceeding and connection therewith shall lie exclusively in such
courts.
19. The Company acknowledges it is aware that Executive has been consulted,
in the past, by Herm Rosenman and his wife, Diana Rosenman, on personal
legal matters and consents to Executive's continued representation of
Mr. and Mrs. Rosenman on personal legal matters, at their own cost and
expense.
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as of
the date first set forth above.
BIKERS DREAM, INC.
By: /s/ H. Rosenman
---------------------------------
Name: H. Rosenman
Title: CEO
EXECUTIVE
By: /s/ Harold L. Collins 12/4/98
---------------------------------
Name: Harold L. Collins
11
<PAGE> 1
EXHIBIT 10.22
ALLONGE
This Allonge is made a part of that certain $300,000 Note (worth approximately
$382,200 in principal, interest and fees thru 1/24/00) Amended and Restated
Promissory Note dated October 13, 1998, from Bikers Dream Inc. to M.D. Strategic
L.P.
Pay to the order of W3 Holdings, Inc.
M.D. Strategic L.P.
By: /s/ John Mills
------------------------------------
Name: John Mills
Member of Meyer Duffy Asset Management LLC General Partner
Dated: January 24, 2000
<PAGE> 1
EXHIBIT 10.23
w3 Holdings, Inc. 2444 Hwy 34N, Manasquan, NJ 08736
================================================================================
January 25th, 2000
Bikers Dream, Inc.
3810 Wacker Drive
Mira Loma, CA 91752
RE: Extension of $300,000 Promissory Note
Dear Herm Rosenman,
We are now in possession of a note with a principle amount of $300,000,
which was owed to MD Strategic L.P. In connection therewith w3 Holdings, Inc.
grants Bikers Dream Inc. an extension of the due date on the note to March 31,
2000.
Sincerely,
/s/ Stephen Porada
- ----------------------------
Stephen Porada
w3 Holdings, Inc.
<PAGE> 1
EXHIBIT 10.26
FIRST AMENDMENT TO
LOAN AGREEMENT AND LOAN DOCUMENTS
THIS FIRST AMENDMENT TO LOAN AGREEMENT AND LOAN DOCUMENTS ("Amendment")
dated as of the 31st day of January, 2000, is made and entered into on the terms
and conditions hereinafter set forth, by and among Bikers Dream, Inc. ("BDI"), a
California corporation, and Ultra Motorcycle Company ("UMC"), a Nevada
corporation, formerly known as Ultra Acquisition Corporation (individually and
collectively "Borrower") and FINOVA Mezzanine Capital Corporation, a Tennessee
corporation ("Lender"), formerly known as Sirrom Capital Corporation.
RECITALS:
WHEREAS, Lender has previously made a term loan to Borrower in the
original principal amount of Four Million Five Hundred Thousand and No/100ths
Dollars ($4,500,000.00) on the terms and conditions set forth in that certain
Loan Agreement dated June 22, 1998, by and between Lender and Borrower (the
"Loan") (the Loan Agreement as now or hereafter amended, is hereinafter referred
to as the "Loan Agreement"); and
WHEREAS, the Loan is further evidenced and secured by certain
agreements, documents and instruments as more particularly described in the Loan
Agreement (the "Loan Documents"); and
WHEREAS, this Amendment shall amend the Loan Documents.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrowers and Lender hereby agree as follows:
1. Capitalized terms used herein but not otherwise defined shall have
the meanings ascribed thereto in the Loan Agreement.
2. Lender hereby consents to the sale by BDI pursuant to that Asset
Purchase Agreement dated as of January 18, 2000, among BDI and V-Twin Holdings,
Inc., a District of Columbia corporation, formerly known as V-Twin Acquisitions,
Inc. (the "Asset Purchase
<PAGE> 2
Agreement."). Upon satisfaction of the Closing Conditions (as hereinafter
defined), Lender shall execute appropriate releases of Lender's security
interest in the assets of BDI being sold under the Asset Purchase Agreement.
3. Each Borrower hereby represents and warrants to Lender that all of
the representations made in Section 2 of the Loan Agreement are true and correct
as of the date hereof, except as modified or supplemented by Schedule A attached
hereto and incorporated herein by this reference.
4. Each Borrower hereby represents and warrants to Lender that the
address(es) set forth on Schedule B attached hereto and incorporated herein by
this reference is the principal place of Borrower's business and the location of
all tangible collateral and the place where the records concerning all
intangible collateral are kept and/or maintained.
5. Each Borrower hereby represents and warrants to Lender that Schedule
C attached hereto is a complete and correct list of all credit agreements,
indentures, purchase agreements, promissory notes and other evidences of
indebtedness, guaranties, capital leases and other instruments, agreements and
arrangements presently in effect providing for or relating to extensions of
credit (including agreements and arrangements for the issuance of letters of
credit or for acceptance financing) in respect of which the Borrower or any of
its properties is in any manner directly or contingently obligated and the
maximum principal or face amounts of the credit in question that are outstanding
and that can be outstanding are correctly stated, and all liens of any nature
given or agreed to be given as security therefor are correctly described or
indicated in Schedule C.
6. Notwithstanding anything to the contrary contained in the Loan
Documents, without the prior written consent of Lender, Borrower shall not
create, incur, assume or suffer to exist indebtedness of any description
whatsoever, excluding:
(a) the indebtedness evidenced by the Loan Documents;
(b) the endorsement of negotiable instruments payable to Borrower
for deposit or collection in the ordinary course of business;
(c) capitalized leases and purchase money indebtedness incurred in
the ordinary course of business provided that the aggregate
amount of such items incurred on or after the date hereof shall
not exceed $250,000 at any time;
(d) trade payables incurred in the ordinary course of business; and
(e) the indebtedness listed on Schedule C.
7. Notwithstanding anything to the contrary contained in the Loan
Documents, without prior the written consent of Lender, Borrower shall not
create, incur, assume or suffer to exist any lien, security interest, security
title, mortgage, deed of trust or other encumbrance
2
<PAGE> 3
upon or with respect to any of its assets, now owned or hereafter acquired,
except the following permitted liens:
(a) liens in favor of Lender;
(b) liens for taxes or assessments or other governmental charges or
levies if not yet due and payable or being contested in good
faith by appropriate proceedings and for which reserves
determined in accordance with GAAP have been provided on the
books of the Borrower;
(c) purchase money liens and liens on leased equipment granted in
connection with the leasing of such equipment in favor of the
lessor of such equipment, provided that the aggregate amount of
such items incurred on or after the date hereof shall not exceed
$250,000 at any time;
(d) Those existing liens, if any, described on Schedule C;
(e) mechanics', materialmen's, warehousemen's, landlords', carriers'
or other like liens arising in the ordinary course of business,
arising with respect to obligations which are not overdue for a
period of longer than 90 days or which are being contested in
good faith by appropriate proceedings and for which reserves
determined in accordance with GAAP have been provided on the
books of the Borrower; and
(f) deposits or pledges to secure the performance of bids, tenders,
contracts, leases, public or statutory obligations, surety or
appeal bonds or other deposits or pledges for purposes of a like
general nature or given in the ordinary course of business by a
Borrower.
8. Notwithstanding anything to the contrary contained in the Loan
Documents, without the prior written consent of Lender, Borrower shall not
guarantee nor be liable in any manner, whether directly or indirectly, or become
contingently liable in connection with the obligations or indebtedness of any
person or entity whatsoever, except for the endorsement of negotiable
instruments payable to Borrower for deposit or collection in the ordinary course
of business. Without the prior written consent of Lender, Borrower shall not (a)
make any loan, advance or extension of credit to any person other than in the
normal course of its business, or (b) make any payment on any subordinated debt
other than trade payables incurred in the ordinary course of Borrower's
business.
