<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 September 30, 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 Registrant as specified in its charter)
California 33-0140149
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1420 Village Way, Santa Ana, California
(Address of principal executive offices)
92705
(Zip Code)
(714) 835-8464
(Registrant's telephone number, including area code)
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
--- ---
As of September 30, 1996, there were 8,350,031 shares of the Registrant's common
stock outstanding.
Transitional Small Business Disclosure Format
Yes No X
----- -----
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 And 1995
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1996 1995
---- ----
A S S E T S:
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,228,208 $ 195,323
Accounts receivable, net 445,874 245,944
Inventories 1,527,338 1,761,355
Prepaid expenses and other current assets 109,293 129,352
----------- -----------
Total current assets 3,310,713 2,331,974
Property, equipment and capitalized leases, net 844,636 565,144
Investments - Joint Venture 1,000,000
Deposits and other assets 37,754 58,484
----------- -----------
Total assets $ 5,193,103 $ 2,955,602
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 525,332 $ 359,283
Other accrued expenses 873,191 361,377
Current portion of long-term debt 109,633 11,739
Current portion of notes payable 104,621 250,000
Notes payable to shareholders 96,000 104,000
----------- -----------
Total current liabilities 1,708,777 1,086,399
Deferred rent 70,655 76,412
Notes payable, less current portion 91,422
Deferred tax liability 3,425
Long-term debt, less current portion 393,150 70,191
----------- -----------
Total liabilities 2,264,004 1,236,427
----------- -----------
Commitments and contingencies (Note 5)
Shareholders' equity:
10% convertible preferred stock, no par value, 10,000,000 shares
authorized at September 30, 1996: 7 shares
issued and outstanding at September 1996 1,102,500
Common stock, no par value; 25,000,000 shares
authorized at September 30, 1996; 8,350,031 and 5,535,920
issued and outstanding at September 30, 1996 and 6,870,624 3,260,179
September 30, 1995
Accumulated deficit (5,044,025) (1,541,004)
----------- -----------
Total shareholders' equity 2,929,099 1,719,175
----------- -----------
Total liabilities and shareholders' equity $ 5,193,103 $ 2,955,602
=========== ===========
</TABLE>
See the accompanying notes to these consolidated financial statements.
<PAGE> 3
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
-------------------- ------------------
Ended September 30, Ended September 30,
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 1,775,912 $ 2,121,538 $ 7,328,601 $ 5,367,804
Financing contracts 42,281 97,062 201,990 47,062
----------- ----------- ----------- -----------
Total revenues 1,818,193 2,218,600 7,530,591 5,464,866
Cost of goods sold 1,431,584 1,560,090 5,895,661 4,064,959
----------- ----------- ----------- -----------
Gross profit 386,609 658,510 1,634,930 1,399,907
----------- ----------- ----------- -----------
Expenses:
Selling, general and administrative expenses 1,091,166 1,187,005 3,653,353 2,740,634
Depreciation and amortization 47,355 25,225 143,675 58,864
Interest expense 57,681 18,820 139,081 18,667
Franchise income (7,987) (63,774) (40,289) (72,274)
Other expense 144,290 340 300,323 (3,250)
----------- ----------- ----------- -----------
Total expenses 1,332,505 1,167,616 4,196,143 2,742,641
----------- ----------- ----------- -----------
Loss before (provision) for
income taxes (945,896) (509,106) (2,561,213) (1,345,734)
(Provision) for income taxes 0 0 0 (63,151)
----------- ----------- ----------- -----------
Net loss $ (945,896) $ (509,106) $(2,561,213) $(1,405,885)
=========== =========== =========== ===========
Net loss per share $ (0.14) $ (0.10) $ (0.41) $ (0.32)
=========== =========== =========== ===========
Weighted average shares outstanding 6,786,749 5,535,920 6,173,695 4,459,591
=========== =========== =========== ===========
</TABLE>
See the accompanying notes to these consolidated financial statements.
