<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ___________ to ____________.
Commission File No. 0-15501
BIKERS DREAM, INC.
(Exact name of small business issuer as specified in its charter)
California 33-0140149
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3810 Wacker Drive, Mira Loma, California 91752
(Address of principal executive offices)
(909) 360-2500
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of May 9, 2000, 8,925,782 shares
of the issuer's common stock were outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
<PAGE> 2
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders
Bikers Dream, Inc. dba Ultra Motorcycle Company
We have reviewed the accompanying condensed consolidated balance sheet of Bikers
Dream, Inc. dba Ultra Motorcycle Company and subsidiaries as of March 31, 2000,
and the related consolidated condensed statements of operations and cash flows
for the three month periods ended March 31, 2000 and 1999. These condensed
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred recurring
losses from operations, its total liabilities exceed its total tangible assets,
and the Company is involved in several legal matters, which could have a
negative impact on the Company. This raises substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Bikers Dream, Inc. dba Ultra
Motorcycle Company and subsidiaries as of December 31, 1999, and the related
statements of operation, shareholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated April 4, 2000, we
expressed an unqualified opinion on those financial statements. However, our
report contained an explanatory paragraph that expressed substantial doubt about
the Company's ability to continue as a going concern. We have not performed any
auditing procedures since that date. In our opinion, the information set forth
in the accompanying condensed balance sheet as of December 31, 1999 is fairly
stated, in all material respects, in relation to the balance sheet from which it
has been derived.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 28, 2000
2
<PAGE> 3
Part 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,058,230 $ 1,434,781
Investments 500,000 --
Accounts Receivable, net of allowance for doubtful accounts
of $470,732 for the period ended March 31, 2000 and
$312,376 for the period ended December 31, 1999 1,827,993 2,250,939
Other Receivables 123,913 54,175
Inventories, net of reserves 4,013,677 4,354,194
Prepaid expenses and other current assets 198,231 240,279
Net current assets of discontinued operations 24,000 1,248,088
------------ ------------
Total current assets 7,746,044 9,582,456
FURNITURE AND EQUIPMENT, net of accumulated depreciation and amortization 928,973 988,248
NOTE RECEIVABLE, net unamortized discount 834,117 --
EXCESS COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, net of
accumulated amortization 2,355,152 2,404,907
DEBT ISSUANCE COSTS, net of accumulated amortization 67,406 80,888
DEPOSITS AND OTHER ASSETS 315,178 346,413
------------ ------------
TOTAL ASSETS $ 12,246,870 $ 13,402,912
============ ============
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Current portion of notes payable $ 149,168 $ 153,881
Current portion of capital lease obligations 41,641 62,584
Accounts payable 2,335,407 2,685,624
Accrued expenses 1,981,386 1,949,426
Accrued legal and settlement costs 834,000 813,000
Advances on financing agreements - related party 272,947 309,087
Notes payable - related parties 606,638 600,000
------------ ------------
Total Current Liabilities 6,221,187 6,573,602
NOTES PAYABLE, less current portion 4,552,967 4,564,562
CAPITAL LEASE OBLIGATIONS, less current portion 63,228 90,324
------------ ------------
Total liabilities 10,837,382 11,228,488
------------ ------------
SHAREHOLDERS' EQUITY
Series A, convertible preferred stock, no par value
Aggregate liquidation preference of $175,000
30 shares authorized, 0 shares outstanding at
March 31, 2000 and December 31, 1999 -- --
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 at March 31, 2000 and
December 31, 1999 $ 702,194 $ 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 at
March 31, 2000 and December 31, 1999 -- --
Series D, convertible preferred stock, $.01 par value
cumulative dividends, aggregate liquidation preference of $1,780,000
3,500 shares authorized, 0 shares outstanding at March 31, 2000
and 1,780 shares outstanding at December 31, 1999 -- 18
Additional -paid-in-capital, Series D Preferred Stock -- 1,438,526
Common stock, no par value
25,000,000 shares outstanding
8,925,782 issued and outstanding at March 31, 2000 and
5,725,896 issued and outstanding at December 31, 1999 25,335,964 23,831,804
Accumulated deficit (24,628,670) (23,798,118)
------------ ------------
Total shareholders' equity 1,409,488 2,174,424
============ ============
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,246,870 $ 13,402,912
============ ============
</TABLE>
See the accompanying notes to these financial statements
3
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BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
REVENUES $ 6,712,040 $ 5,923,509
