<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, 1996
( ) 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 Registration as specified in its charter)
California 33-0140149
- --------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1420 VILLAGE WAY, SANTA ANA, California 92705
- --------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(714) 835-8464
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 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____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of March 31, 1996, there were 5,905,912 shares of common stock outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 And 1995
----------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
A S S E T S:
Current assets:
Cash and cash equivalents $ 247,288 $ 28,643
Accounts receivable, net 466,861 64,512
Inventories 1,797,893 1,352,040
Note receivable from shareholder 24,616
Prepaid expenses and other current assets 148,116 48,796
----------- ----------
Total current assets 2,660,158 1,518,607
Property, equipment and capitalized leases, net 1,102,704 259,905
Deferred tax asset 59,725
Deposits and other assets 69,618 28,770
----------- ----------
Total assets $ 3,832,480 $1,867,007
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 851,097 $ 49,555
Other accrued expenses 859,105 160,319
Current portion of long-term debt 73,750 1,359
Current portion of notes payable 198,346
Notes payable to shareholders 181,000
----------- ----------
Total current liabilities 2,163,298 211,233
Deferred rent 108,478 85,140
Notes payable, less current portion 465,147
Long-term debt, less current portion 433,702 62,788
----------- ----------
Total liabilities 3,170,625 359,161
----------- ----------
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, no par value; 25,000,000 shares
authorized at March 31, 1996; 5,905,912 and 4,700,000
issued and outstanding at March 31, 1995 and March 31,1996 3,770,429 1,789,555
Accumulated deficit (3,108,574) (281,709)
----------- ----------
Total shareholders' equity 661,855 1,507,846
---------- ----------
Total liabilities and shareholders' equity $ 3,832,480 $1,867,007
=========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
1
<PAGE> 3
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Quarters Ended March 31, 1996, And 1995
--------------
<TABLE>
<CAPTION>
1996 1995
---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Product sales $2,768,978 $1,425,616
Financing contracts 77,920 7,258
---------- ----------
Total revenues 2,846,898 1,432,874
Cost of goods sold 2,149,773 1,019,156
---------- ----------
Gross profit 697,125 413,718
---------- ----------
Expenses:
Selling, general and administrative expenses 1,245,890 545,605
Depreciation and amortization 38,100 7,816
Interest expense 42,994 8,982
Franchise income (4,097) (2,000)
Other (income) expense (96)
---------- ----------
Total expenses 1,322,887 560,307
---------- ----------
Loss before (provision) benefit
for income taxes (625,762) (146,589)
(Provision) benefit for income taxes 0 0
---------- ----------
Net loss $ (625,762) $ (146,589)
========== ==========
Net loss per share $ (0.11) $ (0.04)
========== ==========
Weighted average shares outstanding 5,609,105 3,595,750
========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
2
<PAGE> 4
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Quarters Ended March 31, 1996, And 1995
-----------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(625,762) $(146,589)
--------- ---------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Deferred income taxes (800)
Depreciation and amortization 38,100 7,816
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (180,469) 33,502
(Increase) in inventories (140,433) (650,739)
Decrease (increase) in prepaid expenses and other
current assets (17,021) 11,500
Increase in accounts payable 416,632 44,442
Increase in other accrued expenses 228,439 34,571
--------- ---------
Total adjustments 345,248 (519,708)
--------- ---------
Net cash used in operating activities (280,514) (666,297)
--------- ---------
Cash flows from investing activities:
Decrease in deposits 111,533 8,449
Payments for purchases of fixed assets (394,164) (153,439)
Increase in deferred rent 10,104 11,636
--------- ---------
Net cash used in investing activities (272,527) (133,354)
--------- ---------
</TABLE>
See the accompanying notes to these consolidated financial statements.
3
<PAGE> 5
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For The Quarters Ended March 31, 1996, And 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt $308,350
Principal payments made on long-term debt and
capitalized leases (10,188) $(30,407)
Proceeds from issuance of common stock 840,565
Costs associated with issuance of common stock (25,524)
Proceeds from issuance of convertible notes payable 450,500
Principal payments made on notes payable (42,498)
Payments on notes payable to shareholders (16,047)
-------- --------
Net cash provided by financing
activities 664,593 810,158
-------- --------
Net increase in cash and cash
equivalents 111,552 10,507
Cash and cash equivalents, beginning of period 135,736 18,136
-------- --------
Cash and cash equivalents, end of period $247,288 $ 28,643
======== ========
</TABLE>
In March 1995, the Company converted a $500,000 promissory note into
500,000 shares of the Company in connection with the acquisition of HDL
Communications by Bikers Dream, Inc.