2
<PAGE> 4
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS For Nine Months Ended
September 30, 1996, And 1995
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1996 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,561,213) $(1,405,885)
----------- -----------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Deferred income taxes -- 62,351
Loss from disposal of fixed assets 26,046 --
Store closure costs 135,000
Depreciation and amortization 153,323 58,864
Past services compensated by Company common stock 151,800
Changes in assets and liabilities:
(Increase) in accounts receivable (159,482) (147,930)
(Increase) in inventories (336,351) (1,060,054)
Decrease (increase) in prepaid expenses and other
current assets 21,802 (61,496)
Increase in accounts payable 226,134 354,167
Increase in other accrued expenses 138,525 235,632
----------- -----------
Total adjustments 356,797 (558,466)
----------- -----------
Net cash used in operating activities (2,204,416) (1,964,351)
----------- -----------
Cash flows from investing activities:
Decrease in deposits 143,397 (12,711)
Payments for purchases of fixed assets (423,791) (509,726)
Increase in deferred rent 15,725 2,908
Investment - Joint Venture (1,000,000)
----------- -----------
Net cash used in investing activities (1,264,669) (519,529)
----------- -----------
</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 Nine Months
Ended September 30, 1996, And 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from short-term notes $ 569,905 --
Proceeds from long-term debt 308,350 85,348
Principal payments made on long-term debt and
capitalized leases (45,857) (76,972)
Proceeds from issuance of common stock 2,567,450 2,811,189
Costs associated with issuance of common stock (160,793)
Proceeds from issuance of preferred stock 1,225,000
Costs associated with issuance of preferred stock (122,500)
Proceeds from issuance of convertible notes payable 450,500
Principal payments made on notes payable (129,451) (167,000)
Payments on notes payable to shareholders (101,047)
Advances received on employee note receivable (16,114)
Payments received on note receivable from stockholder 24,616
----------- -----------
Net cash provided by financing activities 4,561,557 2,661,067
----------- -----------
Net increase in cash and cash equivalents 1,092,472 177,187
Cash and cash equivalents, beginning of period 135,736 18,136
----------- -----------
Cash and cash equivalents, end of period $ 1,228,208 $ 195,323
=========== ===========
</TABLE>
In March 1995, the Company converted a $500,000 promissory note into
500,000 shares of common stock 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.
In April 1996, the Company converted promissory notes in the amount of
$450,500 into 264,999 shares of common stock of the Company.
In September 1996 the Company converted promissory notes in the amount
of $500,000 into 476,100 shares of common stock of the company, liabilities in
the aggregate amount of $135,267 were converted into a total of 98,019 shares of
common stock of the company, and 110,000 shares of common stock of the company
were issued at a price of $1.38 per share as compensation for past services.
In September 1996, the Company issued 1,222,596 Units (each Unit
consisting of two shares of common stock, one Series A warrant to purchase, at a
price of $2.10 per share, one share of common stock, and one Series B Warrant to
purchase, at a price of $3.10 per share, one share of common stock) for total
gross proceeds of $2,567,450.
In September 1996, the Company sold its Clearwater, Florida Superstore
to its former President, Dennis Campbell, in exchange for consideration which
included the cancellation of 950,000 shares of the Company's common stock owned
by Mr. Campbell.
See the accompanying notes to these consolidated financial statements.
4
<PAGE> 6
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, And 1995
1. In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary (consisting only of normal
recurring accruals) to present fairly the financial information
contained therein. These statements do not include all disclosures
required by generally accepted accounting principles and should be read
in conjunction with the audited financial statements of the Company for
the year ended December 31, 1995. The results of operations for the
nine months ended September 30, 1996 are not necessarily indicative of
the results to be expected for the year ending December 31, 1996. Net
loss per share was computed by dividing net loss by the weighted
average number of common shares outstanding during the respective
quarters.
2. 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 previously owned
Harley Davidson motorcycles, custom manufactured motorcycles, parts,
accessories, apparel and service through Company-owned retail stores in
California and Texas.
Continued
5
<PAGE> 7
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996, And 1995
2. Company Operations And Liquidity, Continued:
The Company's consolidated financial statements for the nine months
ended September 30, 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 $2,561,213 for the nine months ended
September 30, 1996. As of September 30, 1996 the Company had an
accumulated deficit of $5,044,025. The Company's working capital at
September 30, 1996 was $1,601,936. The Company experienced an increase
in its selling and administrative expenses of $948,719 over the same
nine month period last year. This increase was primarily the result of
1) costs of operating new Company owned superstores, 2) the launch of
the Dream Wheels mobile Superstore in March 1996, 3) legal and
accounting fees related to registering and issuing stock as an SEC
company and 4) offset by the goodwill writeoff of $238,266 in the third
quarter of 1995.