COST OF GOODS SOLD 5,720,277 4,067,871
----------- -----------
GROSS PROFIT 991,763 1,855,638
----------- -----------
EXPENSES
Selling, general, and administrative expenses 1,369,564 1,247,772
Depreciation and amortization 125,886 111,050
----------- -----------
Total Expenses 1,495,450 1,358,822
----------- -----------
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS (503,687) 496,816
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (180,773) (221,707)
Other income, net 15,201 --
----------- -----------
Total other income (expense) (165,572) (221,707)
----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES, DISCONTINUED
OPERATIONS, PREFERRED STOCK DIVIDENDS, AND BENEFICIAL CONVERSION (669,259) 275,109
PROVISION FOR INCOME TAXES -- --
----------- -----------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS, DEFERRED STOCK
DIVIDENDS, AND BENEFICIAL CONVERSION (669,259) 275,109
LOSS ON DISCONTINUED OPERATIONS
Loss on discontinued operations, net of provision for income
taxes of $0 (139,272) (147,172)
----------- -----------
INCOME (LOSS) BEFORE PREFERRED STOCK DIVIDENDS AND BENEFICIAL
CONVERSION (808,531) 127,937
PREFERRED STOCK DIVIDENDS, net of forfeited dividends -- (30,866)
BENEFICIAL CONVERSION FEATURE GRANTED TO SERIES C PREFERRED
SHAREHOLDERS -- (292,328)
----------- -----------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (808,531) $ (195,257)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE
Loss per share from continuing operations $ (0.09) $ (0.01)
Loss per share from discontinued operations $ (0.02) $ (0.03)
----------- -----------
TOTAL BASIC AND DILUTED LOSS PER SHARE $ (0.11) $ (0.04)
=========== ===========
BASIC AND DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 7,055,386 5,152,737
</TABLE>
See the accompanying notes to these financial statements
4
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BIKERS DREAM, INC., DBA ULTRA MOTORCYCLE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
MARCH 2000 MARCH 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) from continuing operations $ (669,259) $ 275,109
Adjustments to reconcile net loss from continuing
operations to net cash used in operating activities
Gain on sale of equipment (14,754) --
Depreciation and amortization 125,886 116,600
Amortization of discount on note receivable (13,731) --
Amortization of loan costs 13,482 13,482
Issuance of common stock for services rendered -- 60,000
(Increase) decrease in
Accounts receivable 422,946 (1,342,025)
Other receivables (69,738) 4,343
Inventories 340,517 142,103
Prepaid expenses and other current assets 62,048 (5,292)
Deposits and other assets 31,235 (107,753)
(Increase) decrease in
Accounts payable (350,217) 246,461
Accrued expenses 103,193 213,541
Accrued legal and settlement costs -- --
----------- -----------
Net cash used in continuing operating activities (18,392) (383,431)
Net cash used in discontinued operating activities (235,570) (395,185)
----------- -----------
Net cash used in operating activities (253,962) (778,616)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of furniture and equipment (52,032) (111,962)
Other -- (3,413)
----------- -----------
Net cash used in continuing investing activities (52,032) (115,375)
Net cash used in discontinued investing activities -- (209,964)
----------- -----------
Net cash used in investing activities (52,032) (325,339)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (16,308) (20,034)
Payments on capital lease obligations (18,109) (11,119)
Advances on financing agreements - related party, net (36,140) (186,153)
Debt issuance costs -- (33,780)
Exercise of Series C warrants -- 125,000
Exercise of Series E warrants -- 5,000
Exercise of Series F warrants -- 37,500
Additional paid-in capital received from related parties -- 107,659
Payment on subscriptions receivable -- 90,000
Private placements, net of offering costs -- 1,367,000
----------- -----------
Net cash provided/(used) by financing continuing activities (70,557) 1,481,073
Net cash provided /(used) by discontinued financing activities -- --
----------- -----------
Net cash provided/(used) by financing activities (70,557) 1,481,073
----------- -----------
Net increase (decrease) in cash and cash equivalents (376,551) 377,118
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,434,781 689,679
----------- -----------
CASH AND CASH EQUIVALENTS, END OF THREE MONTH PERIOD ENDED
MARCH 31, 2000 AND MARCH 31, 1999 $ 1,058,230 $ 1,066,797
=========== ===========
</TABLE>
See the accompanying notes to these financial statements
5
<PAGE> 6
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of Bikers Dream,
Inc., d.b.a. Ultra Motorcycle Company and all of its wholly owned subsidiaries,
including the accounts of Ultra Motorcycle Company, Bikers Dream International,
Inc., Bikers Dream Distribution, Inc., Bikers Dream Management Services, and
Bikers Dream Eagle Enterprises, Inc. (collectively, the "Company"). All
significant intercompany accounts and transactions are eliminated in
consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION:
Revenue from the sale of motorcycles is recognized upon shipment to the
customer.