In March 1996, the Company converted promissory notes in the amount of
$629,000 into 369,992 shares of common stock of the Company.
See the accompanying notes to these consolidated financial statements.
4
<PAGE> 6
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996, And 1995
----------
1. Company Operations And Liquidity:
Bikers Dream, Inc. (the "Company") was originally incorporated in
1991. As of March 13, 1995, the Company acquired a publicly-traded
dormant entity formerly known as HDL Communications ("HDL") which was
originally incorporated in 1985. After the acquisition, the Company
was merged into HDL and HDL changed its name to Bikers Dream, Inc. At
the time of acquisition, there was no active trading market for the
Company's stock and management of the Company and HDL determined in
arm's length negotiation that the market value of the combined
entities was approximately $4.0 million (or approximately $1.00 per
share) which was evidenced by the number of shares issued (4,100,000)
in connection with the acquisition as follows:
3.3 million shares to former Company shareholders
.3 million shares to former HDL shareholders
.5 million shares to holders of $500,000 of convertible
notes of HDL who converted them into shares of the
Company at a price of $1.00 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 the Company and notes payable in the
amount of $500,000. As the notes were converted into shares
concurrent with the acquisition, the .3 million shares issued to
former HDL shareholders were issued in consideration for the public
entity HDL.
The substance of the transaction was a recapitalization of the
Company's shares for those of HDL's shares. Shareholders' equity has
been restated to give retroactive recognition to the recapitalization
and has been treated as a stock split for all periods presented. In
addition, all references in the financial statements to number of
shares and per share amounts of the Company's common stock have been
restated.
The surviving company is in the business of selling used Harley
Davidson motorcycles, parts, accessories, apparel and service through
Company-owned retail stores throughout the United States and selling
franchises based upon the Company concept.
The Company's consolidated financial statements for the quarter ended March 31,
1996 have been prepared on a going-concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business. The Company incurred a net loss of $2,347,693 for
the year ended December 31, 1995 and a net loss of $625,762 for the quarter
ended March 31, 1996. As of March 31, 1996 the Company had an accumulated
deficit of $3,108,574. The Company's working capital at March 31, 1996 is
$496,860. The Company experienced an increase in its selling and
administrative expenses of $700,285 over the same quarter last year. This
increase was
Continued
5
<PAGE> 7
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
----------
1. Company Operations And Liquidity, Continued:
primarily the result of hiring additional corporate employees to
continue the Company's growth, an increase in audit and legal fees
related to the Company becoming an SEC reporting company, expenses
associated with having three additional company owned stores not yet
at their break-even point, and the launch of a new catalogue.
Management has previously relied on equity sources to fund operations
as the Company is in its initial growth and expansion stage and the
Company's access to third party financing has been limited. Access to
debt financing has been limited to capital leases entered into for
fixed asset purchases.
The Company has retained an investment banking firm to advise and
assist in the sale of equity securities and or placement of private
debt. Management expects these efforts to result in obtaining
additional financing with which to expand its operations and increase
the number of Company-owned Bikers Dream superstores.
Principles Of Consolidation:
---------------------------
The consolidated financial statements include the accounts of Bikers
Dream, Inc. and all of its wholly-owned subsidiaries, including the
accounts of Bikers Dream International, Inc., Bikers Dream
Distribution, Inc., Bikers Dream Management Services, Inc. and Bikers
Dream Eagle Enterprises, Inc. All significant intercompany accounts
and transactions are eliminated in consolidation.
Continued
6
<PAGE> 8
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
2. Summary Of Significant Accounting Policies:
Revenue Recognition:
-------------------
Product Sales - Revenue from the sale of products is
recognized at the time of sale to a retail customer.
Financing Income - Financing income is the Company's
participation in finance contracts for motorcycle sales.
Revenue from financing income is recognized at the time
financing arrangements are contractually completed between a
retail customer and a third-party lender. The Company
recognizes as financing income 80% of the total finance income
expected to be received over the life of the finance contract.
This estimate is based on experience with similar contracts
owned by the finance company.
Franchise Income - Income from the sale of franchises is
recognized at the time the franchise commences retail
operations and the Company has performed substantially all of
the services which it is required to perform under the
Company's franchise agreement. These services provided to
franchises include, but are not limited to, assistance in site
selection and in-house and on-site training with instruction
using the Company's franchise operations manual.
Superstore Pre-Opening Cost:
---------------------------
All costs associated with opening a company-owned and operated
Superstore, with the exception of capitalized furniture, fixtures and
equipment, are expensed when incurred.