9. Notwithstanding anything to the contrary contained in the Loan
Documents, without the prior written consent of Lender, Borrower shall not (a)
be a party to any merger, consolidation or corporate reorganization, nor (b)
purchase or otherwise acquire all or substantially all of the assets or stock
of, or any partnership or joint venture interest in, any other person, firm or
entity, nor (c) sell, transfer, convey, or lease all or any substantial part of
its assets, nor (d) create any subsidiaries nor convey any of its assets to any
subsidiary.
3
<PAGE> 4
10. Lender's consent issued in this instrument and all other provisions
hereof shall become effective only upon the delivery to Lender of the following
documents, in form and substance acceptable to Lender:
(a) This Amendment, executed by the Borrowers indicated as parties
hereto.
(b) Collateral Assignment of Promissory Note in the form attached hereto
as Schedule D attached hereto;
(c) Stock Pledge Agreement in the form attached hereto as Schedule E
attached hereto; (d) Opinions of Borrower's counsel.
(e) Certified copies of resolutions authorizing the sale and credit
transactions described in this Amendment.
(f) Certificates of existence or good standing issued with respect to
the Borrowers;
(g) Closing Statement providing for the payment of Lender's expenses.
providing for the payment of Lender's expenses in connection with the
transactions described herein;
(h) UCC Financing Statements in form and substance acceptable to Lender;
and
(i) Such other documents or matters as Lender may reasonably request.
11. Borrowers warrant and represent that (a) the Loan Documents are
valid, binding and enforceable against Borrowers according to their terms,
subject to principles of equity and laws applicable to the rights of creditors
generally, including bankruptcy laws, (b) no default or Event of Default
presently exists under the Loan Documents and no condition presently exists
which, with the giving of notice, the passing of time, or both, would cause such
a default or Event of Default. Borrowers further acknowledge that Borrowers'
obligations evidenced by the Loan Documents are not subject to any counterclaim,
defense or right of setoff, and Borrowers hereby jointly and severally release
Lender from any claim, known or unknown, that any Borrower may have against
Lender as of the execution of this Amendment.
12. The terms "Loan Document" and "Loan Documents" as defined in the
Loan Agreement are amended to include this Amendment.
13. This Amendment may be executed in any number of counterparts and by
different parties to this Amendment in separate counterparts, each of which when
so executed
4
<PAGE> 5
shall be deemed to be an original and all of which taken together shall
constitute one and the same Amendment.
14. Except as modified and amended hereby, the Loan Documents shall
remain in full force and effect.
[The remainder of this page is intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
have caused this Amendment to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
FINOVA MEZZANINE CAPITAL INC.,
a Tennessee corporation
By: /s/ Lonald J. Barrickman
---------------------------------
Title: Vice President
------------------------------
BORROWERS:
BIKERS DREAM, INC.
a California corporation
By: /s/ H. Rosenman
---------------------------------
Title: CEO
------------------------------
ULTRA MOTORCYCLE COMPANY.
a Nevada corporation
By: /s/ H. Rosenman
---------------------------------
Title: CEO
------------------------------
5
<PAGE> 6
SCHEDULE A
Modifications of and Supplements to
Representations and Warranties
Schedule 2.2(a)
The authorized capital stock of the Company consists of (i) 10,000,000 shares of
Preferred Stock, no par value, of which 702,194 shares of Series B Preferred
Stock and 1,750 shares of Series D Preferred Stock are outstanding as of January
20, 2000; and (ii) 25,000,000 shares of Common Stock, no par value, of which
5,749,432 are outstanding as of January 20, 2000.
Schedule 2.2(b)
As of January 20, 2000, the Company has 702,194 shares of Series B Preferred
Stock outstanding which is convertible into 140,439 shares of Common Stock, plus
accrued dividends.
As of January 20, 2000, the Company has 1,750 shares of Series D Preferred Stock
outstanding with a stated value of $1,000 per share which are convertible into
an indeterminate number of shares of Common Stock . The number of shares of
Common Stock issuable upon conversion of each share of Series D Preferred Stock
shall equal (i) the sum of (A) the stated value per share and (B) accrued and
unpaid dividends on such share, divided by (ii) the Conversion Price. The
Conversion Price is equal to the lesser of: (i) 110% of the average of the
closing bid price of the Company's Common Stock for the trading day immediately
preceding the date of issuance of the shares of Series D Preferred Stock ; or
(ii) at 90% of the average of the four lowest Closing Bid Prices for the 22
trading days immediately preceding the conversion of the respective shares of
Series D Preferred Stock. The Closing Bid Price means the closing bid price of
the Company's Common Stock as reported by NASDAQ or the principal exchange or
market where traded. The terms of the Series D Preferred Stock are set forth in
a Certificate of Determination filed with the Secretary of State of California.
As of January 20, 2000, there are no shares of Series A Preferred Stock or
Series C Preferred Stock outstanding.
As of January 20, 2000, the Company also has (i) 1,472,583 warrants at exercise
prices ranging from $1.82 to $5.00 and (ii) 1,171,894 options at exercise prices
ranging from $1.75 to $7.50, of which 597,494 are vested.
Section 2.5
See description in litigation section regarding Cana Capital.
<PAGE> 7
$300,000 unsecured promissory note to MD Strategic L.P., a partnership
affiliated with Don Duffy, a former director of Bikers Dream. This note (on
which there is accrued approximately $82,200 in interest and fees) was assigned
in January 2000 to W3 Holdings, Inc. W3 Holdings has extended the term to March
31, 2000.
Purchase money indebtedness and capital leases as permitted by the First
Amendment to Loan Agreement.
Section 2.6
Please see attached description of litigation.
Section 2.7
The consolidated financial statements of Bikers Dream have been updated in
reports on Form 10QSB/A for the quarters ended March 30, 1998, June 30, 1998 ,
September 30, 1998 and March 30, 1999 and Form 10KSB/A for the fiscal year ended
December 31, 1998, all as filed with the Securities and Exchange Commission on
August 17, 1999, Form 10QSB for the quarter ended June 30, 1999 filed with the
Commission on August 23, 1999 and Form 10QSB for the quarter ended September 30,
1999 filed with the Commission on November 22, 1999.
Section 2.8
Bikers Dream's common stock is listed for trading on the Nasdaq Small Cap
Market.
Section 2.9
All of Bikers Dream's Series C Preferred Stock, and accrued dividends thereon,
has been converted into Common Stock. As of the date hereof, 310 shares of
Series D Preferred Stock (having a stated value of $310,000) plus accrued
dividends thereon, have been converted into a total of 566,940 shares of common
stock. See also Schedule 2.2(b), Schedule 2.5 and Schedule 2.6.
Schedule 2.10
See Schedule 2.6.
Schedule 2.15
Pursuant to a report of Bikers Dream's intellectual property counsel dated
December 21, 1999, J&B Fabrications, Inc. has threatened a lawsuit relating to
alleged patent infringement and Lanham Act claims. As of December 21, 1999,
intellectual property counsel has negotiated most of the terms of the settlement
except for plaintiff's demand for $25,000 in cash.
<PAGE> 8
Schedule 2.24
Bikers Dream has an registration rights obligations under its agreements with
the holders of its Series D Convertible Preferred Stock.
Schedule 2.27
All material employment contracts and employee stock option plans by which
Bikers Dream is bound are disclosed in its public filings with the Securities
and Exchange Commission. Bikers Dream has a noncontributory 401(k) plan and
medical plan for its employees.
