<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 1996
REGISTRATION NO. 333-06331
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
FILED JUNE 19, 1996
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
BIKERS DREAM, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
CALIFORNIA
(STATE OF INCORPORATION)
5500
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NO.)
33-0140149
(IRS EMPLOYER I.D. NO.)
1420 VILLAGE WAY, SANTA ANA, CALIFORNIA 92705
(714) 835-8464
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICE
AND PRINCIPAL PLACE OF BUSINESS)
Dennis Campbell Copy to:
President & CEO Richard E. King, Jr., Esq.
Bikers Dream, Inc. 2244 West Coast Highway
1420 Village Way Suite 100
Santa Ana, California 92705 Newport Beach, California 92663
(714) 835-8464 (714) 646-6146
(Name, Address and Telephone
Number of Agent for Service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Amended Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /x/
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
TITLE OF EACH PROPOSED
CLASS OF MAXIMUM PROPOSED
SECURITIES AMOUNT OFFERING MAXIMUM AMOUNT OF
BEING TO BE PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
---------- ---------- ----------- ----------------- ------------
<S> <C> <C> <C> <C>
Common Stock 2,301,380 $2.125(2) $4,890,433(2) $1,673
Total Registration Fee $1,673
Previously Paid $1,635
TOTAL DUE $ 51.86
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee under Rule 457.
(2) Based upon the average of the bid and asked prices for the Common Stock
on August 9, 1996, as reported by the OTC Bulletin Board.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
2
<PAGE> 3
BIKERS DREAM, INC.
CROSS REFERENCE SHEET
BETWEEN ITEMS OF FORM SB-2 AND PROSPECTUS
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
- --------------------------------------- ------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover
of Prospectus Pages
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Cover Page; Selling Stockholders
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters
and Control Persons Management
11. Security Ownership of Certain Beneficial
Owners and Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Management
15. Organization Within Last 5 Years Not Applicable
16. Description of Business Business
17. Management's Discussion and Analysis or Management's Discussion and Analysis
Plan of Operations of Financial Condition and Results of
Operations
18. Description of Property Business
19. Certain Relationships and Related
Transactions Certain Transactions
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
20. Market Price for Common Equity and Market Price for Common Stock and
Related Stockholder Matters Related Stockholder Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure Not Applicable
</TABLE>
4
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS DATED AUGUST 23, 1996
SUBJECT TO COMPLETION
PROSPECTUS
BIKERS DREAM, INC.
2,301,380 SHARES
OF
COMMON STOCK
This Prospectus relates to 2,301,380 shares of Common Stock, without par value
(the "Common Stock"), of Bikers Dream, Inc., a California corporation (the
"Company") which are being offered for sale by certain selling stockholders (the
"Selling Stockholders"). The shares being offered hereby include 1,701,380
outstanding shares of Common Stock and 600,000 shares of Common Stock issuable
by the Company upon the exercise of certain options. See "Selling Stockholders."
The Company will not receive any of the proceeds from the sale of the Common
Stock by the Selling Stockholders, but will receive the exercise price upon the
exercise of options by the Selling Stockholders. The Common Stock may be offered
from time to time by the Selling Stockholders through ordinary brokerage
transactions in the over-the-counter market, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices.
The Selling Stockholders each may be deemed to be "an underwriter", as defined
in the Securities Act of 1933 (the "Securities Act"). If any broker-dealers are
used by the Selling Stockholders, any commissions paid to broker-dealers and, if
broker-dealers purchase any shares of Common Stock as principals, any profits
received by such broker-dealers on the resales of the shares of Common Stock,
may be deemed to be underwriting discounts or commissions under the Securities
Act. In addition, any profits realized by the Selling Stockholders may be deemed
to be underwriting commissions. All costs, expenses and fees in connection with
the registration of the shares offered by the Selling Stockholders will be borne
by the Company. All brokerage commissions, if any, attributable to the sale of
the securities offered by the Selling Stockholders will be borne by the Selling
Stockholders. See "Selling Stockholders."
5
<PAGE> 6
Brokers or dealers effecting transactions in the shares should confirm the
registration of the shares under the securities laws of the states in which such
transactions occur or the existence of an exemption from such registration, or
should cause such registration to occur in connection with any offer or sale of
the shares.
The Common Stock of the Company is traded in the over-the-counter market and
quoted on the National Association of Securities Dealers Electronic Bulletin
Board ("OTC Bulletin Board") under the symbol "BIKR". The bid and asked prices
for the Common Stock on August 9, 1996, as reported by the OTC Bulletin Board
were $1.875 and $2.375 per share, respectively. To date, the volume of trading
in the Common Stock has been limited and, therefore, the market prices for the
Common Stock may not accurately reflect the value of the Company.
THE COMMON STOCK OFFERED HEREBY IS HIGHLY SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST 23, 1996.
6
<PAGE> 7
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities and
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.C., Washington, D.C. 20549 and at the Commission's regional offices at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Northwest Atrium
Building, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.C., Washington, D.C. 20549, at prescribed
rates.
The Company intends to distribute to its stockholders annual reports containing
audited financial statements with a report thereon by independent certified
public accountants after the end of each fiscal year. In addition, the Company
may furnish to its stockholders quarterly reports for the first three quarters
of each fiscal year containing unaudited financial and other information after
the end of each fiscal quarter, upon written request to the secretary of the
Company.
The Company has filed with the Commission a registration statement on Form SB-2
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Act. This Prospectus does not contain all
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
No person is authorized to give any information or make any representations
other than those contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the registered shares
to which it relates or an offer to sell or a solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
7
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary 9
Risk Factors 10
Market For Common Stock and Related Stockholder Matters 16
Selected Financial Data 17
Management's Discussion and Analysis of Financial Condition and
Results of Operations 19
Business 24
Management 32
Certain Transactions 39
Principal Stockholders 42
Selling Stockholders 44
Description of Securities 46
Legal Matters 48
Experts 48
Further Information 48
Index to Financial Statements F-1
</TABLE>
8
<PAGE> 9
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus.
THE COMPANY
The Company sells and services used Harley-Davidson motorcycles and sells
aftermarket parts and accessories for Harley-Davidson motorcycles.