Advertising Costs:
-----------------
Those costs associated with 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 months from the first publication. Costs associated
with printing catalogs are inventoried when purchased and expensed as
catalogs are sold or distributed.
Continued
7
<PAGE> 9
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
----------
2. Summary Of Significant Accounting Policies, Continued:
Income Taxes:
------------
The Company utilizes Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," which requires the recognition of
deferred tax liabilities and assets 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.
Net Loss Per Common Share:
-------------------------
The computation of fully diluted net loss per share was antidilutive
in each of the periods presented; therefore, the amounts reported for
primary and fully diluted are the same. Net loss per common share was
determined by dividing net loss by the weighted average shares
outstanding in each period.
Cash And Cash Equivalents:
-------------------------
For purposes of the balance sheet and the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an
original maturity at date of purchase of three months or less to be
cash equivalents.
Accounts Receivable:
-------------------
At March 31, 1996, the allowance for doubtful accounts was $23,251.
There was no such allowance at March 31, 1995.
Inventories:
-----------
Inventories are valued using a cost method which approximates the
first-in, first-out (FIFO) method at the lower of cost or market. The
entire inventory consists of purchased items which are categorized as
finished goods. At March 31, 1996, the reserve for obsolescence was
$57,000. There was no inventory reserve at March 31, 1995.
Continued
8
<PAGE> 10
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
-----------
2. Summary Of Significant Accounting Policies, Continued:
Property, Equipment And Capitalized Lease:
-----------------------------------------
Property, equipment and capitalized leases are recorded at cost with
depreciation and amortization provided using the straight-line method
over the estimated useful lives of the assets which range from three
to ten years or the term of the lease, whichever is the lesser.
Repairs and maintenance are expensed as incurred. When property and
equipment are retired or disposed of, the related costs and
accumulated depreciation and amortization are eliminated from the
accounts and any gain or loss on such disposition is reflected in
operations.
Deferred Rent:
-------------
Deferred rent arises from rent abatements which are negotiated at the
beginning of certain property leases. The total amount of the base
rent payments is being charged to expense on the straight-line method
over the term of the lease. The Company has recorded deferred rent to
reflect the excess of rent expense over the cash payments since the
inception of the lease.
Concentration Of Risk:
---------------------
The Company is operating in a growing market due to the current
nationwide popularity of Harley Davidson motorcycles. Its future
success is dependent on the continuation of interest in the
recreational motorcycle industry.
Concentration Of Credit Risk:
----------------------------
The Company's cash and cash equivalents are placed with high credit
quality financial institutions. The Company had demand deposits in
excess of Federal Deposit Insurance Corporation ("FDIC") insurance
limits at March 31, 1996.
Other financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade
receivables. 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, 1996 and 1995, the Company has no significant concentrations
of credit risk.
Continued
9
<PAGE> 11
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
2. Summary Of Significant Accounting Policies, Continued:
Use Of Estimates In The Preparation Of Financial Statements:
-----------------------------------------------------------
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 disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenue and expenses during the reported period. Actual results could
differ from those estimates.
3. Property, Equipment And Capitalized Leases:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31,
Estimated -----------------------
Useful Lives 1996 1995
------------ ---------- --------
<S> <C> <C> <C>
Furniture and fixtures 7 years $ 198,545 $ 36,871
Leasehold improvements 7 years 227,884 126,494
Equipment 5-7 years 109,633 40,375
Computers 5 years 270,045 60,998
Autos and trucks 3-10 years 441,053 31,065
---------- --------
1,247,160 295,803
Less, Accumulated depreciation and amortization (144,456) (35,898)
---------- --------
$1,102,704 $259,905
========== ========
</TABLE>
Continued
10
<PAGE> 12
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
---------
3. Property, Equipment And Capitalized Leases, Continued:
The Company leases certain computer equipment under agreements which
are classified as capital leases. These leases have original terms of
two to five years. These leases have bargain purchase options at the
end of the original term. Leased capitalized assets included in
property, equipment and capitalized leases at March 31, 1996 are as
follows:
<TABLE>
<S> <C>
Computers $132,723
Less, Accumulated amortization (15,091)
--------
$117,632
========
</TABLE>
There were no assets under capital lease as of March 31, 1995.
In February, 1996, the Company contracted to have a custom trailer
built for its Dream Wheels mobile store operation. The Company
secured a loan in the amount of $303,555 for which the custom trailer
is pledged as collateral. Scheduled monthly payments against this
loan are $5,739 for 72 months beginning in March 1996.