On September 9, 1996, the Company's Board of Directors accepted the
resignation Of Dennis Campbell as President, Chief Executive Officer
and Director. The Company transferred its Clearwater, Florida store
location to Mr. Campbell in exchange for cancellation of 950,000 shares
of the Company's common stock owned by Mr. Campbell.
On September 10, 1996, the Company's Board of Directors appointed
Donald J. Duffy and Rowland W. Day II as co-chairmen and co-chief
executive officers. Messrs. Duffy and Day are also directors of the
Company. Also on September 10, 1996, Richard King, Jr. resigned as a
director and as secretary of the Company.
On September 13, 1996, the Company accepted the resignation of William
Gresher, Chief Financial Officer. Donald J. Duffy, co-chairman and
co-chief executive Officer, agreed to assume the duties of Chief
Financial Officer.
On September 16, 1996, the Company announced that it signed an
agreement to form a joint venture with Mull Acres Investments,
Inc.("MAI"), whose Ultra Kustom Cycles division of Riverside,
California, is a manufacturer of custom V-twinmotorcycles and
show-bikes. The joint venture will act as the exclusive distributor of
Ultra Kustom Cycles. Additionally, all direct retail sales of Ultra
Kustom Cycles in Southern California, Sacramento, California, and
Dallas, Texas will now be sold through the Company's retail stores.
Ultra Kustom Cycles will close its Riverside, California, showroom and
transfer key sales personnel to the Registrant's store locations to
provide expertise in motorcycle sales, product knowledge and store
management. The joint venture is in the form of a limited liability
company known as Ultra Bikers, LLC. In order to increase the production
of Ultra Kustom Cycles to one hundred bikes per month, the Company has
agreed in the Operating Agreement to loan the joint venture $2,000,000
over the next ninety days of which $1,000,000 had been loaned as of
September 30, 1996. The Company received $2,567,450 from the sale of
common stock in September 1996 and $420,000 in October 1996 to meet
this funding obligation. Additionally, the Company has announced that
it has acquired an option to purchase Ultra Kustom Cycle and Ultra
Kustom Parts for a total Consideration of $4,000,000 and options to
purchase 2,500,000 shares of the Company's common stock at a purchase
price of $1.65 per share. The Company must exercise its Option after
August 31, 1997 or earlier subject to the consent of Ultra Kustom
Cycle.
Ultra Kustom Cycle has been producing custom motorcycles for over two
years. The motorcycles retail for approximately $15,900 to $24,900
depending on the model. Currently, Ultra Kustom Cycle manufactures 6
models. The Ultra Kustom Parts division of MAI, which has also been
operational for approximately two years, produces approximately 126
parts including both original equipment parts and custom high
performance parts for the cruiser segment of the motorcycle industry.
Under a separate distribution Agreement, Ultra Kustom Parts will also
provide the Company with components manufactured by third parties.
Continued
6
<PAGE> 8
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
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
3. 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 commission
revenue resulting from certain motorcycle sales. Such revenue
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 commission revenue expected to be received
over the life of the finance contract. This estimate is based
on experience with similar contracts owned by the third party
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 Costs:
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. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
3. 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 September 30, 1996, the allowance for doubtful accounts was $33,251.
The balance was $14,911 as of September 30, 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. September 1996 inventory was reduced approximately
$450,000 as a result of the Clearwater, Florida Superstore sale. At
September 30, 1996, the reserve for obsolescence was $55,281.The
reserve at September 30, 1995 was $29,077.
Continued
8
<PAGE> 10
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
3. Summary Of Significant Accounting Policies, Continued:
Property, Equipment And Capitalized Leases:
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. Property,
equipment and capitalized leases were reduced $146,000 as a result of
the sale of the Clearwater, Florida Superstore.
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. Deferred rent was reduced $43,000 as a result
of the sale of the Clearwater, Florida Superstore.
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 September 30, 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 September 30, 1996
and 1995, the Company has no significant concentrations of credit risk.
Continued
9
<PAGE> 11
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
3. 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.