<PAGE> 9
SCHEDULE B
Location of Principal Place
of Business and Collateral
3810 Wacker Drive
Mira Loma, California 91752
In addition to the Company's headquarters (which are now located at 3810 Wacker
Drive, Mira Loma, California 91752) and the 5 company superstore locations
(which will be sold pursuant to the Asset Purchase Agreement), the Company sends
out certain parts for finishing to third party processors: Vasquez (motor
polishing; at any one time, from 75 to 100 motors valued at $3,200 each);
Jericho (frames sent out for powder coating; at any one time, up to $45,000 to
$50,000 worth of frames) and ; other outside processors, which in the aggregate
do not exceed $20,000 worth of inventory
<PAGE> 10
SCHEDULE C
Debts and Liens
See updates to reps and warranties
[Lien schedule to be attached by Finova]
<PAGE> 11
SCHEDULE D
Collateral Assignment of Promissory Note
<PAGE> 12
SCHEDULE E
Stock Pledge Agreement
<PAGE> 1
EXHIBIT 10.32
COLLATERAL ASSIGNMENT OF PROMISSORY NOTE
This Collateral Assignment of Promissory Note ("Assignment") is entered
into as of the 31st day of January, 2000, by and between BIKERS DREAM, INC.
("Grantor"), a California corporation, and FINOVA MEZZANINE CAPITAL INC.
("Lender"), a Tennessee corporation, formerly known as Sirrom Capital
Corporation.
W I T N E S S E T H
WHEREAS, Lender has previously made a term loan to Grantor and Ultra
Motorcycle Company ("UMC"), a Nevada corporation, formerly known as Ultra
Acquisition Company, (Grantor and UMC are hereinafter referred to collectively
as the "Borrowers") in the original principal amount of Four Million Five
Hundred Thousand and No/100ths Dollars ($4,500,000.00) on the terms and
conditions set forth in that certain Loan Agreement dated June 22, 1998, by and
between Lender and Grantor (the "Loan") (the Loan Agreement as now or hereafter
amended, is hereinafter referred to as the "Loan Agreement");
WHEREAS, Lender has agreed to amend the Loan Agreement on certain terms
and conditions; and
WHEREAS, one condition to Lender's agreement is that Lender must be
provided a first priority perfected collateral assignment of a certain
promissory note owned by Grantor;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are acknowledged, it is agreed as follows:
1. Definition of Secured Indebtedness. As used herein, "Secured
Indebtedness" shall mean the obligations of Grantor to Lender under this
Assignment and all present and future debts and other obligations of Borrowers
to Lender, whether arising by contract, tort, guaranty, overdraft, or otherwise;
whether or not the advances or events creating such debts or other obligations
are presently foreseen; whether such obligations were originally payable to
Lender or are acquired by Lender from another person or entity; and regardless
of the class of the debts or other obligations, be they otherwise secured or
unsecured. Without limiting the foregoing, the Secured Indebtedness includes the
"Loan" as defined in that the Loan Agreement.
2. Security Interest; Assignment. To secure the payment of the Secured
Indebtedness, Grantor hereby assigns to Lender and grants Lender a security
interest in that promissory note dated January 31, 2000, made by V-Twin
Holdings, Inc. ("Obligor"), a District of Columbia, formerly known as V-Twin
Acquisitions, Inc., in the original principal amount of $1,000,000.00 payable to
Grantor (the "Collateral Note"), together with all proceeds thereof.
<PAGE> 2
3. Negotiation of Collateral Note; Perfection. Grantor shall negotiate
the Collateral Note to Lender by endorsing the Collateral Note to the order of
Lender (without restriction or qualification) and delivering the Collateral Note
to Lender. Lender shall retain possession of the Collateral Note to perfect its
security interest therein.
4. Warranties. Grantor warrants and represents to Lender the following:
(a) Sole Instrument. The Collateral Note is the only instrument
evidencing the indebtedness described therein.
(b) Ownership of Collateral. Grantor is the lawful holder and
owner of the Collateral Note.
(c) Binding Agreement. The Collateral Note is valid, binding and
enforceable according to its terms.
(d) No Other Assignment. The Collateral Note is not subject to
any assignment, lien or other encumbrance or claim except for the security
interest provided for herein.
(e) No Default. No default presently exists under the Collateral
Note and no condition presently exists which, with the giving of notice, the
passage of time, or both, will cause such a default.
(f) Valid Assignment. This Assignment grants Lender a valid
first priority assignment of the Collateral Note.
5. Covenants. Grantor covenants with Lender as follows:
(a) Notice of Default. Grantor shall immediately notify Lender
if a default occurs under the Collateral Note.
(b) No Amendment or Waiver. Grantor shall not purport to modify
or waive any terms of the Collateral Note without the prior written approval of
Lender.
(c) Notices. Grantor shall promptly convey to Lender any notice
received by Grantor concerning the Collateral Note.
(d) No Further Encumbrances. Grantor shall not sell, assign, or
grant or allow any other security interest to attach to the Collateral Note.
6. Collection Rights of Lender. Concurrently with the execution hereof,
Grantor and Lender shall direct Obligor to send all payments made under the
Collateral Note and
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<PAGE> 3
to send all notices pertaining to the Collateral Note directly and exclusively
to Lender at such address as Lender may specify. All payments received by Lender
respecting the Collateral Note shall be applied as principal prepayments on the
Secured Indebtedness. Any such prepayment shall be applied to the final
principal installment due under the Secured Indebtedness and shall not defer or
reduce any other scheduled payments. Promptly following the payment in full of
the Secured Indebtedness, Lender shall return the Collateral Note to Grantor and
shall notify Obligor that any future payments thereunder should be made at the
direction of Grantor.
7. No Burdensome Agreements. Grantor warrants that it is not party to
any contract or agreement and is not subject to any contingent liability that
does or may impair its ability to perform under the terms of this Assignment.
Grantor further warrants that the execution and performance of this Assignment
will not cause a default, acceleration or other event under any other contract
or agreement to which Grantor or any property of Grantor is subject, and will
not result in the imposition of any charge, penalty, lien or other encumbrance
against any of its property except in favor of Lender.
8. Legal and Binding Agreement. Grantor warrants that the execution and
performance of this Assignment will not violate any judicial or administrative
order or governmental law or regulation, and that this Assignment is valid,
binding and enforceable in every respect according to its terms.
9. No Consent Required. Grantor warrants that its execution, delivery
and performance of this Assignment do not require the consent of or the giving
of notice to any third party including, but not limited to, any other lender,
governmental body or regulatory authority.
10. No Default. Grantor warrants that, as of the execution of this
Assignment, no default exists hereunder and no condition exists which, with the
giving of notice, the passing of time, or both, would constitute such a default.
11. Default Defined. The occurrence of any one or more of the following
events shall constitute a default under this Assignment:
(a) Monetary Default. The failure of Borrowers to timely pay any
amount due Lender under the Secured Indebtedness or under any other obligation
to Lender.
(b) Breach of Covenant. The failure of Borrowers to perform or
observe any obligation or covenant made with respect to the Secured
Indebtedness.
(c) Breach of Warranty. Lender's discovery that any
representation or warranty in connection with this Assignment or the Secured
Indebtedness is materially false.
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<PAGE> 4
(d) Default Under Other Document. The occurrence of a default
under the terms of the Loan Agreement or any other document evidencing,
securing, or otherwise pertaining to the Secured Indebtedness.
(e) Collateral Note Default. The occurrence of a default under
the Collateral Note.
12. Remedies Upon Default. Upon default, Lender may pursue any or all of
the following remedies without notice to Grantor except as required below:
(a) Rights of Holder. Lender may exercise any or all rights of
the holder of the Collateral Note. Without limiting the foregoing, Lender may
initiate any administrative or judicial proceeding that it may deem necessary in
the course of enforcing any rights under the Collateral Note. Any administrative
or judicial action or other action taken by Lender pursuant to the Collateral
Note may be taken by Lender in its own name or in Grantor's name. Lender may
enter into any amendment or extension of the Collateral Note and may grant any
indulgences with respect thereto that Lender may deem appropriate in the course
of exercising its rights under the Collateral Note. Grantor hereby appoints
Lender as its attorney-in-fact to take any action authorized by this Assignment
upon default. Grantor acknowledges that this power of attorney is coupled with
an interest and is irrevocable.