4. Commitments And Contingencies:
The Company leases all of its operating facilities. The Santa Ana,
California operating facility, which serves as a retail Superstore as
well as the Corporate warehouse and executive offices, is leased under
a noncancelable tenant operating lease for the monthly rent of $11,865
subject to annual CPI increases starting the third year of the lease.
The lease term is 120 months commencing November 1, 1993 with two
successive five-year options.
The Company negotiated a lease at a second Company-owned Superstore in
Dallas, Texas. The terms of the lease call for a monthly rent of
$8,000 subject to CPI increases. The lease term is sixty months
commencing January 1, 1995 with two successive five-year options.
On March 1, 1995, the Company negotiated a lease to open its third
Company-owned Superstore in Clearwater, Florida. The lease term is 60
months commencing June 1, 1995 with the monthly lease payments
starting at $4,000 and increasing up to $9,261 per month through the
term of the lease. The Company has an option to extend the lease for
five years.
Continued
11
<PAGE> 13
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
4. Commitments And Contingencies, Continued:
On September 22, 1995, the Company purchased one of its franchise
stores. The Company assumed the store's lease as part of the
transaction. The lease term is 60 months commencing January 1, 1994
with monthly lease payments starting at $3,500 and increasing up to
$4,410 per month through the term of the lease. As of April 29,1996
this store was closed by the Company with the intention of opening a
larger Superstore in the greater Los Angeles area later in 1996. The
Company is in negotiations with the landlord regarding the termination
of this lease.
On November 21, 1995, the Company purchased another of its franchise
stores. The Company did not assume this lease, but instead issued a
guarantee to the former franchisee to continue its lease payment. The
lease term is 63 months commencing on April 1, 1995 with monthly lease
payments of $3,039 per month. The monthly lease payments increase to
$3,555 per month over the term of the lease.
The Company is involved in various litigation arising from the sale of
two franchises and in the ordinary course of business. Although the
final outcome of these legal matters cannot be determined, management
has estimated the Company's loss and accrued for such amounts in the
December 31, 1995 financial statements. The final resolution of these
matters could have a material adverse effect on the financial position
of the Company.
Continued
12
<PAGE> 14
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
5. Long-Term Debt:
Long-term debt at March 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
--------- -------
<S> <C> <C>
Note payable to lender in monthly installments varying from $457
to $492, including principal and interest at rates varying from
5% to 7.5%. The note was paid in full in December 1995. $64,147
Capitalized lease obligation payable to a finance company,
collateralized by certain computer equipment, requiring
principal and interest payments of $2,272 per month, with
interest at 20% per annum through May 2000 $ 76,355
Capitalized lease obligation payable to a finance company,
collateralized by certain computer equipment, requiring
principal and interest payments of $232 per month with
interest at 16% per annum through January 1998 4,447
Long Term Note Payable to a finance company, collateralized
by a trailer requiring principal and interest payments of
$5,739 per month, with interest at 11% per annum through
February 2002 300,535
Capitalized lease obligation payable to a finance company,
collateralized by certain computer equipment, requiring
principal and interest payments of $937 per month, with interest
at 16% per annum through December 2000 plus a $4,258 payment in
January, 2001 40,872
Long-term 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 85,243
2001 -------- -------
507,452 64,147
Less, Current portion (73,750) (1,359)
-------- -------
Long-term debt, net of current portion $433,702 $62,788
======== =======
</TABLE>
Continued
13
<PAGE> 15
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
----------
6. Notes Payable:
The notes payable at March 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Note payable to former franchisee in conjunction with acquisition
of former franchise operation. The note accrues interest at 9%
and is payable in equal installments of $13,118 through October
1996, collateralized by all the assets of the Company. $ 89,130
Note payable to bank which was assumed in conjunction with the
acquisition of a former franchise operation. The note is
guaranteed by the SBA and is collateralized by all the assets of
the Sacramento store. The note accrues interest at the rate of
prime plus 2-1/2% per annum on the unpaid balance and is payable
in monthly installments through April, 2005. 99,452
Note payable to former franchisee in conjunction with acquisition
of former franchise operation. Note is uncollateralized,
noninterest-bearing and is payable in 24 equal installments of
$1,221 through November 1997. 24,411
Convertible notes payable. These notes are collateralized by the
assets of the Company. The notes bear interest at a rate of 8%
per annum until the principal is converted into shares of the
Company's common stock at $1.70 per share on the earlier of 90
days after the issuance of the notes or that date on which the
Company receives approved bank financing in the amount of
$800,000 or more. These notes matured on April 19, 1996 and were
converted into shares of common stock at $1.70 per share. 450,500
---------
663,493
Less, Current portion (198,346)
---------
Notes payable, long-term portion $ 465,147
=========
</TABLE>
Continued
14
<PAGE> 16
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
-----------
7. Related Party Transactions:
In August 1994, Rowland W. Day, II loaned $300,000 to HDL. HDL used
the proceeds from the loan from Mr. Day, along with the proceeds of
other loans from nonaffiliates in the aggregate additional amount of
$200,000, to make a $500,000 collateralized loan to the Company upon
the signing of the Acquisition Agreement. The loan was evidenced by
the Company's noninterest-bearing convertible promissory note which
was converted into shares of the Company's common stock upon
consummation of the acquisition on March 13, 1995 at the conversion
price of $1.00 per share. The Company also agreed to issue warrants
to such nonaffiliates to purchase 200,000 shares of the Company's
common stock at a price of $1.50 per share. The warrants were
converted to 200,000 shares of common stock on September 8, 1995.