The Company, which was formerly known as HDL Communications, was incorporated in
California in October, 1985. The Company was engaged in the publishing business
until June, 1989, when it discontinued operations. The Company remained inactive
until March 13, 1995 when it acquired Bikers Dream, Inc., a California
corporation engaged in sales and service of used Harley-Davidson motorcycles and
in retail sales of aftermarket accessories and parts for Harley-Davidson
motorcycles. Prior to its acquisition of Bikers Dream, Inc., the Company
effected a 1 for 1,363.341473 reverse split of its outstanding Common Stock.
After the acquisition, Bikers Dream, Inc. was merged into HDL Communications and
HDL Communications changed its name to Bikers Dream, Inc. The financial
statements of the Company included elsewhere herein relate to the business which
was known as Bikers Dream, Inc. prior to the merger. See "Business."
The Company's principal executive offices are located at 1420 Village Way, Santa
Ana, California 92705, and its telephone number is (714) 835-8464.
THE SELLING STOCKHOLDER OFFERING
<TABLE>
<S> <C>
Common Stock outstanding as
of August 9, 1996(1) 6,378,931 shares
Common Stock offered by
Selling Stockholders(2) 2,301,380 shares
OTC Bulletin Board Symbol BIKR
Risk Factors The securities offered hereby involve a
high degree of risk. See "Risk Factors" and
"Selling Stockholders."
</TABLE>
(1) Does not include 1,419,200 shares issuable upon the exercise of
outstanding options.
(2) Includes 600,000 shares issuable upon exercise of options held by
Selling Stockholders.
SUMMARY FINANCIAL INFORMATION
The summary financial information which is set forth below should be read in
conjunction with the Financial Statements and related Notes thereto appearing
elsewhere in this Prospectus. The selected statement of operations and balance
9
<PAGE> 10
sheet data for the fiscal years ended December 31, 1994 and 1995, has been
derived from unaudited financial statements of the Company and included herein.
The unaudited balance sheet data as of June 30, 1995 and 1996, and the
unaudited statement of operations information for the six months ended June
30, 1995 and 1996, has been derived from unaudited financial information
prepared on the same basis as the audited financial statements. In the opinion
of management, such unaudited financial information includes all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
information presented. The results for the six months ended June 30, 1996 are
not necessarily indicative of the total year 1996 performance.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1995 1994 1996 1995
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
OPERATIONS DATA:
Revenues $7,790,090 $4,626,821 $5,712,398 $3,249,856
Cost of sales 5,980,469 3,526,666 4,464,076 2,504,872
Selling, general,
administrative,
depreciation and
interest expenses 3,977,916 1,161,589 2,739,907 1,587,115
Franchise (income)
expense 122,922 (45,000) (32,302) (8,500)
Other (income) expense (3,250) (223) 156,034 --
Net profit (loss) (2,347,693) (13,012) (1,615,316) (896,782)
Net loss per share ($0.50) ($0.004) ($0.28) ($0.22)
Number of shares used
in computation 4,730,885 3,300,000 5,863,799 4,151,388
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- --------------------------
1995 1994 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets $3,138,474 $1,118,649 $3,907,099 $2,115,924
Working Capital 674,576 249,269 745,092 465,499
Current Liabilities 1,536,107 653,094 2,060,245 1,191,418
Long Term Liabilities 918,212 151,687 629,764 166,853
Shareholders' Equity 684,155 313,868 1,217,090 757,654
</TABLE>
RISK FACTORS
Investment in the Shares is speculative and involves a high degree of risk.
Prospective investors should carefully consider the following factors (as well
as detailed information appearing elsewhere in this Prospectus) before deciding
to purchase the Shares.
10
<PAGE> 11
LIMITED OPERATING HISTORY; OPERATING LOSSES
Bikers Dream commenced its operations in July, 1990 and has increased the size
and scope of operations significantly in 1995. Accordingly, the Company has a
limited operating history. Investors have only a brief operating record to
review in evaluating the performance of Bikers Dream. Bikers Dream had losses,
before provision for income taxes, of $164,275, $16,211 and $2,287,967 for its
fiscal years ended December 31, 1993, 1994 and 1995, respectively. For the first
six months of fiscal year 1996, Bikers Dream had a net loss of $989,554. There
is no assurance that Bikers Dream will be profitable in fiscal 1996 or
thereafter.
COMPETITION
The market in which the Company competes is highly competitive. The main source
of competition is the licensed Harley-Davidson motorcycle dealer network which
primarily sells new Harley-Davidson motorcycles, accessories and parts and
provides repair/maintenance service on all Harley-Davidson models. The Company
believes that most of the licensed Harley-Davidson dealers do not emphasize the
sale of used Harley-Davidson motorcycles or sell aftermarket accessories and
apparel. In addition, there are a substantial number of motorcycle shops which
provide aftermarket parts, services and accessories to Harley-Davidson
motorcycle owners. The Company believes that most of the aftermarket motorcycle
shops are small, privately owned businesses with limited facilities, capital and
other resources. The Company knows of only one organization which is attempting
to compete with the Harley-Davidson dealer network on a national basis. This
organization emphasizes apparel, and does not offer the broad line of parts and
accessories offered by the Company. There can be no assurance, however, that
current competitors will not expand their facilities and operations or that new
competitors with substantial capital and other resources will not enter the
market. See "Business."
DEPENDENCE ON MANAGEMENT
The success of the Company will depend, to a great extent, upon the continued
service of Dennis Campbell, its President and Chief Executive Officer. The
Company has entered into a five year employment agreement with Mr. Campbell and
maintains $3,000,000 key person insurance on his life. The Company also will
depend on other members of senior management as well as on its ability to
attract, retain and motivate additional qualified personnel. The competition for
such personnel is intense, and the loss of the services of one or more of these
key employees could have a material adverse effect on the Company. There can be
no assurance that the Company will be successful in retaining its existing key
employees or in attracting and retaining any additional personnel it requires.
See "Management."