(b) Sale of Collateral Note. Lender may sell the Collateral Note
pursuant to Lender's rights under the Uniform Commercial Code. Any such sale may
be either public or private. If public, the sale may be postponed by
announcement at the scheduled time and place and adjourned to another time or
place, or both. It is agreed that five (5) days' notice of any sale is
commercially reasonable notice thereof. Any public sale may be adjourned to a
different time, place, or both by announcement at the advertised time and place
of sale, without further publication. Any advertised sale may be canceled in
Lender's discretion, either before or after the opening of bidding. Lender shall
transfer the Collateral Note to any purchaser thereof by endorsing the
Collateral Note to the purchaser's order, without warranty or recourse on the
part of Lender.
(c) Setoff. Lender may exercise its lien upon and right of
setoff against any monies, items, credits, deposits or instruments that Lender
may have in its possession and which belong to Grantor or any other person or
entity liable for the payments of any or all of the Secured Indebtedness.
(d) Other Remedies. Lender may pursue any other remedies
available under any other document evidencing or securing the Secured
Indebtedness or otherwise available to Lender at law or equity.
(e) Application of Proceeds. All amounts received by Lender for
Grantor's account by exercise of its remedies hereunder shall be applied as
follows: First, to the
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<PAGE> 5
payment of all expenses incurred by Lender in exercising its rights hereunder,
including reasonable attorney's fees, and any other expenses due Lender from
Grantor; Second, to the payment of all interest included in the Secured
Indebtedness, in such order as Lender may elect; Third, to the payment of all
principal included in the Secured Indebtedness, in such order as Lender may
elect; and Fourth, surplus to Grantor.
13. Return of Collateral Note. The Collateral Note shall be returned to
Grantor when (i) Lender acknowledges in writing the payment of the Secured
Indebtedness and (ii) Lender has no further obligation to extend credit to be
included in the Secured Indebtedness. The return of the Collateral Note shall be
without recourse against Lender and shall be effected without any representation
or warranty on Lender's part, notwithstanding any provision of the Uniform
Commercial Code or other law that might otherwise imply or require
representations or warranties as to title or other matters.
14. Indulgence Not Waiver. Lender's indulgence in the existence of a
default hereunder or any other departure from the terms of this Assignment shall
not prejudice Lender's rights to declare a default or otherwise demand strict
compliance with this Assignment.
15. Cumulative Remedies. The remedies provided Lender in this Assignment
are not exclusive of any other remedies that may be available to Lender under
any other document or at law or equity.
16. Amendment and Waiver in Writing. No provision of this Assignment can
be amended or waived, except by a statement in writing signed by the party
against which enforcement of the amendment or waiver is sought.
17. Assignment. This Assignment shall be binding upon and inure to the
benefit of the respective heirs, successors and assigns of Grantor and Lender,
except that Grantor shall not assign any rights or delegate any obligations
arising hereunder without the prior written consent of Lender. Any attempted
assignment or delegation by Grantor without the required prior consent shall be
void.
18. Entire Agreement. This Assignment and the other written agreements
between Grantor and Lender represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein. Provided, if there is a conflict between this
Assignment and any other document executed contemporaneously herewith with
respect to the Secured Indebtedness, the provision most favorable to Lender
shall control.
19. Severability. Should any provision of this Assignment be invalid or
unenforceable for any reason, the remaining provisions hereof shall remain in
full effect.
5
<PAGE> 6
20. Time of Essence. Time is of the essence of this Assignment, and all
dates and time periods specified herein shall be strictly observed, except that
Lender may permit specific deviations therefrom by its written consent.
21. Applicable Law. The validity, construction and enforcement of this
Assignment and all other documents executed with respect to the Secured
Indebtedness shall be determined according to the laws of Tennessee applicable
to contracts executed and performed entirely within that state, in which state
this Assignment has been executed and delivered. 22.ab Gender and Number. Words
used herein indicating gender or number shall be read as context may require.
23. Captions Not Controlling. Captions and headings have been included
in this Assignment for the convenience of the parties, and shall not be
construed as affecting the content of the respective paragraphs.
Executed as of the date first written above.
THE UNDERSIGNED ACKNOWLEDGE A
THOROUGH UNDERSTANDING OF THE
TERMS OF THIS ASSIGNMENT AND
AGREE TO BE BOUND THEREBY:
FINOVA MEZZANINE CAPITAL INC.
By: /s/ Lonald J. Barrickman
---------------------------------
Title: Vice President
------------------------------
BIKERS DREAM, INC.
By: /s/ H. Rosenman
---------------------------------
Title: CEO
------------------------------
6
<PAGE> 7
January __, 2000
V-Twin Holdings, Inc.
- ---------------------
- ---------------------
Attn:
----------------
Re: Notice of Assignment of Promissory Note
Dear Sir or Madam:
As you know, V-Twin Holdings, Inc. is the Maker of a Promissory
Note dated January 31, 2000, in the original principal amount of $1,000,000.00,
payable to Bikers Dream, Inc. (the "Note").
Please be advised that the Note has been negotiated to FINOVA
Mezzanine Capital Inc. ("FMC") as collateral for certain obligations.
We hereby direct you to send all payments under the Note
directly to FMC unless and until it notifies you in writing that its security
interest has been satisfied. FMC's address is 500 Church Street, Suite 200,
Nashville, Tennessee 37219, attn: Ellen Hackett.
No provision of the Note may hereafter be amended or waived
without FMC's written consent. A complete copy of the Note is attached hereto as
Exhibit A.
<PAGE> 8
Please contact Ellen Hackett of FMC at (615) 252-4501 if you
have any questions regarding this notice. We would appreciate your acknowledging
this letter as indicated below.
Very truly yours,
FINOVA MEZZANINE CAPITAL INC.
By: /s/ Lonald J. Barrickman
---------------------------------
Title: Vice President
------------------------------
BIKERS DREAM, INC.
By: /s/ H. Rosenman
---------------------------------
Title: CEO
------------------------------
<PAGE> 9
ACKNOWLEDGMENT
The undersigned acknowledges receipt of a copy of this letter,
acknowledges that Exhibit A hereto is a complete copy of the Note, and agrees to
remit all future payments directly to FINOVA Mezzanine Capital Inc. as provided
above.
Dated as of January 31st, 2000.
V-TWIN HOLDINGS, INC.
By: /s/ Richard Paone
---------------------------------
Title: President
------------------------------
<PAGE> 1
EXHIBIT 10.33
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT ("Agreement"), dated January 31,
2000, is made by and between BIKERS DREAM, INC. ("Pledgor"), a California
corporation ("Borrower") and FINOVA MEZZANINE CAPITAL INC. ("Lender"), a
Tennessee corporation, with its principal office and place of business in
Nashville, Tennessee.
RECITALS:
WHEREAS, Lender has previously made a term loan to Pledgor and Ultra
Motorcycle Company ("UMC"), a Nevada corporation, formerly known as Ultra
Acquisition Corporation (Pledgor and UMC are hereinafter referred to
collectively as the "Borrowers") in the original principal amount of Four
Million Five Hundred Thousand and No/100ths Dollars ($4,500,000.00) on the terms
and conditions set forth in that certain Loan Agreement dated June 22, 1998, by
and between Lender and Borrowers (the "Loan") (the Loan Agreement as now or
hereafter amended, is hereinafter referred to as the "Loan Agreement");
WHEREAS, Lender has agreed to amend the Loan Agreement on certain terms
and conditions; and
WHEREAS, one condition to Lender's agreement is that Lender must be
provided a first priority perfected security interest in certain stock owned by
Pledgor;
AGREEMENT:
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, Pledgor and Lender hereby agree as follows:
1. Pledge. As collateral security for the payment and performance in
full of the Obligations (as defined in section 2 hereof), Pledgor hereby
pledges, hypothecates, assigns, transfers, sets over and delivers unto Lender,
and hereby grants to Lender a security interest in, the collateral described in
Schedule 1 hereto, together with the proceeds thereof and all cash, additional
securities or other property at any time and from time to time receivable or
otherwise distributable in respect of, in exchange for, or in substitution for
any and all such pledged securities (all such pledged securities, the proceeds
thereof, cash, dividends, additional securities and other property now or
hereafter pledged hereunder are hereinafter collectively referred to as the
"Pledged Securities");
<PAGE> 2
TO HAVE AND TO HOLD the Pledged Securities, together with all rights,
titles, interests, powers, privileges and preferences pertaining or incidental
thereto, unto Lender, its successors and assigns, subject to the terms,
covenants and conditions hereinafter set forth.