ADVERTISING COSTS:
Those costs associated with the placement of advertisements in various
periodicals are expensed when the advertisement is run. Internal development
costs are expensed as incurred.
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.
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
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were dilutive. Since the Company had a net loss for the three months ended March
31, 2000 and 1999, basic and diluted loss per share is 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.
CONCENTRATION OF RISK:
The Company is operating in a growing market due to the current nationwide
popularity of custom motorcycles. Its future success is dependent on the
continuation of interest in the recreational motorcycle industry.
CONCENTRATION OF CREDIT RISK:
Other financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable. These
concentrations are limited due to the large number of customers comprising the
Company's customer base and their dispersion across different geographic
regions. The Company performs ongoing credit evaluations of customers and
generally does not require collateral. Allowances are maintained for potential
credit losses, and such losses have been within management's expectations. As of
March 31, 2000, the Company has no significant concentrations of credit risk.
ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenue and expenses during the reported period.
Actual results could differ from those estimates.
WARRANTY EXPENSES:
Included in accrued expenses are accrued warranty expenses. Estimated future
warranty obligations related to motorcycles and parts are provided by charges to
operations in the period in which the related revenue from the sales of
motorcycles or parts is recognized.
7
<PAGE> 8
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable, accounts
payable, and accrued expenses, the carrying amounts approximate fair value due
to their short maturities. The amounts shown for notes payable also approximate
fair value because current interest rates offered to the Company for debt of
similar maturities are substantially the same.
RECLASSIFICATIONS:
Certain amounts included in the 1999 financial statements have been reclassified
to conform to the 2000 presentation.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED:
The excess of the purchase price over the estimated fair value of the assets
acquired has been recorded as excess cost over fair value of net assets
acquired, which is being amortized on a straight-line basis over fifteen years.
When events and circumstances so indicate, all long-term assets, including the
excess cost over fair value of net assets acquired, are assessed for
recoverability based upon cash flow forecasts. As of March 31, 2000 the Company
has not recognized any impairment losses.
COMPREHENSIVE INCOME:
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and unrealized
gains and losses on available-for-sale securities. Comprehensive income is not
presented in the Company's 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.
DISCONTINUED OPERATIONS:
On January 31, 2000, the Company completed the sale of the assets of its Retail
Division to V-Twin Holdings, Inc. ("V-Twin"), which is a publicly traded company
that is a consolidator of independent motorcycle dealerships. The assets of the
Retail Division included the five Company-owned stores located in California,
Texas, and North Carolina, substantially all of the fixed assets and inventories
at the retail stores, certain intellectual property assets including the trade
name "Bikers Dream," and the domain name "bikers-dream.com." As a result of the
sale, the results of the operations
8
<PAGE> 9
of the Retail Division have been reclassified as discontinued operations and
prior periods have been restated.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain matters discussed in this Quarterly Report on Form 10-QSB are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes",
"anticipates", "expects", "estimates", or words of similar meaning. Similarly,
references to the Company's future plans, objectives or goals are
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and under the heading "Certain Trends and Uncertainties" in Item 6 of
the Company's Annual Report for 1999 on Form 10-KSB. These risks and
uncertainties could cause the actual results to differ materially from those
anticipated as of the date of this report. Specific factors that may cause such
a difference include, but are not limited to, the Company's history of operating
losses and accumulated deficit. Shareholders, potential investors, and other
readers are urged to consider these factors in evaluating the forward-looking
statements, and are cautioned not to rely on such forward-looking statements.
The forward-looking statements included herein are only made as of the date of
this report and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
GENERAL
From 1990 until 1996, the Company operated primarily as a motorcycle superstore
retailer. Prior to 1997, the Company was attempting to establish a network of
franchised Bikers Dream stores, but suspended such efforts at the end of 1996.
In 1997, the Company established its Motorcycle Manufacturing and Distribution
("Motorcycle") division by completing the acquisition of the motorcycle and
parts manufacturing assets of Ultra Kustom Cycles. Since the acquisition of the
Motorcycle Division, the Company has devoted a significant amount of resources
to restructuring and repositioning the Company from a retailer to a premier
custom motorcycle manufacturer and distributor.