DEPENDENCE ON CONTINUED POPULARITY OF HARLEY-DAVIDSON MOTORCYCLES
The success of the Company's business is directly related to the popularity of
Harley-Davidson motorcycles. There are over 600,000 Harley-Davidson motorcycles
currently registered in the United States. The Company believes, based upon
Harley-Davidson's current production plans, that the number of Harley-Davidson
motorcycles registered in the United States will increase to approximately
11
<PAGE> 12
900,000 by 1999. There can be no assurance that the current popularity of
Harley-Davidson motorcycles will continue or that the expected production rate
of new Harley-Davidson motorcycles will actually occur. See "Business."
CONTROL BY DIRECTORS
The Company's directors and their respective affiliates own an aggregate of
3,633,479 shares of Common Stock (not including 1,070,000 shares issuable upon
the exercise of options held by the directors), of which 600,000 shares are
being offered hereby, or approximately 62.8% of the total outstanding shares.
Accordingly, the existing directors will be able to exert significant control
over the policy and affairs of the Company, including the election of directors.
In addition, Rowland W. Day II has the right for a period of three years after
March 13, 1995, to designate two of the members of the Company's Board of
Directors (composed of a total of six members) one of whom may be Mr. Day. See
"Management - Stock Option Plans," "Principal Stockholders," and "Certain
Transactions."
MANAGEMENT OF GROWTH
The Company's continued growth depends in part upon its ability to expand into
new geographic areas, through the opening of new Superstores. There can be no
assurance that the Company will be successful in such expansion. The Company's
current expansion plans could continue to place a significant strain on the
Company's management, working capital and financial and management control
systems. The Company's results of operations will be adversely affected if
revenues do not increase sufficiently to compensate for the increase in
operating expenses resulting from any expansion and there can be no assurance
that any expansion will be profitable or that it will not adversely affect the
Company's results of operations. In addition, the success of any expansion plans
will depend in part upon the Company's ability to continue to improve and expand
financial and management control systems, to attract, retain and motivate key
employees, and to raise additional capital. There can be no assurance that the
Company will be successful in these regards. See "Business - Business Strategy."
ADDITIONAL CAPITAL REQUIREMENTS, GOING CONCERN
The Company will require substantial additional capital to implement its
expansion plan and to support future growth. Any additional equity financing may
be dilutive to stockholders, and debt financing may impose substantial
restrictions on the Company's ability to operate and raise additional funds.
There can be no assurance that additional capital will be available or that, if
available, such capital will be on satisfactory terms.
The Company's independent accountant, Coopers & Lybrand, L.L.P. has issued an
opinion in connection with its audit of the financial results of fiscal year
ended December 31, 1995, indicating that, in view of recurring losses from
operations and the uncertainty of the ability of the Company to raise
additional funds and ultimately achieve positive operating cash flows,
substantial doubt exists as to the Company's ability to continue as a going
concern. Although Management is continuing efforts to raise additional capital
and implement profit enhancement policies, there can be no assurance that its
efforts in these respects will be successful.
12
<PAGE> 13
FRANCHISING ACTIVITIES
The Company is in the process of establishing a network of franchised Bikers
Dream stores. The franchise stores are modeled after the Company-owned
Superstores and are expected to be located throughout the United States to
service the mid-size markets not directly serviced by large Company-owned
Superstores. The Company has sold ten Bikers Dream franchises (three in
California and seven in other states). The franchises were sold at a price of
$15,000 per franchise. Three of these franchises are currently open and
operating, of which two have filed suit for breach of contract. One of these
suits has been settled for a relatively nominal amount and cancellation of the
franchise agreement. In addition, the Company is conducting negotiations with
several other potential candidates for the sale of a Bikers Dream franchise.
The Company has marketed its franchises primarily by advertising in motorcycle
and specialty magazines. The franchise advertisement has appeared in a portion
of a larger general advertisement featuring the Company's products, service and
mail-order catalogue. The majority of responses to the franchise advertisements
has been from Harley owners and enthusiasts. The Company continues to advertise
in publications such as The Robb Report, the DuPont Registry, Big Twin and Easy
Rider magazines.
Each franchise receives an exclusive territory for which the franchisee pays an
initial franchise fee and monthly royalties based on sales. The Company
provides franchisees with in-house and on-site training and a copy of the
Company's franchise operations manual, ongoing newsletters, site training and
other operational marketing assistance.
The Company was advised in March, 1995, by its retained special franchise
counsel that certain previous franchise sales and offers to sell franchises
were not 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 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 has restructured its franchise program, and resumed its franchise
sales activities in August, 1995. Bikers Dream has resolved disputes with three
franchisees, and one person who was negotiating to acquire a Bikers Dream
franchise in California in accordance with the remedies available under
California franchise laws. As a result the Company has acquired one operating
franchise from a California franchisee fro approximately $340,000, another for
approximately $140,000. The total assets acquired in connection with these
acquisitions was $204,697 consisting of inventory in the amount of $75,116,
deposits and other assets in the amount of $22,572 and furniture, fixtures and
equipment in the amount of $107,009. The excess of the purchase price over the
value of assets acquired was expensed in the third and fourth quarters of 1995.
The total of asset acquisitions aggregated to less than 10% of the Company's
existing assets at that time.
In addition, the Company has made refund to another franchisee in the amount of
$20,176. The Company has also accrued the return of the franchise fee for a
franchise which never opened. In addition, the Company has paid a prospective
California franchisee $22,500 for a full release of any and all past and
future claims.
13
<PAGE> 14
The Company signed a new franchise agreement with one of its existing
franchisees (which has subsequently closed), and received notice of suit from
two of its franchisees in February and March of 1996, one of which has been
settled, and the other of which Management believes at this time is likely to
be a claim of no material consequence. The Company is currently evaluating its
relationship with two other franchisees. The Company also singed a mutual
release agreement in February, 1996 with another franchise which cancelled the
relationship with Bikers Dream. Management believes that it will resolve the
existing dispute with one franchisee and that the remaining two franchisees
will accept the Company's offer regarding the restructured franchise program
and remain franchisees of the Company.
The below table summarizes the status of all franchises to date.
BIKERS DREAM, INC.