Upon delivery to Lender, the Pledged Securities shall be accompanied by
executed stock powers in blank and by such other instruments or documents as
Lender or its counsel may reasonably request. Each delivery of certificates for
such Pledged Securities shall be accompanied by a schedule showing the number of
shares and the numbers of the certificates theretofore and then pledged
hereunder, which schedule shall be attached hereto as Schedule 1 and made a part
hereof. Each schedule so delivered shall supersede any prior schedule so
delivered. In the event that additional securities of the issuers listed on
Schedule 1 are issued to Pledgor, Pledgor agrees to promptly deliver the
certificates representing such securities together with stock powers endorsed in
blank, to Lender as part of the collateral pledged hereunder and such securities
shall constitute part of the Pledged Securities.
2. Obligations Secured. This Agreement is made, and the security
interest created hereby is granted to Lender, to secure prompt payment of the
the indebtedness and obligations evidenced by the Notes (as defined in the Loan
Agreement) and the Loan Agreement (the "Obligations").
3. Representations and Warranties. Pledgor hereby represents and
warrants to Lender that except as except for those restrictions and agreements,
if any, that are noted on the stock certificates (a) Pledgor is the legal and
equitable owner of the Pledged Securities, (b) Pledgor has the complete and
unconditional authority to pledge the Pledged Securities being pledged by it,
and holds the same free and clear of all liens, charges, encumbrances and
security interests of every kind and nature, (c) any consent or approval of any
governmental body or regulatory authority, or of any other party, that was or is
necessary to the validity of this pledge, has been obtained, and (d) the Pledged
Securities are not subject to any limitations, restrictions, or obligations
pursuant to any shareholder agreement, voting trust agreement or similar
instrument other than
4. Registration in Nominee Name. Upon the occurrence of an Event of
Default under and as defined in the Loan Agreement, then, and in any such event,
Lender may have such Pledged Securities registered in the name of Lender or any
nominee or nominees of Lender. Pledgor hereby appoints Lender as Pledgor's
attorney-in-fact for the purpose of so transferring record ownership of the
Pledged Securities. The mere transfer of record ownership shall be for
preservation of Lender's rights only and shall not be considered a sale or
disposition of the Pledged Securities or an acquisition thereof in full or
partial satisfaction of the Obligations, unless Lender specifically so provides
in writing.
5. Remedies Upon Default. Upon the occurrence of an Event of Default
under and as defined in the Loan Agreement, then, and in any such event, Lender
shall have all of the rights, privileges and remedies of a secured party under
the Uniform Commercial Code as in effect in the
2
<PAGE> 3
State of Tennessee, and without limiting the foregoing, Lender may (a) collect
any and all amounts payable in respect of the Pledged Securities and exercise
any and all rights, privileges, options and remedies of the holder and owner
thereof, and (b) sell, transfer and/or negotiate the Pledged Securities, or any
part thereof, at public or private sale, for cash, upon credit or for future
delivery, as Lender shall deem appropriate, including without limitation, at
Lender's option, the purchase of all or any part of the Pledged Securities at
any public sale by Lender. Upon consummation of any sale, Lender shall have the
right to assign, transfer and deliver to the purchaser or purchasers thereof the
Pledged Securities so sold. Each such purchaser at any such sale shall hold the
property sold absolutely, free from any claim or right on the part of the
Pledgor, and the Pledgor hereby waives (to the extent permitted by law) all
rights of redemption, stay or appraisal that Pledgor now has or may at any time
in the future have under any rule of law or statute now existing or hereinafter
enacted. Pledgor hereby expressly waives notice to redeem and notice of the
time, place and manner of such sale.
6. Application of Proceeds. All amounts received by Lender for Pledgor's
account by exercise of its remedies hereunder shall be applied as follows:
First, to the payment of all expenses incurred by Lender in exercising its
rights hereunder, including reasonable attorney's fees, and any other expenses
due Lender from Pledgor; Second, to the payment of all interest included in the
Obligations, in such order as Lender may elect; Third, to the payment of all
principal included in the Obligations, in such order as Lender may elect; and
Fourth, surplus to Pledgor.
7. Reimbursement of Lender. Pledgor agrees to reimburse Lender, upon
demand, for all expenses, including without limitation reasonable attorneys'
fees, incurred by it in connection with the administration and enforcement of
this Agreement, and agrees to indemnify Lender and hold it harmless from and
against any and all liability incurred by it hereunder or in connection
herewith, unless such liability shall be due to willful misconduct or gross
negligence on the part of Lender.
8. No Waiver. No failure on the part of Lender to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy by Lender preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. All remedies are cumulative and are not
exclusive of any other remedies provided by law.
9. Limitation of Lender Liability. Except in the case of their wilful
misconduct or gross negligence, neither Lender nor its officers, employees,
agents, representatives or nominees shall be liable for any loss incurred by
Pledgor arising out of any act or omission of Lender, its officers, employees,
agents, representatives or nominees, with respect to the care, custody or
preservation of the Pledged Securities.
3
<PAGE> 4
10. Return of Pledged Securities. The Pledged Securities shall be
returned to Pledgor when (i) Lender acknowledges in writing the payment of the
Obligations and (ii) Lender has no further obligation to extend credit to be
included in the Obligations. The return of the Pledged Securities shall be
without recourse against Lender and shall be effected without any representation
or warranty on Lender's part, notwithstanding any provision of the Uniform
Commercial Code or other law that might otherwise imply or require
representations or warranties as to title or other matters.
11. Binding Agreement. This Agreement and the terms, covenants and
conditions hereof shall be binding upon and inure to the benefit of the parties
hereto and to all holders of the Obligations and their respective successors and
assigns.
12. Governing Law; Amendments. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Tennessee
applicable to contracts to be wholly performed in such state. This Agreement may
not be amended or modified, nor may any of the Pledged Securities be released
except in a writing signed by the parties hereto. Time is of the essence with
respect to the obligations of Pledgor pursuant to this Agreement.
13. Further Assurances. Pledgor agrees to do such further acts and
things, and to execute and deliver such additional conveyances, assignments,
agreements and instruments, as Lender may at any time request in connection with
the administration and enforcement of this Agreement or relative to the Pledged
Securities or any part thereof or in order to better assure and confirm unto
Lender its rights and remedies hereunder.
14. Headings. Section numbers and headings used herein are for
convenience only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
15. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
15. Voting. As long as no Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to exercise all voting and consensual
powers with respect to the Pledged Securities. Immediately and without further
notice to the Pledgor, upon the occurrence of any Event of Default, Lender shall
have the right, at its election, to exercise all voting and consensual rights
with respect to the Pledged Securities, and the Pledgor shall exercise and
deliver to Lender such proxies as shall be necessary to permit Lender's exercise
of such voting and consensual rights.