Between 1997 and 1999, the Company operated two divisions: Motorcycle and Retail
Stores (the "Retail Division"). The Retail Division sold motorcycles,
after-market parts and accessories and performed service work on motorcycles at
five Superstores in Santa Ana, Sacramento and San Diego, California, Farmers
Branch, Texas, and Conover, North Carolina, licensed the Company's intellectual
property and use of its business model and operating manuals to approximately 16
independently owned Bikers Dream Superstores, and operated an e-commerce site
for the sale of motorcycle parts, accessories and apparel. On January 31, 2000,
the Company sold to V-Twin Holdings, Inc. ("V-Twin") the assets related to the
operation of the Retail Division. The assets sold included all fixed assets,
inventory and equipment used in the Retail Division, the right to operate the
Retail Division under the assumed name "Bikers Dream", all intellectual property
assets relating to the Retail Division, the right to use the domain name
"bikers-dream.com", all rights under license agreements with independently
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<PAGE> 10
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.
As noted above, in January 2000, the Company sold to V-Twin Holdings, Inc. the
assets related to the operation of the Retail Division. As stated in Note 2 to
the Company's financial statements filed with the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1999, and Note 2 to the
financial statements included in this report, the results of operations of the
Retail Division have been reclassified as discontinued operations and prior
periods have been restated.
COMPARISON OF THE FISCAL QUARTERS ENDED MARCH 31, 2000 AND 1999
REVENUES. Revenues for the three months ended March 31, 2000 were $6,712,000, as
compared to $5,924,000 for the comparable period in 1999, representing an
increase of $788,000 or 13.3%. The Company attributes a large portion of the
increase in revenues to sales of its new "Fat Pounder" model, which was
introduced as a 2000 model in late 1999.
The number of motorcycles sold during the three months ended March 31, 2000
increased to 374, from 344 for the comparable period in 1999, while the number
of dealerships decreased to approximately 80 at March 31, 2000, from 100 for the
comparable period in 1999. As a result, dealer sales productivity (the number of
motorcycles sold to dealers divided by the number of dealers) increased from an
average of approximately 1.1 motorcycles per month for the three months ended
March 31, 1999, to an average of approximately 1.5 motorcycles per dealer per
month for the three months ended March 31, 2000.
COST OF GOODS SOLD/GROSS PROFIT. Cost of goods sold for the three months ended
March 31, 2000 was $5,720,000 (representing 85% of revenues), as compared to
$4,068,000 (representing 69% of revenues) for the comparable period a year
earlier, representing an increase of $1,652,000 or 41%. Cost of goods sold
include direct and indirect manufacturing costs, administrative costs to
purchase and sell Ultra Kustom parts, warranty costs, and costs related to the
assembly of motorcycles. The Company attributes $1,375,000 of the increase in
cost of goods sold to higher material and labor costs related to the increased
level of motorcycle sales during the period, costs of making quality
improvements, and sales of models during the period with higher manufacturing
costs than models sold during the same period in 1999. Approximately $240,000 of
the increase relates to a charge to cost of goods sold for the Company's
estimate of the shrinkage in inventories that was not reflected in the Company's
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perpetual inventory listings as of March 31, 2000. This estimate is based upon
the Company's historical experience of such shrinkages. The remaining portion of
the increase in cost of goods sold, approximately $38,000, relates to slightly
higher expenditures for supplies.
As described in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1999, the Company incurred a significant increase in
warranty expense from $842,000 for the fiscal year ended December 31, 1998 to
$1,795,000 for the fiscal year ended December 31, 1999, representing an increase
of $954,000 or approximately 113%. Included in the $1,795,000 figure was a
charge of $247,000 in the fourth quarter of 1999 to provide for the contingency
of liabilities on units sold under warranty. During the three month period ended
March 31, 2000, the Company implemented additional quality improvements and
strengthened control of warranty claims. As part of these improvements, the
Company has developed a reporting process which permits the periodic
measurement of the number of warranty claims within the population of
motorcycles sold to consumers. Based upon these measurements, the Company
believes that the rate of warranty claims per motorcycle sold is decreasing. It
is the Company's view that warranty costs will continue to decline in the
future but no assurances can be given.
As the cost of goods sold increased at a greater rate than did revenues, gross
profit for the three months ended March 31, 2000 was $992,000 (representing 15%
of revenues), as compared to $1,856,000 (representing 31% of revenues) for the
period ended March 31, 1999. This represents a decrease in gross profit of
$864,000 or 47%. The decrease in gross profit as a percentage of revenues (i.e.,
gross margin) is attributable to the increase in cost of goods sold as described
above and sales of several models of motorcycles in the current period that had
a lower gross margin than models sold in the comparable period of a year ago.