In February 1995, Rowland W. Day, II loaned $50,000 to the Company,
the proceeds of which were used to purchase four used Harley-Davidson
motorcycles. The Company repaid the loan and interest thereon in the
amount of $2,000 to Mr. Day in March 1995.
The Company agreed to grant to Rowland W. Day, II and/or his assigns,
upon consummation of the Bikers Dream Acquisition, an irrevocable
three-year option to purchase, at a price of $1.00 per share, 550,000
shares of common stock . Mr. Day has assigned his right to receive
options to purchase 170,000 of such shares to other persons.
The Company has granted options to Company officers, in connection with
employment agreements, to purchase 100,000 shares and 350,000 shares
of common stock at a per share exercise price of $1.50 and $2.50,
respectively. The options vest over a five-year period commencing in
March 1995 and September 1995, respectively. The options expire 10
years following the date of the option grant.
Continued
15
<PAGE> 17
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
----------
7. Related Party Transactions, Continued:
In April 1995, the Company granted options to each of its four then
current directors to purchase, at an exercise price of $1.50 per
share, 50,000 shares of common stock, which options vest in increments
over a five-year period.
In April 1995, Dennis Campbell, President, Chief Executive Officer and
a director of the Company, loaned $75,000 to the Company, the proceeds
of which were used for working capital. The Company agreed to repay
the loan and interest thereon of $5,000 within 60 days after the date
of the loan. This loan was subsequently paid in full with interest.
On April 6, 1995, the Company entered into a consulting agreement with
Meyer Duffy & Associates, Inc. ("Meyer Duffy") for management
consulting, financial advisory and investment banking services to be
rendered to the Company for six months in consideration of a monthly
fee of 2,500 shares of the Company's common stock, plus travel
expenses, if incurred. This agreement was effective through September
1995, and the 15,000 shares were issued in December 1995 at $2.00 per
share. Donald Duffy, a member of the Board of Directors of the
Company, is a principal of Meyer Duffy.
The Company has granted nonqualified options to Meyer Duffy to
purchase 30,000 shares of common stock at $2.50 per share. The
options vested at the time of grant for services rendered, and are
exercisable within two years following the date of grant in April
1995.
On August 31, 1995, Dennis Campbell loaned the Company $24,000 on a
demand note at an interest rate of 16% per annum. This note was
reduced by principal payments totaling $3,000 during 1995, and 1996
leaving a balance of $21,000 as of March 31, 1996.
On December 31, 1995, Dennis Campbell loaned the Company $14,547 on
demand at 10% interest. This note was paid in full during January
1996.
On October 1, 1995, the Company entered into a consulting agreement
with Meyer Duffy, which was amended on November 1, 1995, whereby Meyer
Duffy & Associates was retained to provide consulting, financial
advisory and investment banking services for a ten-month term
commencing October 1, 1995. The agreement provides for the payment of
$5,000 per month to Meyer Duffy.
Continued
16
<PAGE> 18
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
------------
7. Related Party Transactions, Continued:
Under the terms of the agreement, Meyer Duffy is to use its best
efforts to obtain a commitment from an investment banking firm to
raise up to $20 million in capital for the Company. The agreement
provides that upon the successful closing of an offering through an
investment banker introduced by Meyer Duffy, the Company will issue an
option to Meyer Duffy to purchase 10,000 shares of the Company's
common stock for each $1 million of capital received by the Company in
such an offering, up to a maximum of 100,000 shares for $20 million in
capital received, and that the option is granted in pro rata
increments, exercisable at a price of $2.50 per share at any time
within two years after the date of completion of a successful
financing pursuant thereto.