16. Consent to Jurisdiction; Exclusive Venue. Pledgor hereby irrevocably
consents to the Jurisdiction of the United States District Court for the Middle
District of Tennessee and of all Tennessee state courts sitting in Davidson
County, Tennessee, for the purpose of any litigation to
4
<PAGE> 5
which Lender may be a party and which concerns this Agreement or the
Obligations. It is further agreed that venue for any such action shall lie
exclusively with courts sitting in Davidson County, Tennessee, unless Lender
agrees to the contrary in writing.
17. Waiver of Trial by Jury. LENDER AND PLEDGOR HEREBY KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR OTHERWISE,
AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR
THE LOAN DOCUMENTS.
5
<PAGE> 6
IN WITNESS WHEREOF, Pledgor and Lender have executed this Agreement, or
have caused this Agreement to be duly executed by a duly authorized officer, all
as of the day first above written.
PLEDGOR:
BIKERS DREAM, INC.,
WITNESS: a California corporation
/s/ Christina Lycoyannis By: /s/ H. Rosenman
- --------------------------------- ---------------------------------
Title: CEO
------------------------------
LENDER:
FINOVA MEZZANINE CAPITAL INC.,
a Tennessee corporation
By: /s/ Lonald J. Barrickman
---------------------------------
Title: Vice President
------------------------------
The undersigned hereby acknowledges and confirms that the necessary
changes and registrations on the books of the undersigned have been made to
reflect the pledge of the Pledged Securities under the Pledge Agreement. In
particular, the undersigned acknowledges and confirms that Lender has been
designated as the only registered pledgee of the Pledged Securities.
V-TWIN HOLDINGS, INC
By: /s/ Richard Paone
---------------------------------
Title: President
------------------------------
<PAGE> 7
SCHEDULE 1
PLEDGED SECURITIES
<TABLE>
<CAPTION>
No. of
Issuer Shares Class Certificate Nos.
- ------ ------ ----- ----------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 8
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer unto
_____________________ the capital stock owned by the undersigned in V-Twin
Holdings, Inc., a District of Columbia corporation (the "Company") standing in
the name of the undersigned on the books of the Company, now or hereafter owned
by the undersigned and does hereby irrevocably constitute and appoint
______________ as attorney-in-fact for the undersigned to transfer said stock on
the books of the Company with full power of substitution in the premises.
Dated this ______ day of January, 2000.
/s/ H. Rosenman
------------------------------------
Bikers Dream, Inc.
<PAGE> 9
IRREVOCABLE PROXY
______________, 2000
FINOVA Mezzanine Capital Inc.
500 Church Street
Suite 200
Nashville, TN 37219
Ladies and Gentlemen:
Reference is made to that certain Pledge and Security Agreement (the
"Pledge Agreement"), of even date herewith, between the undersigned ("Pledgor")
and FINOVA Mezzanine Capital Inc. ("Lender") pursuant to which Pledgor has
pledged to you _______ shares (the "Shares") in V-Twin Holdings, Inc. ("Issuer")
as security for obligations of Pledgor and Ultra Motorcycle Company ("UMC"), a
Nevada corporation (Pledgor and UMC are hereinafter referred to collectively as
the "Borrowers") to Lender under that certain Loan Agreement, of even date
herewith, between Lender and Borrowers (the "Loan Agreement"). Defined terms
used herein which are not otherwise defined shall have the meaning set forth in
the Loan Agreement.
At all times after the occurrence and during the continuance of an Event
of Default, the undersigned hereby irrevocably appoints Lender as attorney and
proxy, with full power of substitution, to vote or express written consent or
dissent in such manner as such attorney and proxy, or its substitute, shall, in
its sole discretion, deem proper and otherwise act (including pursuant to any
action taken by the shareholders of Issuer in writing without a meeting) with
respect to all of the Shares which the undersigned is entitled to vote at any
meeting of shareholders (whether annual or special and whether or not an
adjourned meeting) of Issuer, or pursuant to written action taken in lieu of any
such meeting or otherwise.
THIS PROXY IS IRREVOCABLE, IS COUPLED WITH AN INTEREST SUFFICIENT IN LAW
TO SUPPORT AN IRREVOCABLE PROXY UNTIL ALL THE INDEBTEDNESS AND OBLIGATIONS
EVIDENCED BY THE NOTES AND THE LOAN AGREEMENT HAVE BEEN PAID IN FULL and is
granted in consideration of and as an inducement to cause Lender to enter into
the transactions contemplated by the Pledge Agreement and the Loan Agreement.
This proxy shall revoke any other proxy granted by Pledgor at any time with
respect to the Shares and no subsequent proxies will be given with respect
thereto by Pledgor. In addition, if subsequent to the date hereof and after the
occurrence and during the continuance of an Event of Default under the Loan
Agreement, Pledgor is entitled to vote the Shares for any purpose, Pledgor shall
take all actions necessary to vote the Shares pursuant to instructions received
from Lender.
<PAGE> 10
This irrevocable proxy shall continue in full force and effect until all
Obligations have been fully and indefeasibly paid and/or satisfied, at which
time all rights under this proxy shall immediately terminate without further
action of any kind.
BIKERS DREAM, INC.
/s/ H. Rosenman
------------------------------------
Herm Rosenman, President and CEO.
<PAGE> 1
EXHIBIT 10.43
PROMISSORY NOTE
$100,000 November 18, 1999
FOR VALUE RECEIVED, Bikers Dream Inc. (the "Company") hereby promises to pay
Bill Whalen as the Payee at 69 Oriole Way, Westbury, NY 11590-1126(or at such
other address as the Payee may notify the Company from time to time), the
principal sum of One Hundred Thousand DOLLARS ($100,000) or the outstanding
principal amount hereof, whichever is less, in lawful money of the United States
of America and in immediately available funds, without set-off, counterclaim or
deduction of any kind, on March 31, 2000 subject to pre-payment or the earlier
date described below, and to pay interested on the unpaid principal amount of
this Note for the period commencing on the date hereof until this Note shall be
paid in full at a rate equal to 12% per annum. Principal and accrued interest on
this Note shall be payable in full on or before March 31, 2000 or in part upon
the earlier receipt of funds by the Company from any third-party lender or
investor (each, a "Prepayment Date"), in an amount equal to the net proceeds of
each financing up to the outstanding principal and accrued interest herein.
The Note shall have the following terms and conditions:
1. This Note may be prepaid, in whole or in part, prior to March 31, 2000
(the "Maturity Date"), and shall be prepaid to the extent set forth
above on each Prepayment Date. The indebtedness evidenced by this Note
shall be pari passu with all other senior unsecured indebtedness of the
Company.
2. The Maturity Date of this Note may be further extended at the option of
the Payee.
3. An "Event of Default" shall occur if one or more of the following events
shall occur and be continuing: (A) the Company shall fail to pay the
principal and accrued interest on the Note when due; (B) the Company
shall default in any material respect on any of its obligations under
this Note or any representation or warranty by the Company in connection
herewith shall prove to have been untrue or in any respect on or as of
the date made, which default remains uncured 15 days after written
notice thereof from the holder hereof to the Company, (C) the Company
shall (i) apply for or consent to the appointment of, or taking
possession by, a receiver, custodian, trustee or liquidation of itself
or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary
case under relevant bankruptcy code or similar law (as now or hereafter
in effect), or (v) admit in writing its inability to pay its debt
generally as they become due, or (vi) take any action for the purpose of
effecting any of the foregoing: or (D) a proceeding or case shall be
commenced, without the application or consent of the Company, in any
court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a trustee., receiver,
custodian, liquidator or the like of the Company or all or any
substantial parts of its assets, or (iii) similar relief in respect of
the Company under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue un-dismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue un-stayed and in effect, for a period of 30 days;
or an order
<PAGE> 2
for relief against this Company shall be entered in an involuntary case
under any relevant bankruptcy code or similar law (as now or hereafter
in effect):
4. THEREUPON: (1) in the case of an Event of Default other than one
referred to in clause (C) or (D) of the immediate preceding paragraph,
the Payee, by written notice to the Company, may declare the principal
amount of this note then outstanding and the accrued interest thereon
and all other amounts payable by the Company hereunder to be forthwith
due and payable, whereupon such amounts together with interest
thereafter accruing at 25% shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind (other
than the notice expressly provided for above in the sub clause (1), all
of which are hereby expressly waived by the Company): and (2) in the
case of an Event of Default referred to in clause C or (D) of the
immediate preceding paragraph, the principal amount then outstanding of,
and the accrued interest on this Note and all other amounts payable by
the Company hereunder shall become automatically immediately due and
payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Company.