FRANCHISE STATUS REPORT
<TABLE>
<CAPTION>
Signed Opened Assets Signed Signed No Longer
Entered Original For Purchased New Release Filed Suit A
Number Location Negotiations Contract Business By BDI Agreement Agreement Suit Resolved Franchise
- ----- -------- ------------ -------- -------- --------- --------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Thousand Oaks, CA. X X X X X
2 Sacramento, CA. X X X X X
3 Canyon Country, CA. X X X X
4 Edison, NJ. X X X X
5 Albuquerque, NM. X X X
6 Oklahoma City, OK. X X X X X X X
7 Burlington, Iowa X X X X X
8 Scottsdale, AZ. X X X
9 Las Vegas, NV. X X X X X
10 Conover, NC. X X X X
</TABLE>
ABSENCE OF DIVIDENDS
The Company has not paid any cash dividends on its Common Stock since its
organization, and it is not anticipated that any cash dividends will be paid in
the foreseeable future.
LIMITED PUBLIC MARKET FOR SECURITIES OF THE COMPANY.
Although the Company's Common Stock is listed on the National Association of
Securities Dealers ("NASD") Electronic Bulletin Board, there is expected to be
only an extremely limited and sporadic trading market for the Common Stock.
NASDAQ LISTING REQUIREMENTS; RISK OF LOW-PRICED SECURITIES
The Securities and Exchange Commission (the "Commission") recently approved
rules imposing more stringent criteria for the listing of securities on NASDAQ,
including total assets and net worth requirements of $4,000,000 and $2,000,000,
respectively. The Company does not currently satisfy NASDAQ's listing criteria
and if it is unable to satisfy such criteria in the future, trading, if any,
would continue to be conducted in the over-the-counter market in the so-called
"pink sheets" or the NASD Electronic Bulletin Board. Under those circumstances,
investors could find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities.
14
<PAGE> 15
Application for NASDAQ small cap listing is expected to be filed prior to the
end of the third quarter of 1996, although there can be no guarantee of
approval.
In addition, the Common Stock would be subject to Rules 15g1-15g6 promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act") that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally, a person with assets in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with his or her spouse). For
transactions covered by this rule, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, the rule may
affect the ability of broker-dealers to sell the Company's securities and may
affect the ability of investors to sell their securities in the secondary
market.
The Commission has also recently adopted regulations which define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the regulations require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The broker-dealer must also disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. While many NASDAQ-listed securities are covered
by the definition of penny stock, transactions in a NASDAQ-listed security are
exempt from all but the sole market-maker provision for (i) issuers who have
$2,000,000 in tangible assets ($5,000,000 if the issuer has not been in
continuous operation for three years), (ii) transactions in which the customer
is an institutional accredited investor, or (iii) transactions that are not
recommended by the broker-dealer. In addition, transactions in a NASDAQ security
directly with a NASDAQ market-maker for such security are subject only to the
sole market-maker disclosure, and the disclosure with respect to commissions to
be paid to the broker-dealer and the registered representative.
The Company's Common Stock, as of the date of this Prospectus, is within the
definitional scope of a penny stock. As a result, the regulations on penny
stocks could limit the ability of broker/dealers to sell the Company's
securities and thus the ability of purchasers of the Company's securities to
sell their securities in the secondary market.
OUTSTANDING OPTIONS
As of the date of this Prospectus, the Company had granted options to purchase
550,000 shares of Common Stock at a price of $1.00 per share, options to
purchase 332,500 shares of Common Stock at a price of $1.50 per share, options
to purchase 330,000 shares at a price of $2.50 per share and 207,300 options at
prices ranging from $1.56 to $2.875 per share. Under the terms of the options,
the holders are given the opportunity to profit from a rise in the market price
of
15
<PAGE> 16
the Common Stock, and their exercise may dilute the book value per share of the
Common Stock. The existence of the options may adversely affect the terms on
which the Company may obtain additional equity financing since the holders are
likely to exercise their options at a time when the Company would otherwise be
able to obtain needed capital on terms more favorable to the Company than could
be obtained through the exercise of such options. See "Description of
Securities."
RULE 144 SALES
Of the shares of the Company's Common Stock presently outstanding, approximately
5,179,500 are "restricted securities" as that term is defined by Rule 144
promulgated under the Securities Act and in the future may be sold only in
compliance with Rule 144 or pursuant to registration under the Securities Act or
pursuant to another exemption therefrom. For so long as the Registration
Statement of which this Prospectus is a part is current and effective, the
shares owned by the Selling Shareholders and offered hereby may be sold without
regard to the volume limitations, described below, set forth in Rule 144.
Generally, under Rule 144, each person having held restricted securities for a
period of two years may, every three months, sell in ordinary brokerage
transactions an amount of shares which does not exceed the greater of one
percent (1%) of the Company's then outstanding shares of Common Stock, or the
average weekly volume of trading of such shares of Common Stock as reported
during the preceding four calendar weeks. A person who has not been an affiliate
of the Company for at least the three months immediately preceding the sale and
who has beneficially owned shares of the Common Stock for at least three years
is entitled to sell such shares under Rule 144 without regard to any of the
limitations described above. Of such restricted shares, approximately 139,000
are currently eligible for sale under Rule 144, and an additional 2,400,000
restricted shares will be eligible for sale under Rule 144 in March 1997. Actual
sales, or the prospect of sales by the present stockholders of the Company or by
future holders of restricted securities under Rule 144, or otherwise, may, in
the future, have a depressive effect upon the price of the Company's shares of
Common Stock in any market that may develop therefor, and also could render
difficult sales of the Company's securities purchased by investors herein. See
"PRINCIPAL STOCKHOLDERS".
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded in the over-the-counter market on the
OTC Bulletin Board under the symbol HOGS from April 20, 1995 to December 29,
1995 and BIKR since then. There was no active trading market for the Company's
Common Stock for more than two years prior to April 20, 1995.
The following table reflects the high and low bid prices of the Company's Common
Stock as reported by the OTC Bulletin Board from April 20, 1995 to August 9,
1996. Such prices are inter-dealer quotations without retail mark-ups,
mark-downs or commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
1995 HIGH LOW
- ---- ---- ---
<S> <C> <C>
First Quarter $1.75 $1.75
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
Second Quarter 4.00 1.75
Third Quarter 4.75 1.25
Fourth Quarter 4.75 1.375
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW
- ---- ---- ---
<S> <C> <C>
First Quarter $2.375 $1.625
Second Quarter 2.875 2.125
Third Quarter (thru August 9, 1996) 2.625 1.875
</TABLE>
On August 9, 1996, bid and ask price of the Company's Common Stock was $1.875
and $2.375 per share, respectively.