In addition, Meyer Duffy is to be compensated by means of an option to
purchase 50,000 shares of the Company's common stock at a price of
$1.70 per share within two years of a grant in consideration of
arranging for bridge financing to the Company in the amount of $1.1
million in convertible debt, and a fee of 5% of all proceeds received
from the bridge financing in excess of $100,000.
On October 17, 1995, William R. Gresher, Senior Vice President, Chief
Financial Officer and a director of the Company, loaned $50,000 to the
Company, pursuant to a note bearing interest at 11% per annum, on
demand, and on October 24, 1995, Mr. Gresher loaned an additional
$10,000 to the Company on the same terms. This note has not been paid
as of March 31, 1996.
On November 3, 1995, M.D. Strategic L.P., a partnership of which
Donald Duffy, a director of the Company, is a principal, loaned
$100,003 to the Company for 90 days at 8% interest per annum,
receiving notes which are convertible into shares of common stock of
the Company at $1.70 per share on certain conditions related to
proposed asset-based financing of the Company. On December 3, 1995,
M.D. Strategic made an additional loan of $49,997 to the Company, and
on December 5, 1995, a similar loan was consummated in the sum of
$50,000, for convertible notes bearing the same terms and due 90 days
from the funding thereof. These notes were converted on March 14,
1996 into common stock of the Company.
8. Fair Value Of Financial Instruments:
The fair value of the Company's long-term debt and notes payable
approximates the carrying value at March 31, 1996. This estimate is
based on the fact that the majority of the long-term debt and notes
payable were negotiated transactions near year-end, and the negotiated
interest rates approximate a market rate at that time.
Continued
17
<PAGE> 19
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1996, And 1995
----------
9. Recently Issued Accounting Standard:
The Financial Accounting Standards Board has issued a Statement of
Financial Accounting Standards No. 123 (FAS 123) entitled "Accounting
for Stock-Based Compensation." Upon adoption of FAS 123 in fiscal
1996, the Company will continue to account for stock-based
compensation in accordance with Accounting Principles Board Opinion
No. 25 and provide disclosure with respect to the fair value of the
Company's options. The Company has not yet determined the impact of
this disclosure on its financial statements.
10. Subsequent Events:
On April 10, 1996 the Company signed a ninety day unsecured loan in
the amount of $300,000 with M. D. Strategic L.P. The loan bears
interest at an annual rate of 14.0%, which was prepaid at the
beginning of the note.
On April 29,1996 the Company closed its store located in Thousand
Oaks, California, with the intention of opening a larger Superstore in
the greater Los Angeles area later in 1996 in order to better service
it's customers.
18
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Bikers Dream, Inc., incorporated in California in 1985 as HDL Communications,
Inc., sells used Harley-Davidson motorcycles ("Harleys") and aftermarket parts,
accessories and related apparel to Harley enthusiasts. From 1990 until late
1993, the business operated in a facility of approximately 2,400 square feet in
Huntington Beach, California. In December, 1993, the Company opened its first
Superstore, a 12,100 square foot facility located in an up-scale commercial
center in Santa Ana, California. The Company's second Superstore, a 10,000
square foot facility, was opened on April 8, 1995 in Dallas, Texas. The third
Company-owned Superstore was opened on July 28, 1995, in Clearwater, Florida
(Tampa Bay area). The fourth Company-owned Superstore, a 4,100 square foot
facility, was acquired from a former franchisee on September 22, 1995 and is
located in Thousand Oaks, California. This store was closed by the Company on
April 29, 1996 with the intention of opening a larger Superstore in the greater
Los Angeles area later in 1996. The fifth Company-owned Superstore was acquired
in November, 1995 from another former franchisee. It is a 10,500 square foot
facility located in Sacramento, California, approximately one-half of which is
currently being utilized.
In March 1996, the Company launched it first mobile store "Dream Wheels". This
mobile store, which is a custom built 53 foot trailer and a Kenworth T-100
tractor, is believed to be the first of its kind in the industry. This mobile
store carries motorcycles, parts, accessories and apparel for sale at major
motorcycle events throughout the United States. The trailer opens into a 2,000
square foot mobile showroom at major motorcycle events throughout the United
States. The tractor and the trailer have been financed substantially with
outside debt for which the equipment is pledged as security. Dream Wheels made
its debut at Daytona Bike Week on March 1, 1996 followed by The Laughlin River
Run in April 1996.
In addition to retail sales at its Superstores, aftermarket parts, accessories
and related apparel are sold through the Company's 100 page full color mail
order catalogue. The Company published its second catalogue in February, 1996
for distribution at major biker events such as the Daytona Bike Week, March
1-10, 1996, and the Laughlin River Run on April 18-21, 1996. The Company plans
to create its third catalogue of approximately 320 pages in the second half of
1996 for pre-holiday distribution. All catalogues will be full color
productions.