5. The Company agrees to pay upon demand all costs of collection and
enforcement of this Note, together with the costs incurred by the
Company in connection with any extension, amendment or restatement of
this Note (including without limitation, in connection with the
preparation, review, or other revision of this amended and restated
promissory note and any other document in connection herewith).
6. This Note may be negotiated, assigned or transferred without the consent
of the Company.
7. THIS AMENDED AND RESTATED PROMISSORY NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO INSTRUMENTS MADE AND DELIVERED THEREIN BY RESIDENTS
THEREOF.
Bikers Dream, Inc.
By /s/ H. Rosenman
---------------------------------
Name
--------------------------------
Title CEO
-------------------------------
<PAGE> 1
EXHIBIT 10.44
PROMISSORY NOTE
$200,000 November 22, 1999
FOR VALUE RECEIVED, Bikers Dream Inc. (the "Company") hereby promises to pay
Bill Whalen as the Payee at 69 Oriole Way, Westbury, NY 11590-1126(or at such
other address as the Payee may notify the Company from time to time), the
principal sum of Two Hundred Thousand DOLLARS ($200,000) or the outstanding
principal amount hereof, whichever is less, in lawful money of the United States
of America and in immediately available funds, without set-off, counterclaim or
deduction of any kind, on March 31, 2000 subject to pre-payment or the earlier
date described below, and to pay interested on the unpaid principal amount of
this Note for the period commencing on the date hereof until this Note shall be
paid in full at a rate equal to 12% per annum. Principal and accrued interest on
this Note shall be payable in full on or before March 31, 2000 or in part upon
the earlier receipt of funds by the Company from any third-party lender or
investor (each, a "Prepayment Date"), in an amount equal to the net proceeds of
each financing up to the outstanding principal and accrued interest herein.
The Note shall have the following terms and conditions:
1. This Note may be prepaid, in whole or in part, prior to March 31, 2000
(the "Maturity Date"), and shall be prepaid to the extent set forth
above on each Prepayment Date. The indebtedness evidenced by this Note
shall be pari passu with all other senior unsecured indebtedness of the
Company.
2. The Maturity Date of this Note may be further extended at the option of
the Payee.
3. An "Event of Default" shall occur if one or more of the following events
shall occur and be continuing: (A) the Company shall fail to pay the
principal and accrued interest on the Note when due; (B) the Company
shall default in any material respect on any of its obligations under
this Note or any representation or warranty by the Company in connection
herewith shall prove to have been untrue or in any respect on or as of
the date made, which default remains uncured 15 days after written
notice thereof from the holder hereof to the Company, (C) the Company
shall (i) apply for or consent to the appointment of, or taking
possession by, a receiver, custodian, trustee or liquidation of itself
or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary
case under relevant bankruptcy code or similar law (as now or hereafter
in effect), or (v) admit in writing its inability to pay its debt
generally as they become due, or (vi) take any action for the purpose of
effecting any of the foregoing: or (D) a proceeding or case shall be
commenced, without the application or consent of the Company, in any
court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a trustee., receiver,
custodian, liquidator or the like of the Company or all or any
substantial parts of its assets, or (iii) similar relief in respect of
the Company under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue un-dismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue un-stayed and in effect, for a period of 30 days;
or an order
<PAGE> 2
for relief against this Company shall be entered in an involuntary case
under any relevant bankruptcy code or similar law (as now or hereafter
in effect):
4. THEREUPON: (1) in the case of an Event of Default other than one
referred to in clause (C) or (D) of the immediate preceding paragraph,
the Payee, by written notice to the Company, may declare the principal
amount of this note then outstanding and the accrued interest thereon
and all other amounts payable by the Company hereunder to be forthwith
due and payable, whereupon such amounts together with interest
thereafter accruing at 25% shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind (other
than the notice expressly provided for above in the sub clause (1), all
of which are hereby expressly waived by the Company): and (2) in the
case of an Event of Default referred to in clause C or (D) of the
immediate preceding paragraph, the principal amount then outstanding of,
and the accrued interest on this Note and all other amounts payable by
the Company hereunder shall become automatically immediately due and
payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Company.
5. The Company agrees to pay upon demand all costs of collection and
enforcement of this Note, together with the costs incurred by the
Company in connection with any extension, amendment or restatement of
this Note (including without limitation, in connection with the
preparation, review, or other revision of this amended and restated
promissory note and any other document in connection herewith).
6. This Note may be negotiated, assigned or transferred without the consent
of the Company.
7. THIS AMENDED AND RESTATED PROMISSORY NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO INSTRUMENTS MADE AND DELIVERED THEREIN BY RESIDENTS
THEREOF.
Bikers Dream, Inc.
By /s/ H. Rosenman
---------------------------------
Name
--------------------------------
Title CEO
-------------------------------
<PAGE> 1
EXHIBIT 10.45
AMENDED AND RESTATED PROMISSORY NOTE
$150,000 January 27, 2000
FOR VALUE RECEIVED, Bikers Dream Inc. (the "Company") hereby promises to pay
Bill Whalen as the Payee at 69 Oriole Way, Westbury, NY 11590-1126(or at such
other address as the Payee may notify the Company from time to time), the
principal sum of One Hundred and Fifty Thousand DOLLARS ($150,000) or the
outstanding principal amount hereof, whichever is less, in lawful money of the
United States of America and in immediately available funds, without set-off,
counterclaim or deduction of any kind, on March 31, 2000 subject to pre-payment
or the earlier date described below, and to pay interested on the unpaid
principal amount of this Note for the period commencing on the date hereof until
this Note shall be paid in full at a rate equal to 12% per annum. Principal and
accrued interest on this Note shall be payable in full on or before March 31,
2000 or in part upon the earlier receipt of funds by the Company from any
third-party lender or investor (each, a "Prepayment Date"), in an amount equal
to the net proceeds of each financing up to the outstanding principal and
accrued interest herein.
The Note shall have the following terms and conditions:
1. This Note also amends and restates and a certain promissory note of the
Company, dated November 18, 1999 in the principal amount of $100,000,
payable on or before March 31,2000 (the original maturity date). This
Note includes certain a portion, $43,362, of the principal of the
Promissory Note of the Company, dated November 22, 1999 in the principal
amount of $200,000, payable on or before March 31,2000 (the original
maturity date") . This new note in the principal amount of $150,000
begins accruing interest as of the date of the new note.
2. This Note may be prepaid, in whole or in part, prior to March 31, 2000
(the "Maturity Date"), and shall be prepaid to the extent set forth
above on each Prepayment Date. The indebtedness evidenced by this Note
shall be pari passu with all other senior unsecured indebtedness of the
Company.
3. The Maturity Date of this Note may be further extended at the option of
the Payee.