As of June 30, 1996, there were approximately 1,750 stockholders of record.
The Company has never paid any cash dividends on its Common Stock and
anticipates that, for the foreseeable future, no cash dividends will be paid on
its Common Stock.
Payment of future cash dividends will be determined by the Company's Board of
Directors based upon conditions then existing, including the Company's financial
condition, capital requirements, cash flow, profitability, business outlook and
other factors.
SELECTED FINANCIAL DATA
The following summary of certain financial information relating to the Company
for the fiscal years ended December 31, 1994 and December 31, 1995 has been
derived from, and is qualified by reference to the audited financial statements
of the Company included elsewhere herein and should be read in conjunction with
such audited financial statements and notes thereto. The unaudited balance sheet
information as of June 30, 1996 and 1995 and the unaudited statement of
operations information for the six months ended June 30, 1996 and 1995 have
been derived from unaudited financial information prepared on the same basis as
the audited financial statements. In the opinion of management, such unaudited
financial information includes all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the information presented. The results
for the six months ended June 30, 1996 are not necessarily indicative of the
total year 1996 performance.
17
<PAGE> 18
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
---------------------------- --------------------------
1995 1994 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATIONS DATA:
Revenues $7,790,090 $4,626,821 $5,712,398 $3,249,856
Cost of sales 5,980,469 3,526,666 4,464,076 2,504,872
Selling, general,
administrative,
depreciation and
interest expenses 3,977,916 1,161,589 2,739,907 1,587,115
Franchise (income) expense 122,922 (45,000) (32,302) (8,500)
Other (income) expense (3,250) (223) 156,034 --
Net profit (loss) (2,347,693) (13,012) (1,615,316) (896,782)
Net loss per share ($0.50) ($0.004) ($0.28) ($0.22)
Number of shares used
in computation 4,730,885 3,300,000 5,863,799 4,151,388
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- --------------------------
1995 1994 1996 1995
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $3,138,474 $1,118,649 $3,907,099 $2,115,924
Working capital 674,576 249,269 745,902 465,499
Current liabilities 1,536,107 653,094 2,060,245 1,191,418
Long term liabilities 918,212 151,687 629,764 166,853
Shareholders' equity 684,155 313,868 1,217,090 757,654
</TABLE>
18
<PAGE> 19
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
Prospectus.
COMPARISON OF TOTAL YEAR ENDED DECEMBER 31, 1995 AND 1994
Net revenues for the year ended December 31, 1995 were $7,790,090, an increase
of $3,163,269 or 68.4% from the total year ended December 31, 1994. The increase
in net revenue is entirely due to the opening of new Company owned Superstores
in Dallas, Texas and Tampa, Florida during the year as well as the acquisition
of two former franchises in Thousand Oaks and Sacramento, California, and the
reclassification of income from the sale of financing third party financing
contracts relating to the sale of motorcycles to trade customers. The two
acquired franchises accounted for 2.8% of total Company revenues in the fourth
quarter of 1995 and 0.9% of total Company revenues for the calendar year 1995.
Comparable store sales for the year decreased 0.5% compared to the same period
of the prior year. This decease was due to non-recurrence of the Company's grand
opening event which occurred during 1994 for the Company's then one and only
Superstore located in Santa Ana, California, and the partial distraction of key
retail personnel to the opening of new Superstores.
Total gross profit for the year ended December 31, 1995 was $1,809,621 which was
an increase of $709,466 or 64.5% over the same period in 1994. The increase in
gross profit was due to an increase in the level of sales volume from the newly
opened stores in Dallas, Tampa, the acquired stores in Thousand Oaks and
Sacramento, and mix of products sold. The gross profit rate for the year ended
December 31, 1995 was 23.2% compared to 23.8% for the same period in 1994. The
change in rate was due to sales mix, plus a reclassification of service
department labor from selling and administrative expenses to cost of goods sold.
Selling, general and administrative expenses were $3,870,014 for the year ended
December 31, 1995, which represents an increase of $2,748,530 or 245.1% over the
same period last year. This increase is due to several factors, including (1)
the opening of new Company owned Superstores, (2) relocation of new employees,
(3) adjustments in insurance costs as a result of audits by insurance carriers,
(4) legal expenses related to re-registration of franchise offering circular and
related matters, (5) legal and accounting fees related to becoming an SEC
reporting company, and (6) the increase in executive staff necessary to continue
the Company's growth.
Depreciation and amortization expense was $74,543 for the year, which was
$54,428 or 270.6% higher than the same period in the prior year. The increase
was due to the increase in the number of Company owned Superstores plus the
addition of computers necessary to bring the advertising and financial functions
in house.
Franchise income for the year ended December 31, 1995 was $146,996 which
represents an increase of $101,996 or 226.7% over that of the preceding year.
This increase is attributed to the opening of new franchises during the year and
improved royalty income from franchise sales activities.
Franchise reacquisition expense includes all costs incurred in excess of the
value of assets acquired relating to acquisition of former franchises due to
defects in the original franchise offering circular. These defects have been
corrected in the new offering circular which became effective in August, 1995.
There were no franchises acquired by the Company in 1994.
19
<PAGE> 20
The provision for income taxes for total year 1995 was $59,726. This represents
an increase of $62,925. A benefit was recorded in 1994 of $3,199, as compared to
an expense in 1995. 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
on 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 had planned 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 was expected to 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 uncertainty and time delays
in raising additional capital, the Company's management believes that it cannot
predict with accuracy the timing of its income turnaround.
The net loss for the year ended December 31, 1995 was $2,347,693 as compared to
a loss of $13,012 in the same period in 1994. This increase of $2,334,681 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. and expansion of
staff to accommodate a larger company (approximately $850,000), (2) the loss
incurred in connection with the acquisition of two former franchises
(approximately $270,000), (3) the costs related to re-establishing the ability
to sell franchises (approximately $200,000), and (4) the costs associated with
becoming a SEC reporting company following the reverse acquisition of HDL
Communications in March, 1995 (approximately $200,000).