The decrease in gross profit for the three month period ended March 31, 2000
also can be attributed to the pricing of the Company's 2000 model year
motorcycles. When the Company designed and determined the cost of manufacture of
its 2000 model year motorcycles, it implemented a price increase that it
believed would maintain the historical rate of gross profit. As the manufacture
of 2000 model year motorcycles began in January 2000, the Company reviewed its
manufacturing costs and determined that its earlier cost estimates were lower
than the actual costs of manufacture. As a result, the Company implemented a
price increase of approximately 7 percent, effective March 1, 2000, on orders
received after March 1, 2000. Due to the Company's sales backlog, the full
impact of the price increase on gross profit will not be realized until late
April 2000 or early May 2000. The Company plans to continue to monitor its
manufacturing costs, and when required, make the appropriate price increases.
In addition, the Company has initiated a material cost reduction program to
reduce manufacturing costs. While the Company believes that it will be able to
return to previous levels of gross profit, no assurances can be given that
gross profit will increase in the future.
As described in Note 14 in the Financial Statements in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999, the Company
recognized an aggregate of $969,000 of charges to cost of goods sold in
connection with three significant adjustments that were all recorded in the
fourth quarter. The periods attributed to these charges could not be identified
by the Company's management. If these charges recorded in the fourth quarter of
1999 were attributed to the first three quarters of 1999, the gross profit for
these quarters would have been lower than as reported in the unaudited interim
financial statements for such periods.
EXPENSES. Selling, general and administrative expenses were $1,370,000 or 20% of
sales for the three months ended March 31, 2000, as compared to $1,248,000, or
21% of sales, for the three months ended March 31, 1999.
11
<PAGE> 12
Selling, general, and administrative expenses consist primarily of corporate
operating expenses, professional fees, and salaries. The increase of $122,000
relates to an increase in the number of employees in the accounting department
and an increase in legal expenses related to litigation.
Depreciation and amortization expense for the three months ended March 31, 2000
totaled $126,000, as compared to $111,000 for the same period in 1999. The
increase of $15,000 is a result of purchases made in 1999 for computer hardware
and software related to the upgrade of the Company's information technology
systems, and leasehold improvements in 1999 to prepare the Mira Loma facility
for the manufacture of motorcycles.
OPERATING LOSS FROM CONTINUING OPERATIONS. As a consequence of the foregoing,
operating loss from continuing operations for the three months ended March 31,
2000 was $504,000, as compared to an operating profit from continuing operations
of $497,000 for the three months ended March 31, 1999.
OTHER INCOME (EXPENSE). Interest expense decreased from $222,000 for the three
months ended March 31, 1999 to $181,000 for the three months ended March 31,
2000. The decrease resulted from the discontinuance of the Company's use of the
Cana Capital flooring line of credit.
For the three months ended March 31, 2000, other income totaled $15,000 and
represents a gain on the sale of test equipment.
LOSS BEFORE PROVISION FOR INCOME TAXES, DISCONTINUED OPERATIONS, PREFERRED STOCK
DIVIDENDS AND BENEFICIAL CONVERSION. Loss before provision for income taxes,
discontinued operations, preferred stock dividends and beneficial conversion for
the three months ended March 31, 2000 was $669,000 and consists of the operating
loss from continuing operations of $504,000 and other expenses of $166,000.
INCOME TAXES. The provision for income taxes for the three month period ended
March 31, 2000 is $0. The Company has fully reserved for the deferred tax asset
related to its net operating loss carry-forwards. The Company's management has
concluded that, based upon its assessment of all available evidence, the future
benefit of this asset cannot be projected accurately at this time.
LOSS ON DISCONTINUED OPERATIONS. In accordance with APB No. 30, in order to
record the loss on disposal of its Retail Division for the year ended December
31, 1999, the Company estimated the future operating losses of the Retail
Division for the period up until the sale of the division, which was January 31,
2000. During the first quarter of 2000, it became evident that the provision as
of December 31, 1999 made for the operating loss for the period ended January
31, 2000 was less than what it should have been by approximately $139,000. This
adjustment to the provision in the operating loss of discontinued operations was
primarily attributed to an adjustment to increase the reserve balance on
accounts receivables at the Retail Division. Accordingly, the Company has
recognized an adjustment in the provision for losses on discontinued operations
in the first quarter of 2000 by $139,000, which is net of a provision for income
taxes of $0.
12
<PAGE> 13
PREFERRED STOCK DIVIDENDS AND BENEFICIAL CONVERSION FEATURE GRANTED TO SERIES C
PREFERRED STOCKHOLDERS. During the three months ended March 31, 2000, there were
no costs associated with preferred stock dividends or beneficial conversion
features. However, during the three months ended March 31, 1999 costs were
recognized for preferred stock dividends of $30,866 and the beneficial
conversion granted to Series C preferred stockholders of $292,328.