The Company is in the process of establishing a network of franchised Bikers
Dream stores. As of December 31, 1995, the Company had sold ten Bikers Dream
franchises (three in California and seven in other states) at a price of
$15,000 per franchise, five of which are currently open and operating. In
addition, the Company has conducted negotiations with several other potential
franchisees for the sale of a Bikers Dream franchise. The Company was advised
in March, 1995 by its special franchise counsel that certain previous franchise
sales and offers to sell franchises were not made in compliance with applicable
federal and state franchise laws and regulations. Special franchise counsel
also advised the Company that applicable federal and state franchise laws have
broad enforcement provisions, and that under certain state laws the potential
and existing franchisees may have a private cause of action for franchise
violations. Consequently, the Company suspended its franchise sales activities
in March, 1995 while it was in the process of preparing the required
19
<PAGE> 21
disclosure documents and complying with federal and state franchising laws for
future offers and sales of franchises. The Company, through its wholly owned
subsidiary, Bikers Dream International, Inc. ("BDII") has filed its franchise
registrations as required by law and as of December 31, 1995, is authorized to
sell franchises in all states and possessions of the United States. The
Company restructured its franchise program and resumed its franchise sales
activities in late August, 1995.
Bikers Dream provided written notice to its three California franchisees, and
one person who was negotiating to acquire a Bikers Dream franchise, of their
remedies and rights under California franchise laws. As a result, the Company
acquired two of its former franchises and returned deposits and certain
expenses to the third franchisee and settled the claims of a prospective
California franchisee. The Company acquired one of the franchises in September
1995 for approximately $340,000 and the other in late November 1995 for
approximately $140,000. In addition, the Company settled a dispute with a
potential California franchisee during the fourth quarter of 1995.
The Company has also refunded the deposit of a non-California franchisee which
never commenced business operations, and also signed a mutual release with
another franchisee to terminate the relationship. Two franchisees filed suit
in early 1996 for breach of contract, one franchisee has signed the new
franchise agreement, and negotiations are in process with the remaining two
franchisees to bring them under the new agreement. The Company now has a new
and more complete franchise circular as well as a new program to qualify
prospective franchise applicants. In addition, the franchise training and
support program has been expanded to reduce the risk of future franchise
difficulties.
RESULTS OF OPERATIONS
The following table sets forth for the period indicated, the income and expense
items for the quarters ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
FOR THE QUARTERS
ENDED MARCH 31
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net revenues $2,846,898 $1,432,874
Cost of goods sold 2,149,773 1,019,156
---------- ----------
Gross profit 697,125 413,718
Other expenses (income)
Selling, general & administrative 1,245,890 545,605
Depreciation and amortization 38,100 7,816
Interest expense 42,994 8,982
Franchise income (4,097) (2,000)
Other (income) expense 0 (96)
---------- ----------
1,322,887 560,307
---------- ----------
Loss before (provision) benefit for
income taxes (625,762) (146,589)
(Provision) benefit for income taxes 0 0
---------- ----------
Net Loss $ (625,762) $ (146,589)
========== ==========
</TABLE>
20
<PAGE> 22
COMPARISON OF FIRST QUARTERS ENDED MARCH 31, 1996 AND 1995:
Net revenues for the first quarter ended March 31, 1996 were $2,846,898, an
increase of $1,414,024 or 98.7% from the same period in 1995. The increase in
net revenue is entirely due to the opening of new Company owned Superstores in
Dallas, Texas and Tampa, Florida during the past year as well as the
acquisition of two former franchises in Thousand Oaks and Sacramento,
California. The first quarter 1995 revenues have been restated to reclassify
income from the sale of financing contracts from Cost of Goods Sold to Revenue,
a policy established in the fourth quarter of 1995.
Total gross profit for the quarter ended March 31, 1996 was $697,125 which was
an increase of $283,407 or 68.5% over the same period in 1995. The increase in
gross profit was due to higher level of sales volumes from the newly opened or
acquired stores in Dallas, Tampa, Thousand Oaks and Sacramento. The gross
profit rate for the quarter ended March 31, 1996 was 24.5% compared to 28.9%
for the same period in 1995. The change in gross profit rate was due to a
higher sales mix of consignment versus Company owned motorcycles and the
increase in revenue related to the sale of finance contracts which bear no cost
of sales. Consignment motorcycles typically carry a lower gross margin rate
than motorcycles owned by the Company.