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
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 again
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 from MD Strategic, of which
one of the Company's directors is a principal, in the amount of $300,000 to
meet its additional cash needs for operating losses and debt service. This note
was extended until August 31, 1996.
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, are convertible preferred
stock with warrants to purchase additional common shares at the purchase price
of $175,000 per unit aggregating $5,250,000.
20
<PAGE> 21
COMPARISON OF SECOND QUARTERS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995:
Net revenues for the second quarter ended June 30, 1996 were $2,865,500, an
increase of $1,048,518 or 57.7% from the same period in 1995. The increase in
net revenue is due to the opening of new Company owned Superstores in Dallas,
Texas and Tampa, Florida during 1995 and the acquisition of a former franchise
in Sacramento, California, plus an increase in same store sales of 16.4% between
years. The second 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.
Net sales for the six months ended June 30, 1996 were $5,712,396 which was an
increase of $2,462,542 or 75.8% over the same period ended June 30, 1995. The
increase in net sales is due entirely to the addition of new corporate stores
and the acquisition of two previous franchises.
Total gross profit for the quarter ended June 30, 1996 was $590,172 which was
an increase of $258,906 or 78.1% 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 and Sacramento. The gross profit rate for the
quarter ended June 30 was 20.6% compared to 18.2% for the same period in 1995.
The change in gross profit rate was due to a higher sales mix of Company owned
motorcycles versus consignment 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 that motorcycles owned by
the Company.
Gross profit for the first half of 1996 was $1,248,322, an increase of
$503,338 or 67.6% over the same period in 1995. The gross profit rate for the
first six months of 1996 was 21.8% as compared to 22.9% for the same period
last year. The change in gross profit rate was due to slightly higher sales
mix of consignment versus Company owned motorcycles offset by an increase in
revenue related to the sale of finance contracts which bear no cost of sales.
Selling, general and administrative expenses were $1,355,272 for the quarter
ended June 30, 1996, which represents an increase of $355,999 or 35.6% over
the same period last year. This increase is due to several factors, including
1) the opening 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
becoming a SEC reporting company, and 4) the increase in executive staff
necessary to continue the Company's growth.
Selling, general and administrative expenses were $2,562,188 for the first six
months of 1996, an increase of $1,017,310 or 65.8% over the same period in
1995. The increase was due to the same reasons outlined above for the second
quarter 1996.
21
<PAGE> 22
Depreciation and amortization expense was $58,220 for the quarter, which was
$32,397 or 125.5% higher than the same period in the prior year. The increase
was due to the addition of three 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
the Dream Wheels mobile store in March of 1996.
Depreciation and amortization expense was $96,320 for the first six months
ended June 30, 1996. This increase of $62,681 or 186.3% from the same period
last year was due to the same reasons outlined above for the second quarter
ended June 30, 1996.
Franchise income for the quarter ended June 30, 1996 was $28,205 which
represents an increase of $21,705 or 333.9% over that of the preceding year.
This increase is attributed to the opening of new franchises during 1995 and
improved royalty income from franchise sales activities.
Franchise income for the first half of 1996 was $32,302 an increase of $23,802
or 280% over the preceding year. This increase was attributed to the same
reasons outlined above for the second quarter 1996.
Other expense includes a provision of $156,034 for store closing costs,
relating to the Thousand Oaks location.
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 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 planned 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 time 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 cannot be predicted with accuracy.
The net loss for the quarter ended June 30, 1996 was $989,554 as compared to a
loss of $750,193 in the same period in 1995. This increase of $239,361 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 becoming an SEC
reporting company, 3) the increase in executive staff to continue growth of
the Company and 4) the provision for store closing costs.
The net loss for the first six months ended June 30, 1996 was $1,615,316 as
compared to a loss of $896,782 for the same period in 1995. This increase of
$718,534 was due to the same reasons outlined above for the second quarter
ended June 30, 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 and franchises.
22
<PAGE> 23
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 again
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 from MD Strategic, of which
one of the Company's directors is a principal, in the amount of $300,000 to
meet its additional cash needs for operating losses and debt service. This note
was extended until August 31, 1996.
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, are convertible preferred
stock with warrants to purchase additional common shares at the purchase price
of $175,000 per unit aggregating $5,250,000. Through August 8, the Company has
sold 7 units and received $1,102,500 net of commissions.
The Company at the present time needs approximately $6,000 to $7,000 per day to
meet its operating and debt service needs. The Company is in active discussions
with several sources of additional capital, both debt and equity capital, but
there can be no assurance that funds will be procured from these sources at
this time. If the Company is not able to continue to generate additional debt or
equity capital to expand its retail operations and open profitable stores, it
will be necessary to evaluate various alternative actions to improve the cash
flow of the Company, including but not limited to:
- Addition of more company owned motorcycles for sale in retail stores
by becoming an authorized dealership for newly manufactured
motorcycles to improve product mix and gross profit ratio,
- Increase frequency of promotional events to generate more product
sales,
- Hiring an experienced COO with extensive retail background to enhance
retail store performance,
- Evaluate non-retail related revenue streams available to the Company
including royalties from licensing fees relating to the Company name,
- Promotional efforts to increase the number of franchises and the
corresponding royalty payments, as well as their purchases of product
from the Company,
- Reduction in executive compensation and the number of Company
executives,
- Reductions in operating store and corporate personnel,
- Reductions in insurance premiums through the increase in deductibles
and decrease in excessive coverage,
- The shutdown or sale of unprofitable retail stores if revenue
enhancement and/or cost reduction actions cannot make them profitable.
Management believes that no single action will result in a turnaround to
positive cash flow, and as a result multiple opportunities are actively being
pursued by management as well as the Company's Board of Directors.