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS. For the three months ended March 31,
2000, the net loss available to common stockholders was $809,000, as compared to
a net loss of $195,000 for the same period in fiscal 1999. The decreased
profitability of $614,000 is the result of a decrease in gross profit and an
increase in cost of goods sold, as discussed above, and the loss on discontinued
operations that resulted from the recognition of uncollectable accounts
receivable.
GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES. The Company finances the
manufacture of its motorcycles from proceeds of sales. Most of the Company's
vendors require payment terms of 30 days or less. Other than for certain
extraordinary liabilities or potential liabilities as described in that section
of the Company's Annual Report for 1999 on Form 10-KSB entitled "Ability of the
Company to Continue as a Going Concern," management believes that the Company
can, at its current level of operations, adequately meet its liabilities,
including liabilities to vendors, by using available internal cash.
In the past, the Company has also looked to outside funding sources to address
its liquidity and working capital needs. These include private equity placements
and Secured debt-financing arrangements with lenders.
EXISTING FINANCING ARRANGEMENTS
In April 1998, the Company completed a private placement of Series C Convertible
Preferred Stock, which generated approximately $3.075 million in cash.
In June 1998, the Company obtained a three-year senior secured loan in the
amount of $4.5 million from Tandem Capital of Nashville, Tennessee. Tandem
subsequently assigned the loan to FINOVA Mezzanine Capital, Inc. The loan bears
interest at 12% per annum and stipulates quarterly interest payments. The FINOVA
loan is secured by a first lien on substantially all of the Company's assets.
FINOVA received warrants to purchase a total of 457,500 shares of the Company's
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
13
<PAGE> 14
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 owed on the floor financing, which, according to the
Company's records, is approximately $273,000 as of March 31, 2000. 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 regarding the terms of repayment.
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 their
original principal amount of the
14
<PAGE> 15
$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 currently is negotiating with W3 Holdings, and plans to negotiate
with Mr. Whalen, in each case, regarding the terms of repayment of the notes.
In February 1999 and October 1999, the Company received an aggregate of
$2,000,000 upon the issuance of 2,060 shares of Series D Convertible Preferred
Stock, each share having a stated value of $1,000. (60 out of the 2,060 shares
were issued in payment of placement agent fees, and therefore the Company did
not receive cash for those shares.) As of March 10, 2000, all issued and
outstanding shares of Series D Convertible Preferred Stock, having an aggregate
stated value of $2,060,000, plus accrued and unpaid dividends on such shares,
had been converted into a total of 3,728,452 shares of Common Stock. The number
of shares of Common Stock issued upon the conversion of each share of Series D
Convertible Preferred Stock was calculated by adding $1,000 to the amount of
accrued and unpaid dividends on such share and dividing the resulting sum by the
conversion price. The conversion price is equal to the lesser of (i) 110% of the
closing bid price of the Common Stock on the last trading day before the date of
issuance of the share of Series D Preferred Stock being converted, or (ii) 90%
of the average of the four lowest closing bid prices of the Common Stock during
the last 22 trading days before the date of conversion.
CONSOLIDATED STATEMENT OF CASH FLOWS. Net cash used in operating activities for
the three-month period ended March 31, 2000 was $254,000, as compared to
$779,000 for the period ended March 31, 1999. Net cash used in operating
activities includes net cash used in continuing operating activities and net
cash used in discontinued operating activities. The discontinued operations
consist of the Retail Division that was sold on January 31, 2000.
Net cash used in continuing operating activities for the three month period
ended March 31, 2000 was $18,000, as compared to $383,000 for the comparable
period in 1999, representing a change of approximately $365,000. During the
three months ended March 31, 2000, cash was provided through the reduction of
accounts receivable of $423,000 as a result of improved collections and better
inventory management, which reduced inventories by $341,000. These improvements
to cash were reduced by the net loss from continuing operations of $669,000.
The net cash used in discontinued operating activities was $236,000 for the
three-month period ended March 31, 2000. For the same period in 1999, the
discontinued operations used cash of $395,000.
Net cash used in investing activities is $52,000 for the three month period
ended March 31, 2000, as compared to $325,000 for the same three month period in
1999. The principle use of cash during the three months ended March 31, 2000 was
for the installation of four new assembly lines.
Net cash used by financing activities for the three month period ended March 31,
2000 is $71,000 and consists of payments on notes payable and capital lease
obligations of approximately $34,000, and repayments of advances on floor plan
financing from Cana Capital of approximately $36,000.