4. Property, Equipment And Capitalized Leases:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated September 30,
-------------
Useful Lives 1996 1995
------------ ---- ----
<S> <C> <C> <C>
Furniture and fixtures 7 years $ 147,859 $ 104,462
Leasehold improvements 7 years 128,746 253,592
Equipment 5-7 years 87,425 92,452
Computers 5 years 242,944 201,584
Autos and trucks 3-10 years 441,053 O
----------- -----------
1,048,027 652,090
Less, Accumulated depreciation and amortization (203,391) (86,946)
----------- -----------
$ 844,636 $ 565,144
=========== ===========
</TABLE>
Assessments of whether there has been a permanent impairment in the
value of long-lived assets are periodically performed by considering
factors such as expected future operating results, trends and
prospects, as well as the effects of demand, competition and other
economic factors. The method used is to determine if an impairment has
occurred based upon a change in circumstances regarding the long lived
assets, followed by an analysis of cash flows regarding the assets in
question. If an impairment is determined to have occurred as a result
of the analysis, then the Company recognizes and measures that
impairment using discounted cash flow as provided by FAS 121. Since the
Company has just started many of its retail operations in the last 12
months, historical information is limited in evaluating future effects.
During the Second Quarter of 1996 the Company closed one of its former
franchises which was acquired in late 1995 resulting in a writeoff of
$32,000 in leasehold improvements plus $125,000 of other costs. Fixed
assets were also reduced by $146,000 as a result of the sale of the
Clearwater, Florida Superstore. Management believes no further
permanent impairment has occurred based upon the information currently
available.
Continued
10
<PAGE> 12
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
4. 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 September 30, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Computers $132,723 $80,803
Less, Accumulated amortization (24,403) 3,418
-------- -------
$108,320 $81,930
======== =======
</TABLE>
5. Commitments And Contingencies:
The Company leases all of its operating facilities. The Santa Ana,
California operating facility, which serves as a retail Superstore and
executive offices, is leased under a noncancelable tenant operating
lease 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 to renew.
The Company negotiated a lease at a second Company-owned Superstore in
Dallas, Texas. The lease term is sixty months commencing January 1,
1995 with two successive five-year options to renew and is subject to
annual CPI increases.
On March 1, 1995, the Company negotiated a lease to open its third
Company-owned Superstore in Clearwater, Florida. This lease was
subsequently transferred to Dennis Campbell in connection with the sale
of such superstore to Mr. Campbell.
Continued
11
<PAGE> 13
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 1996 And 1995
5. 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 litigation arising from the sale of one
franchise 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 amount in the
December 31, 1995 financial statements. The final resolution of these
matters could have a material adverse effect on the financial position
and results of operations of the Company.
Continued
12
<PAGE> 14
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
6. Long-Term Debt:
Long-term debt at September 30, 1996 and 1995 consists of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
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 $70,191 $81,930
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 3,351
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 281,867
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 38,129
January, 2001
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 78,245
2001 -------- -------
471,783 81,930
Less, Current portion (78,633) (11,739)
-------- -------
Long-term debt, net of current portion $393,150 $70,191
======== =======
</TABLE>
Continued
13
<PAGE> 15
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
7. Notes Payable:
The notes payable at September 30, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Note payable to former employee in conjunction with release and
Settlement agreement entered into September 9, 1996. The note is
payable in monthly installments through February 1996. $ 70,000
Note payable to former franchisee in conjunction with acquisition
of former franchise operation. The note is due October 1996. $ 13,021
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. 95,936
Note payable to former franchisee in conjunction with acquisition of
former franchise operation. Note is uncollateralized,
non-interest-bearing and is payable in 24 equal installments of
$1,221 through November 1997. 17,086
Note payable to unrelated party is in conjunction with acquisition Of
former franchise operation. $100,000 due in October, 1995, and balance
accruing interest at 9% and payable in equal monthly installments to
September 1996 collateralized by all the assets of
the Company. 250,000
--------- ---------
Sub Total 196,043 250,000
Less, Current portion (104,621) (250,000)
--------- ---------
Notes payable, long-term portion $ 91,422 $ 0
========= =========
</TABLE>
Continued
14
<PAGE> 16
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 1996 And 1995
8. Preferred Stock
In June, 1996, the Company's articles of incorporation were amended to
authorize a new class of Preferred Stock. At that time, the Board of
Directors were given authority, from time to time, to issue such shares
and determine the terms and conditions thereof via a Board Resolution
when the need arose for them to be issued.
The Board of Directors subsequently resolved to issue up to 30 shares
of 10% Convertible Preferred Stock at the price of $175,000 per unit.