23
<PAGE> 24
BUSINESS
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 on April 29, 1996,
in anticipation of opening a larger Superstore in the greater Los Angeles area
later in 1996 to better serve the Company's customers. This store accounted for
1.8% of total Company revenues in the fourth quarter of 1995, 0.6% of total
Company revenues in calendar year 1995, and 5.9% of total Company revenues
through the first four months of calendar year 1996 before it was closed. Total
cost to shut down this store was approximately $35,000, $32,000 of which was
abandonment of leasehold improvements. All other fixed assets and all inventory
has been re-deployed to other Company owned retail superstores for sale to trade
customers. Employees were transferred to other Company operations or were
terminated. The Company has given notice to the Landlord of its request that the
property previously occupied by Bikers Dream be released to new tenants for the
32 months remaining on the lease. The Company has made no payments since April
1996 on this lease. The future unpaid lease obligations on this property amount
to approximately $126,000 if the property is not released by the landlord.
Despite efforts to make this store successful, the store incurred an operating
loss of $37,000 for the first four months of 1996, excluding the impact of
shutdown costs. The Company has recorded a liability to the landlord for the
balance of unpaid rent during the second quarter of 1996.
In March, 1996, the Company launched its first mobile store. This store, which
is a custom built 53 foot trailer pulled by a Kenworth T-100 tractor, is
believed to be the first of its kind in the industry. This mobile store, called
"Dream Wheels," carries motorcycles, parts, accessories and apparel for sale 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, but fell short of initial expectations due to inclement
weather.
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 bike events such as the Daytona Bike Week, March 1-10,
1996, and the Laughlin River Run of 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 catalogue accounted for approximately 5% of the Company's net sales in 1995
and approximately 6% of the Company's gross margin.
The Company operates four retail outlets known as Bikers Dream Superstores
("Superstores"), selling quality used Harley-Davidson motorcycles ("Harleys")
and a full range of aftermarket parts, accessories and service to Harley
enthusiasts. The Company is not a licensed Harley-Davidson dealer and does not
sell new Harley-Davidson motorcycles or buy any products or services directly
from the Harley-Davidson Company. The aftermarket for parts and accessories for
Harleys is believed to be quite large, although there is no known public source
of sales statistics. Since there are more than 600,000 Harleys currently
registered in the United States and, based upon Harley-Davidson Company's
current production plans, this number will increase to approximately 900,000 by
1999, management believes the market for its products will continue to expand.
New Harleys are in high demand, with customers waiting up to one year or more to
buy one, and many customers have turned to the resale market to satisfy their
desire for a Harley. The Company believes that Harley customers typically spend
between $4,000 and $10,000 on their newly acquired Harleys in the form of custom
upgrades and accessories.
24
<PAGE> 25
The Company's Superstores are located in Santa Ana, California, Sacramento,
California, Dallas, Texas and Tampa Bay, Florida, plus the Dream Wheels mobile
store. The Company is also establishing a network of franchised Bikers Dream
stores, three of which are currently open and operating. Sales of aftermarket
parts and accessories are also made through the Company's 100 page full color
mail order catalogue, now in its second edition. The retail superstores product
sales and financing contracts accounted for approximately 95% of total Company
revenues while the catalog accounts for approximately 5% based upon 1995
results. The catalog sales percentage is expected to grow as new editions are
published and as the Company established an internet site. Franchises account
for less than 1% of 1995 revenues, and are expected to remain at those elves
into the near future.
The Company intends to actively pursue a strategy of business growth that
involves the opening of additional Superstores. In addition, the Company plans
to open and stock a central warehouse to replenish inventories of Superstores
and franchised stores and to fill orders received from mail-order catalogue
customers, if capital resources are available.
BIKERS DREAM SUPERSTORES
General. The Company sells and services used Harleys and offers a full range of
aftermarket parts, accessories and apparel at discount prices to Harley
enthusiasts. Most current providers of aftermarket parts, accessories and
services to Harley owners are small, independently owned shops, sometimes
referred to as "grease shops," ranging in size from approximately 1,500 to 4,000
square feet and located in older facilities. These shops have limited space for
display of motorcycles and accessories which appeal to today's typical Harley
customer. In addition, most Harley dealers have few, if any, new Harleys in
their showroom since they have all been pre-sold, nor do they carry a large
number of used Harleys. The Company has designed its Bikers Dream Superstores to
address the needs of the new breed of Harley customer, sometimes referred to as
a "rich urban biker" or "RUB," who purchases a motorcycle primarily for
recreational purposes and has an average household income of approximately
$65,000.
The Company currently owns and operates Bikers Dream Superstores located in
Santa Ana, California, Sacramento, California, Dallas, Texas and Tampa Bay,
Florida, plus the Dream Wheels mobile store. The Dallas and Tampa Bay
Superstores opened in April 1995 and July 1995, respectively. The Santa Ana,
Sacramento, Dallas and
25
<PAGE> 26
Tampa Bay Superstores are approximately 12,000, 10,480, 10,000 and 10,500 square
feet, respectively. The large Superstores (approximately 10,000 square feet) are
up to 75% larger than most Harley dealers and other retail outlets. The mobile
store is a custom built 53 foot trailer and a Kenworth T-100 tractor. The
trailer opens into a 2,000 square foot showroom which sells motorcycles, parts,
accessories and apparel at major motorcycle events throughout the United States.
Each Superstore features a large showroom for displays of merchandise,
warehousing for inventory and a repair and customizing shop. The Santa Ana
Superstore also contains administrative and franchise training offices. The
showroom is organized to allow variation in location of the displays to
accommodate customer traffic flow within the store and heighten interest. Some
in-store displays have been installed in the showroom by distributors and
manufacturers to present their products in a trade show mode, which enables
Bikers Dream to display products at manufacturers' expense. The area designated
as the warehouse offers adequate space to stock and store quantities of all
items on display in the showroom, along with numerous other parts not displayed,
which are in constant demand. The area designated as service is large enough to
house a staff of mechanics and service personnel and is capable of accommodating
the custom building and rebuilding of motorcycles. The forward area of the
showroom is reserved for a display of pre-owned Harley-Davidson motorcycles for
sale.
Pre-Owned Harley Sales. Each large Superstore typically has 30 or more quality
used Harleys in its showroom at all times. Approximately 70% of these are 1990
to 1995 model Harleys, approximately 20% are 1984 to 1990 models and the
remaining 10% are pre-1984 models and an occasional classic. Most of the Harley
models on display feature the "Evolution" powertrain which the Harley- Davidson
Company began producing in 1984. Approximately 60% of the pre-owned Harleys on
display in a Superstore showroom are owned by the Company and the remaining 40%
are taken on consignment.