15
<PAGE> 16
Net cash provided by financing activities for the three month period ended March
31, 1999 was approximately $1,481,000. This sum consisted of primarily the
proceeds from the placement of the Series D Preferred Stock in February 1999 of
approximately $1,367,000. Warrants were exercised in the Series C class and
provided cash of $125,000 during the period.
For the three months ended March 31, 2000, there was a net decrease in cash and
cash equivalents of $376,551. The primary use of cash during the three-month
period consisted of approximately $235,000 used in connection with the
operations of the discontinued Retail Division. In addition, $52,000 was used to
construct new assembly lines and $70,000 was used to make payments on notes
payable, lease obligations and financing agreements.
For the three months ended March 31, 1999 the net increase in cash and cash
equivalents was approximately $377,000. The major source of cash during the
period was the approximately $1,367,000 in net proceeds from the sale of Series
D preferred stock. Cash was used by discontinued operating activities and
totaled approximately $779,000. Cash was also used to invest in computer
hardware and software and leasehold improvements in the Mira Loma facility
(approximately $112,000) and in the discontinued Retail Division of
approximately $210,000.
OUTLOOK AND ABILITY OF COMPANY TO CONTINUE AS A GOING CONCERN
As described Note 2 to the Company's financial statements in its Annual Report
for fiscal 1999 on Form 10-KSB, entitled "Summary of Significant Accounting
Policies -- Going Concern and Basis of Presentation", and in their independent
accountants' report dated April 28, 2000 which appears in this quarterly report
on Form 10-QSB, the Company's independent auditors state that the Company has
incurred recurring losses from operations, and that its total liabilities exceed
its tangible assets as of December 31, 1999. 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 II, Item 1 of this
report on Form 10-QSB, 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
entered a judgment 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
filed certain post trial motions challenging the judgment. The Court denied
these motions on May 18, 2000.
16
<PAGE> 17
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 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. To date, neither W3 Holdings nor Mr. Whalen has
taken any action to compel payment on their respective notes. The Company is
negotiating with W3 Holdings regarding repayment of its notes, and intends to
negotiate with Mr. Whalen regarding repayment of his notes. However, there can
be no assurances that these negotiations will be successful. If the Company is
required to repay the loans to W3 Holdings and Mr. Whalen, 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.
17
<PAGE> 18
The Company is continuing to investigate its options to finance an appeal bond.
However, there are no assurances that the Company will be successful in
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.
As noted above, the Company is in the process of negotiating with W3 Holdings
regarding repayment of its notes, and intends to negotiate with Mr. Whalen
regarding repayment of his notes. 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
profitability in future periods will depend upon a number of factors, including
the ability of the Company to maintain a level of production sufficient 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.
PART II OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising out of its
operations in the normal course of business. As of the date of this report,
except as set forth below, in the opinion of the Company's management,
liability, if any, under these actions is adequately covered by
18
<PAGE> 19
insurance or will not have a material effect on the Company's financial position
or results of operations.
As described in the Company's reports on Form 8-K dated January 31, 2000, and
Form 10-KSB for the fiscal year ended December 31, 1999, James and Susan
Kinnicutt (the "Kinnicutts") filed an action against the Company on August 20,
1998 in Sacramento Superior Court, Sacramento County, California, for breach of
contract, fraud, slander, wrongful termination and gender discrimination in
connection with the Company's repurchase of a Bikers Dream franchise which the
Kinnicutts had purchased in 1994. At the time the Kinnicutts had purchased the
franchise, the Company had failed to strictly comply with the requirements of
California's Franchise Investment Law. Thereafter, the Kinnicutts elected to
rescind their franchise agreement, and the parties entered into an asset
purchase agreement, pursuant to which the Company agreed to repurchase the
franchise and its assets. The agreement required the Company to pay off a SBA
loan, which the Kinnicutts had obtained to finance the opening of the franchise
and to assume the franchise's lease. In conjunction with the repurchase of the
franchise, the Company retained Mr. and Mrs. Kinnicutt as managers of the store.