Each share of Preferred Stock may be converted into 50,000 shares of
common stock at the rate of $3.50 per common share, at the option of
the holder, at any time following the effective approval date of the
registration of the shares. The Company may call for conversion at any
time after the registration statement becomes effective if (a) the
average closing price of the common shares is $7.50 per share or more
for ten (10) consecutive trading days, or (b) after the third
anniversary of the closing of the private placement of Preferred Stock,
whichever occurs first.
If the holders of the Preferred Stock exercises their conversion
privilege, the adjusted conversion price will be 75% of the greater of
(a) the average of the closing bid price for the common stock for the
ten (10) trading days immediately prior to receipt of notice by the
Company of the holder's election to convert, or (b) the closing bid
price on the day immediately preceding receipt of notification by the
Company. If the adjusted conversion price is lower than $3.50 per
share, then the holders would convert into a greater number of shares
based upon the adjusted conversion price, but in no event shall the
conversion price be less than $1.50 per share.
Each share of Preferred Stock is entitled to an annual common stock
dividend equal to ten (10) percent of the face value of the Preferred
Stock ($17,500) at the closing bid price of the common shares on the
date of declaration. The dividend will be paid each year on the
anniversary date of issuance of the Preferred Stock.
Holders of Preferred Stock will be entitled to receive 50,000 warrants
for each share of Preferred Stock held. The warrants will be issued six
(6) months following the issuance of the Preferred Stock, or at such
earlier date as the Board may approve. Investors who have converted
their Preferred Stock prior to issuance of the warrants shall not be
entitled to such warrants.
Continued
15
<PAGE> 17
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
The warrants have an exercise price of $5.00 per share or such lower
price as the Board of Directors may approve. The warrants will expire
three (3) years following the date of their issuance. The warrants are
callable by the Company after the common stock closes for at least
$7.50 per common share for ten (10) consecutive trading days, after
which the Company must notify the holders of warrants of such
redemption within ten (10) business days. The call price for each
warrant will be $5.00.
9. Related Party Transactions:
In August 1994, Rowland W. Day, II loaned $300,000 to HDL. HDL used the
proceeds of 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 Bill Gresher, a former Company
officer, in connection with an employment agreement, to purchase
300,000 shares of common stock at a per share exercise price of $2.50.
As of the date of his resignation, 87,000 of such options were vested.
Continued
16
<PAGE> 18
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
9. Related Party Transactions, Continued:
In April 1995, the Company granted options to each of its 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 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 repaid
in September 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
17
<PAGE> 19
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
9. 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 $1.70 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. This agreement was
terminated September 9, 1996.
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. These notes were paid in
September, 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.
On April 10, 1996 the Company obtained a ninety day unsecured loan in
the amount of $300,000 from M.D. Strategic L.P. The loan bears interest
at an annual rate of 14.0% and was extended until September 10, 1996
when it was converted into common stock of the Company at @1.05 a
share.
Continued
18
<PAGE> 20
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
September 30, 1996 And 1995
9. Related Party Transactions, Continued:
In September 1996, 90% of outstanding fees owed to Day Campbell &
McGill and Meyer Duffy & Associates were converted into common stock
of the Company at $1.38 per share or 59,557 and 38,463 shares
respectively.
In September 1996, for past services, 50,000 shares of common stock of
the company were issued to Day Campbell & McGill, 50,000 shares to
Meyer Duffy & Associates and 10,000 shares to Richard King Jr. at $1.38
per share.
10. Fair Value Of Financial Instruments:
The fair value of the Company's long-term debt and notes payable
approximates the carrying value at September 30, 1996. This estimate is
based on the fact that the majority of the long-term debt and notes
payable were negotiated transactions, and the negotiated interest rates
approximate a market rate at that time.
11. 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.
Continued
19
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and the notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth for the period indicated the unaudited income and
expense items.