Selling, general and administrative expenses were $1,245,890 for the quarter
ended March 31, 1996, which represents an increase of $700,285 or 128.4% over
the same quarter last year. This increase is due to several factors, including
(1) the opening of new Company owned Superstores in the latter part of 1995,
(2) the launch of the new Dream Wheels mobile Superstore in March 1996,
(3) legal and accounting fees related to becoming an SEC reporting company,
and (4) the increase in executive staff necessary to continue the Company's
growth.
Depreciation and amortization expense was $38,100 for the quarter, which was
$30,284 or 387.5% higher than the same period in the prior year. The increase
was due to the addition of four more Company owned Superstores which were
opened in the last three quarters of 1995 , the addition of computers necessary
to bring the advertising and financial functions in house, and the launch of
Dream Wheels in March of 1996.
Franchise income for the quarter ended March 31, 1996 was $4,097 which
represents an increase of $2,097 or 105.9% over that of the preceding year.
This increase is attributed to the opening of new franchises during 1995 and
the related royalty income from franchise sales activities.
21
<PAGE> 23
There was no provision for income taxes in 1996. The Company decided to fully
reserve for the Deferred Tax Asset primarily related to its net operating loss
carry forwards beginning in the second quarter of 1995. The first quarter 1995
financial statements have been restated to reflect this subsequent decision.
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. The major underlying reason which led to this
conclusion is the uncertainty of the Company's ability to raise sufficient debt
and equity capital necessary to expand the number of Company-owned Superstores.
The Company plans to use this additional capital to expand its retail
operations into new locations which would generate more operating income. This
additional operating income from expanded retail trade-related activities would
defray existing centralized corporate overhead costs and generate additional
operating profits to begin utilizing the tax loss carry forwards. As a result
of the current delays in the Company's ability to raise the amount of
additional capital required, the Company's management believes that the timing
of the income turnaround can not be predicted with accuracy.
The net loss for the quarter ended March 31, 1996 was $625,762 as compared to a
loss of $146,589 for the same period in 1995. This increase of $479,173 was
due to continued investment by the Company to expand the business through
(1) the opening of new Superstores in various parts of the U.S. in 1995 and
1996, (2) the costs associated with becoming an SEC reporting company, and
(3) the increase in executive staff to continue growth of the Company. New
Superstores take approximately six to nine months until they reach the
break-even point.
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. The Company expects to mitigate inflationary
increases through securing additional purchase volume discounts as net sales
increase through the opening of future Superstores and franchises.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has substantially relied upon equity capital to sustain
its present growth. In connection with the Company's reverse acquisition of
HDL Communications on March 13, 1995, the Company received $1.2 million from
the private placement of common stock and conversion of warrants.
The Company intends to finance future expansion through a combination of equity
and debt financing. The Company is aggressively pursuing various alternatives
to obtain either debt or equity capital to continue its growth. The Company
received $1,240,000 from the private placement of its convertible promissory
notes in June and July, 1995, $629,000 from the private placement of
convertible notes in December 1995, and $450,500 from a similar placement in
January, 1996. If the Company is unable to raise additional capital,
operations will have to be modified and/or downsized in order to achieve a
profitable position.
22
<PAGE> 24
PART II - OTHER INFORMATION
ITEM 6. (b) Exhibits
Exhibit 27 - Financial Data Schedule
23
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registration has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIKERS DREAM, INC.
Date: May 9, 1996 By: /s/ DENNIS CAMPBELL
--------------------------------------
Dennis Campbell, President
By: /s/ WILLIAM R. GRESHER
--------------------------------------
William R. Gresher, Vice President
and Chief Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 247,288
<SECURITIES> 0
<RECEIVABLES> 490,112
<ALLOWANCES> (23,251)
<INVENTORY> 1,797,893
<CURRENT-ASSETS> 2,660,158
<PP&E> 1,247,160
<DEPRECIATION> (144,456)
<TOTAL-ASSETS> 3,832,480
<CURRENT-LIABILITIES> 2,163,298
<BONDS> 0
0
0
<COMMON> 3,770,429
<OTHER-SE> (3,108,574)
<TOTAL-LIABILITY-AND-EQUITY> 3,832,480
<SALES> 2,846,978
<TOTAL-REVENUES> 2,846,978
<CGS> 2,149,773
<TOTAL-COSTS> 1,322,887
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 23,251
<INTEREST-EXPENSE> 42,994
<INCOME-PRETAX> (625,762)
<INCOME-TAX> 0
<INCOME-CONTINUING> (625,762)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (625,762)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