In August 1997, the Kinnicutts were terminated as employees of the store, 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 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 filed certain post trial motions challenging the judgment. The court
denied these motions on May 18, 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 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 Part I, Item 2 - "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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<PAGE> 20
ITEM 2. CHANGES IN SECURITIES
All securities issued by the Company during the fiscal quarter ended March 31,
2000 without registration under the Securities Act were previously reported by
the Company in the Company's Form 10-KSB for the fiscal year ended December 31,
1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5 - OTHER INFORMATION
Not Applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed or incorporated by reference
as part of this report:
<TABLE>
<S> <C>
3.1 Articles of Incorporation, as amended, of Bikers Dream, Inc.
(formerly known as HDL Communications)(1)
3.1.1 Certificate of Amendment of Articles of Incorporation dated June
21, 1996(2)
3.1.2 Certificate of Correction of Certificate of Amendment of Articles
of Incorporation dated July 25, 1997(3)
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 (3)
3.1.5 Certificate of Determination of Series C Convertible Preferred
Stock (4)
3.1.6 Certificate of Determination of Series D Convertible Preferred
Stock (5)
3.2 Bylaws, as amended, of Bikers Dream, Inc. (1)
4.1 Form of Certificate of Common Stock of Bikers Dream, Inc. (6)
4.2 Articles of Incorporation of the Company, as amended (included as
Exhibits 3.1, 3.1.1, 3.1.2, 3.1.4, 3.1.5 and 3.1.6)
4.3 By-laws, as amended, of the Company (included as Exhibit 3.2).
15 Letter of Singer Lewak Greenbaum & Goldstein LLP regarding
awareness of use of report dated August 20, 1999.
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
27 Financial Data Schedule
</TABLE>
(1) Previously filed as an exhibit to Bikers Dream's registration statement
on Form SB-2 (No. 33-92294) filed with the Commission on May 31, 1995.
(2) Previously filed as an exhibit to Bikers Dream's Form 10-KSB report for
the fiscal year ended December 31, 1996 filed with the Commission on
April 15, 1997.
(3) Previously filed as an exhibit to Bikers Dream's Form 10-QSB report for
the fiscal quarter ended September 30, 1997 filed with the Commission on
November 14, 1997.
(4) Previously filed as an exhibit to Bikers Dream's Form 10-QSB report for
fiscal quarter ended March 30, 1998 filed with the Commission on May 15,
1998.
(5) Previously filed as an exhibit to this registration statement on Form
S-3 (No. 333-72167) as originally filed with the Commission on February
11, 1999.
(6) Previously filed as an exhibit to Bikers Dream's Form 10-KSB report for
the fiscal year ended December 31, 1998 filed with the Commission on
April 15, 1999.
(b) Reports on Form 8-K
(1) Report on Form 8-K filed with the Commission on January 26, 2000
(reporting execution of an Asset Purchase Agreement dated January 18,
2000 between Bikers Dream, Inc. and V-Twin Holdings, Inc.)
(2) Report on Form 8-K dated January 31, 2000 filed with the Commission on
February 15, 2000 (reporting sale of the Retail Division by Bikers
Dream, Inc. to V-Twin Holdings, Inc.)
21
<PAGE> 22
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: May 22, 2000 Bikers Dream, Inc.
By: /s/ Harold L. Collins
------------------------------------
Harold L. Collins,
(Chief Operating Officer
Principal Executive Officer)
By: /s/ Michael J. Fisher
------------------------------------
Michael J. Fisher
(Chief Financial Officer)
22
<PAGE> 1
EXHIBIT 15
Bikers Dream, Inc.
3810 Wacker Drive
Mira Loma, California 91752
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited interim financial
information of Bikers Dream, Inc. dba Ultra Motorcycle Company and consolidated
subsidiaries for the period ended March 31, 2000, as indicated in our report
dated April 28, 2000; because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000 is
incorporated by reference in the Registration Statements of Bikers Dream, Inc.
on Forms S-3/A (#333-90747, dated January 26, 2000), S-3/A (#333-72167, dated
August 25, 1999), S-8 (#333-68971, dated December 15, 1998), S-8 (#333-32639,
dated August 1, 1997), S-3/A (#333-17829, dated May 23, 1997) and S-8
(#333-26719, dated May 8, 1997).
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant within the meaning of Sections
7 and 11 of that Act.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 19, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,058,230
<SECURITIES> 500,000
<RECEIVABLES> 2,298,725
<ALLOWANCES> (470,732)
<INVENTORY> 4,013,677
<CURRENT-ASSETS> 7,746,044
<PP&E> 1,602,120
<DEPRECIATION> (673,147)
<TOTAL-ASSETS> 12,246,870
<CURRENT-LIABILITIES> 6,221,187
<BONDS> 0
0
702,194
<COMMON> 25,335,964
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,246,870
<SALES> 6,712,040
<TOTAL-REVENUES> 6,712,040
<CGS> 5,720,277
<TOTAL-COSTS> 1,495,450
<OTHER-EXPENSES> (15,201)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180,773
<INCOME-PRETAX> (669,259)
<INCOME-TAX> 0
<INCOME-CONTINUING> (669,259)
<DISCONTINUED> (139,272)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (808,531)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