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenue $1,818,193 $2,218,600 $ 7,530,591 $5,464,866
Cost of Goods Sold 1,431,584 1,560,090 5,895,661 4,464,959
Gross Profit 386,609 658,510 1,634,930 1,399,907
Other (Income) and Expenses
Selling, general and
administrative expenses 1,091,166 1,187,005 3,653,353 2,740,634
Depreciation and Amortization 47,355 25,225 143,675 58,864
Interest (income) expense 57,681 18,820 139,081 18,667
Franchise income (7,987) (63,774) (40,289) (72,274)
Other expense (income) 144,290 340 300,323 (3,250)
---------- ---------- ----------- ----------
Total 1,332,505 1,167,616 4,196,143 2,742,641
Income (loss) Before
provision For Income Taxes (945,896) (509,106) (2,561,213) (1,342,734)
(Provision) For Taxes 0 0 0 (63,151)
---------- ---------- ----------- -----------
Net Income (loss) $ (945,896) $ (509,106) $(2,561,213) $(1,405,885)
========== ========== =========== ==========
</TABLE>
Continued
20
<PAGE> 22
COMPARISON OF THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:
Net revenues for the third quarter ended September 30, 1996 were $1,818,193, a
decrease of $400,407 or 18% from the same period in 1995. The decrease in net
revenue is mainly due to the sale of the Clearwater, Florida Superstore
effective September 5, 1996. The Dallas superstore accounted for the remaining
decrease resulting from a shortage of funds to purchase bike inventory and the
recent closing of the store on Sundays to comply with Texas state law.
Net revenue for the nine months ended September 30, 1996 was $7,530,591 which
was an increase of $2,065,725 or 37.8% over the same period ended September 30,
1995. The increase is due to the addition of new corporate stores and the
acquisition of two previous franchises.
Total gross profit for the quarter ended September 30, 1996 was $386,609, a
decrease of $271,901 or 41.3% over the same period ended September 30, 1995. The
decrease was mainly attributable to the sale of the Clearwater, Florida
Superstore, with the remaining decrease a result of the lower sales for the
quarter. The gross profit rate for the quarter was 21.3% compared to 25.6% for
the same period in 1995. The change in gross profit rate was due to higher sales
mix of consignment motorcycles versus Company owned motorcycles. Consignment
motorcycles typically carry a lower gross margin rate than motorcycles owned by
the Company.
Gross profit for the first nine months of 1996 was $1,634,930 an increase of
$235,023 or 16.8% over the same period in 1995. The increase in gross profit was
due to higher level of sales volume from the newly opened or acquired stores in
Dallas, Clearwater and Sacramento.
Selling, general and administrative expenses were $1,091,166 for the quarter
ended September 30, 1996, a decrease of $95,839 or 8% from the same period in
1995. This decrease is mainly a result of the writeoff of goodwill in the third
quarter of 1995.
Selling, general and administrative expenses were $3,653,353 for the first nine
months of 1996, which represents an increase of $912,719 or 33.3% over the same
period last year. This increase was due to several factors, including 1)the
operating costs of new Company owned Superstores, 2) the launch of the new Dream
Wheels mobile Superstore in March 1996, 3) legal and accounting fees related to
registering and issuing stock of an SEC company, and (4) offset by the 1995
third quarter writeoff of $238,266 of goodwill.
Depreciation and amortization expense was $47,355 for the quarter, which was
$22,130 or 87.6% higher than the same period in the prior year. The increase was
due to the addition of two 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 the Dream Wheels
mobile store in March of 1996 offset by the transfer of fixed assets resulting
from the sale of the Clearwater, Florida Superstore.
Depreciation and amortization expense was $143,675 for the first nine months
ended September 30, 1996. This increase of $84,811 or 144.1% from the same
period last year was due to the same reasons outlined above for the third
quarter ended September 30, 1996.
Continued
21
<PAGE> 23
Franchise income for the quarter ended September 30, 1996 was $7,987 which
represents a decrease of $55,787 or 87.5% over that of the preceding year. This
decrease is attributed to the acquisition of two franchises coupled with a lack
of sales of new franchises.
Franchise income for the first nine months of 1996 was $40,289 a decrease of
$31,985 or 44.4% from the preceding year. This decrease was attributed to the
same reasons outlined above for the third quarter 1996.
Other expense for the quarter ended September 30, 1996 includes a $70,000
payment in conjunction with an employee release and settlement agreement and
$31,000 preferred dividend accrual.
Other expense for the first nine months ended September 30, 1996 includes a
provision of $125,000 for store closing costs.
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 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 net loss for the quarter ended September 30, 1996 was $945,896 as compared
to a loss of $509,106 in the same period in 1995. This increase of $436,790 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, which
have not yet turned profitable 2) the costs associated with registering and
issuing stock as an SEC reporting company, 3) the provision for store closing
costs, 4) a provision for an employee release and settlement agreement and 5) a
preferred dividend accrual.