4. An "Event of Default" shall occur if one or more of the following events
shall occur and be continuing: (A) the Company shall fail to pay the
principal and accrued interest on the Note when due; (B) the Company
shall default in any material respect on any of its obligations under
this Note or any representation or warranty by the Company in connection
herewith shall prove to have been untrue or in any respect on or as of
the date made, which default remains uncured 15 days after written
notice thereof from the holder hereof to the Company, (C) the Company
shall (i) apply for or consent to the appointment of, or taking
possession by, a receiver, custodian, trustee or liquidation of itself
or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary
case under relevant bankruptcy code or similar law (as now or hereafter
in effect), or (v) admit in writing its inability to pay its debt
generally as they become due, or (vi) take any action for the purpose of
effecting any of the foregoing: or (D) a proceeding or case shall be
commenced, without the application or
<PAGE> 2
consent of the Company, in any court of competent jurisdiction, seeking
(i) its liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a
trustee., receiver, custodian, liquidator or the like of the Company or
all or any substantial parts of its assets, or (iii) similar relief in
respect of the Company under any law relating to bankruptcy, insolvency,
reorganization, winding- up, or composition or adjustment of debts, and
such proceeding or case shall continue un-dismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue un-stayed and in effect, for a period of 30 days;
or an order for relief against this Company shall be entered in an
involuntary case under any relevant bankruptcy code or similar law (as
now or hereafter in effect):
5. THEREUPON: (1) in the case of an Event of Default other than one
referred to in clause (C) or (D) of the immediate preceding paragraph,
the Payee, by written notice to the Company, may declare the principal
amount of this note then outstanding and the accrued interest thereon
and all other amounts payable by the Company hereunder to be forthwith
due and payable, whereupon such amounts together with interest
thereafter accruing at 25% shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind (other
than the notice expressly provided for above in the sub clause (1), all
of which are hereby expressly waived by the Company): and (2) in the
case of an Event of Default referred to in clause C or (D) of the
immediate preceding paragraph, the principal amount then outstanding of,
and the accrued interest on this Note and all other amounts payable by
the Company hereunder shall become automatically immediately due and
payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Company.
6. The Company agrees to pay upon demand all costs of collection and
enforcement of this Note, together with the costs incurred by the
Company in connection with any extension, amendment or restatement of
this Note (including without limitation, in connection with the
preparation, review, or other revision of this amended and restated
promissory note and any other document in connection herewith).
7. This Note may be negotiated, assigned or transferred without the consent
of the Company.
8. THIS AMENDED AND RESTATED PROMISSORY NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO INSTRUMENTS MADE AND DELIVERED THEREIN BY RESIDENTS
THEREOF.
Bikers Dream, Inc.
By /s/ H. Rosenman
---------------------------------
Name
--------------------------------
Title CEO
-------------------------------
<PAGE> 1
EXHIBIT 10.46
AMENDED AND RESTATED PROMISSORY NOTE
$156,638 January 27, 2000
FOR VALUE RECEIVED, Bikers Dream Inc. (the "Company") hereby promises to pay
Bill Whalen as the Payee at 69 Oriole Way, Westbury, NY 11590-1126(or at such
other address as the Payee may notify the Company from time to time), the
principal sum of One Hundred and Fifty Six Thousand Six Hundred and Thirty Eight
DOLLARS ($156,638) or the outstanding principal amount hereof, whichever is
less, in lawful money of the United States of America and in immediately
available funds, without set-off, counterclaim or deduction of any kind, on
March 31, 2000 subject to pre-payment or the earlier date described below, and
to pay interested on the unpaid principal amount of this Note for the period
commencing on the date hereof until this Note shall be paid in full at a rate
equal to 12% per annum. Principal and accrued interest on this Note shall be
payable in full on or before March 31, 2000 or in part upon the earlier receipt
of funds by the Company from any third-party lender or investor (each, a
"Prepayment Date"), in an amount equal to the net proceeds of each financing up
to the outstanding principal and accrued interest herein.
The Note shall have the following terms and conditions:
1. This Note amends and restates that certain of the promissory note of the
Company, dated November 22, 1999 in the principal amount of $200,000,
payable on or before March 31,2000 (the original maturity date"). This
restated and amended note includes $150,000 principal of that $200,000
Note and also includes $4,338 in interest from the $200,000 note, and
$2,300 interest accrued on the Promissory Note in the principal amount
of $100,000 dated November 18, 1999. The balance of the principal of the
$200,000 Note dated November 22, 1999, in the amount of $43,362, will be
included in the New Promissory Note in the principal amount of $150,000
dated January 27, 2000. Interest will continue to accrue only on the
principal balance of 150,000 represented in this note.
2. This Note may be prepaid, in whole or in part, prior to March 31, 2000
(the "Maturity Date"), and shall be prepaid to the extent set forth
above on each Prepayment Date. The indebtedness evidenced by this Note
shall be pari passu with all other senior unsecured indebtedness of the
Company.
3. The Maturity Date of this Note may be further extended at the option of
the Payee.
4. An "Event of Default" shall occur if one or more of the following events
shall occur and be continuing: (A) the Company shall fail to pay the
principal and accrued interest on the Note when due; (B) the Company
shall default in any material respect on any of its obligations under
this Note or any representation or warranty by the Company in connection
herewith shall prove to have been untrue or in any respect on or as of
the date made, which default remains uncured 15 days after written
notice thereof from the holder hereof to the Company, (C) the Company
shall (i) apply for or consent to the appointment of, or taking
possession by, a receiver, custodian, trustee or liquidation of itself
or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary
case under relevant bankruptcy code or similar law (as now or hereafter
in effect), or (v) admit in writing its inability to pay its debt
generally as they become due, or (vi) take any action for the purpose of
effecting any of the
<PAGE> 2
foregoing: or (D) a proceeding or case shall be commenced, without the
application or consent of the Company, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution
or winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like
of the Company or all or any substantial parts of its assets, or (iii)
similar relief in respect of the Company under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
un-dismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue un-stayed and in effect,
for a period of 30 days; or an order for relief against this Company
shall be entered in an involuntary case under any relevant bankruptcy
code or similar law (as now or hereafter in effect):
5. THEREUPON: (1) in the case of an Event of Default other than one
referred to in clause (C) or (D) of the immediate preceding paragraph,
the Payee, by written notice to the Company, may declare the principal
amount of this note then outstanding and the accrued interest thereon
and all other amounts payable by the Company hereunder to be forthwith
due and payable, whereupon such amounts together with interest
thereafter accruing at 25% shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind (other
than the notice expressly provided for above in the sub clause (1), all
of which are hereby expressly waived by the Company): and (2) in the
case of an Event of Default referred to in clause C or (D) of the
immediate preceding paragraph, the principal amount then outstanding of,
and the accrued interest on this Note and all other amounts payable by
the Company hereunder shall become automatically immediately due and
payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Company.
6. The Company agrees to pay upon demand all costs of collection and
enforcement of this Note, together with the costs incurred by the
Company in connection with any extension, amendment or restatement of
this Note (including without limitation, in connection with the
preparation, review, or other revision of this amended and restated
promissory note and any other document in connection herewith).
7. This Note may be negotiated, assigned or transferred without the consent
of the Company.
8. THIS AMENDED AND RESTATED PROMISSORY NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO INSTRUMENTS MADE AND DELIVERED THEREIN BY RESIDENTS
THEREOF.
Bikers Dream, Inc.
By /s/ H. Rosenman
---------------------------------
Name
--------------------------------
Title CEO
-------------------------------
<PAGE> 1
EXHIBIT 10.47
ALLONGE
This Allonge is made a part of that certain $150,000 Note Amend and Restated
Promissory Note dated January 27, 2000 from Bikers Dream Inc. to Bill Whalen.
Pay to the order of w3 Holdings, Inc.
Bill Whalen
By:
---------------------------------
Name: /s/ William P. Whalen
-------------------------------
Date: January 26, 2000
-------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 4, 2000 accompanying the consolidated
financial statements included in the Annual Report of Bikers Dream, Inc., dba
Ultra Motorcycle Company on Form 10-KSB for the year ended December 31, 1999. We
hereby consent to the incorporation by reference of said report in the
Registration Statements of Bikers Dream, Inc., dba Ultra Motorcycle Company 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).
/S/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 14, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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