The net loss for the first nine months ended September 30, 1996 was $2,561,213
as compared to a loss of $1,405,885 for the same period in 1995. This increase
of $1,155,327 was due to the same reasons outlined above for the third quarter
ended September 1996.
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.
Continued
22
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied substantially on equity capital to meet its operating and
growth needs until late 1995 when debt in the amount of $281,883 was used to
acquire two former franchises. In early 1996, third party debt was used to
acquire the Dream Wheels tractor/trailer in the amount of $391,053.
In December 1995 and January 1996 the Company raised $629,000 and $450,500
respectively through the issuance of Convertible Notes. These notes were
converted into shares of the Company's Common Stock in March and April of 1996
at a conversion rate of $1.70 per common share. These funds were used
principally to fund current operating losses and debt service.
In April 1996, the Company received a 90 day loan in the amount of $300,000 from
MD Strategic, of which one of the Company's directors is a principal, to meet
its additional cash needs for operating losses and debt service. This note was
extended and subsequently converted into shares of the Company's Common Stock in
September, 1996 at a price of $1.05 a share.
In addition, the Company retained an investment banking firm in April 1996 to
advise and assist in the sale of additional equity securities. The securities
offered, principally to institutional investors, were units consisting of
convertible preferred stock with warrants to purchase additional common shares
at a purchase price of $175,000 per unit. Through September 30, 1996, the
Company has sold 7 units and received $1,102,500 net of commissions.
In September 1996 the Company converted promissory notes in the amount of
$500,000 for 476,100 shares of common stock of the company, liabilities of
$136,267 were converted into a total of 98,109 shares of common stock of the
company, and 110,000 shares of common stock of the company were issued at a
price of $1.38 per share as compensation for past services.
In September 1996, the Company issued 1,222,596 Units (each Unit consisting of
two shares of common stock, one Series A warrant to purchase, at a price of
$2.10 per share, one share of common stock, and one Series B Warrant to
purchase, at a price of $3.10 per share, one share of common stock) for total
gross proceeds of $2,567,450.
In September 1996, the Company sold its Clearwater, Florida Superstore to its
former President, Dennis Campbell, in exchange for consideration which included
the cancellation of 950,000 shares of the company's common stock owned by Mr.
Campbell.
23
<PAGE> 25
Part II
Item 6. Exhibits and Reports on Form 8-K.
(b) The Company filed a Report on form 8-K dated October 1, 1996,
reporting the following: 1) the resignation of Dennis Campbell as
president, chief executive officer and director in conjunction
with the transfer of the Registrant's Clearwater, Florida store to
Mr. Campbell in exchange for 950,000 shares of the Registrant's
stock, 2) the resignation of Willian Gresher, chief financial
officer and director, 3) the resignation of Richard King, Jr.,
secretary and director, 4) the appointment of director Donald J.
Duffy as co-chairmen, co-chief executive officer and chief
financial officer 5) the appointment of Rowland W. Day II as
co-chairmen, co-chief executive officer and Secretary, and 6) the
formation of the joint venture limited liability company Ultra
Bikers, LLC.
24
<PAGE> 26
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: October 25, 1996 BIKERS DREAM, INC.
By: /s/ Donald J. Duffy
-------------------------------------------
Donald J. Duffy, Co-Chief Executive Officer
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,228,208
<SECURITIES> 0
<RECEIVABLES> 479,125
<ALLOWANCES> (33,251)
<INVENTORY> 1,527,338
<CURRENT-ASSETS> 3,310,713
<PP&E> 1,048,027
<DEPRECIATION> (206,391)
<TOTAL-ASSETS> 5,193,103
<CURRENT-LIABILITIES> 1,708,777
<BONDS> 0
0
1,102,500
<COMMON> 6,870,624
<OTHER-SE> (5,044,025)
<TOTAL-LIABILITY-AND-EQUITY> 5,193,103
<SALES> 7,328,601
<TOTAL-REVENUES> 7,530,661
<CGS> 5,895,661
<TOTAL-COSTS> 4,196,143
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 33,251
<INTEREST-EXPENSE> 139,081
<INCOME-PRETAX> (2,561,213)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,561,213)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,561,213)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