Sources for used Harley purchases are numerous and include individual private
sellers, regional brokers, in-house buyers and regional/national motorcycle
sales publications. The Company buys used Harleys taking into consideration the
wholesale value of the motorcycle and the costs of buying, delivering,
repairing, reconditioning and otherwise making the motorcycle ready for sale.
The Company believes that it will not encounter significant difficulty in
maintaining its inventory of pre-owned Harleys, although prices of used Harleys
are subject to market variations.
Approximately 40% of the pre-owned Harleys sold by the Company have been taken
on consignment. Under this arrangement, the Company receives a flat fee plus the
difference between the actual sales price and the price agreed upon by the
Company and the consignee. Consignments are obtained through local ads,
referrals and ongoing consignee relationships.
The Company utilizes an on-line video system in each of its Superstores which
allows customers to view, in real time full motion video, all models of Harley
motorcycles and other custom items such as custom paint jobs available at each
Superstore and at participating Bikers Dream franchise stores. Management
believes that this is a new concept in retail sales. The new video system has
been favorably received by the Company's customers.
26
<PAGE> 27
As part of its commitment to sell quality pre-owned Harleys, the Company's
service department inspects each motorcycle in accordance with a standard
inspection list. All safety-related items such as brakes, lights and tires, are
repaired as needed. Other repairs and reconditioning, if required, can also be
done by the Company's service department. Certain specialty work is frequently
less costly when performed by independent shops, however, and the Company
utilizes outside services as necessary. All motorcycles are thoroughly detailed
before they are placed on the showroom floor.
The Company offers financing through several financing sources at rates which
the Company believes are competitive with other financing sources for
motorcycles. Commissions earned on the arrangement of the financing contracts
are separately disclosed on the financial statements as Financing Contracts. The
Company also offers third party warranty policies on the late model Harley
motorcycles it sells. The warranty policies are normally sold at a premium over
dealer cost. Motorcycle insurance is also offered through several national
companies. The Company receives a percentage of the annual insurance premium.
Warranties and insurance are also often financed. The Company receives a
participation fee of the total amount financed. All amounts are immaterial to
total revenues of the Company.
Customers may also obtain a Bikers Dream credit card which can be used to
purchase motorcycles as well as parts, accessories and clothing. The cards are
issued and underwritten by a leading national financial institution and can be
used only at Superstores and participating Bikers Dream franchise stores.
Aftermarket Products. The Company stocks and sells, at discount prices, an
extensive range of aftermarket products for the Harley enthusiast. Many of these
products are not offered by Harley dealers because of sourcing restrictions in
their dealer agreements, nor by independent retailers who typically carry a
limited range of products for a variety of motorcycles. According to published
reports by the Motorcycle Industry Council, Inc., only 23% of the independent
retailers carry aftermarket parts and accessories for Harleys. The Company
currently offers as many as 10,000 different parts and accessories, including
replacement parts for Harley motorcycles. The Company does not buy any products
directly from the Harley-Davidson Company.
The Company has supply arrangements in place with most of the major motorcycle
aftermarket parts and accessories suppliers. Under these arrangements, none of
which are the subject of a formal agreement, the Company is entitled to quantity
discounts on a distributor-type basis, allowing the Company to sell certain
products at dealer price levels to the Company's franchisees and other dealers.
The Company purchases its parts and accessories on credit as well as on a COD
basis and considers its relationship with its suppliers to be good. No single
company supplies more than 20% of the products sold by the Company. Management
believes that the loss of any supplier would not have a material adverse effect
on the Company because other suppliers could be relied upon to meet the
Company's requirements at a comparable cost.
The Company sells a line of accessories under the brand names Dream Products and
Bikers Dream Products. Some of these products such as Dream Seats (custom
motorcycle seats) are designed in-house, and some are existing products which
are private labeled. The Company, pursuant to arrangements with the
manufacturers, also blister packs or repackages certain items using the Bikers
Dream logo. The
27
<PAGE> 28
Company plans to expand its proprietary product line and utilize blister
packaging as merchandising and sales warrant.
Catalogue Sales. The Company has published the second edition of a 100 page full
color mail-order catalogue of parts and accessories. The catalogues are marketed
to existing customers, at trade shows, in advertising materials and by word of
mouth. Some catalogues are sold for a nominal amount plus postage and handling.
Approximately 25,000 catalogues were distributed in early 1996. Catalogue
generated mail-order sales amounted to approximately $403,000 in fiscal 1995.
A newer and larger full color Bikers Dream catalogue is currently in development
and is scheduled for publication and distribution in late 1996 for the holiday
season. The new catalogue is expected to have approximately 300 pages and will,
like the first two catalogues, be sold to prospective customers to defray its
cost of development, printing and distribution.
Service Department. The service department of each Superstore services and
repairs customer-owned Harleys as well as the used Harleys on display in the
showroom. The service department can also install parts and accessories sold in
the Superstore.
Computerized Information System. The Company utilizes a non-proprietary retail
point of sale software system which the Company's management believes satisfies
many of the operations and day-to-day requirements of the Company's aftermarket
motorcycle business. All of the Company's franchised stores also use the system.
The system's capabilities include inventory control, management reporting and
point of sales information.
BUSINESS STRATEGY
The Company's objective is to become the market leader in sales of aftermarket
Harley motorcycles, parts, accessories and related apparel in the United States.
There are nearly 600,000 Harleys currently registered in the United States and,
based upon Harley-Davidson Company's current production plans, this number is
expected to increase to over 900,000 by 1999. The Harley biker of today is
typically a male in his late thirties, with a household income of approximately
$65,000 and who is purchasing a motorcycle primarily for recreational purposes.
The Company has designed its Superstores and developed a marketing plan to
address the needs of this new breed of Harley customer. The Company's strategy
includes the following elements:
- Targeting the opening of up to three additional Superstores in
1996, or early 1997, and up to four additional Superstores in
1997 in major metropolitan areas with a high concentration of
motorcycle registrations such as San Jose, California, Los
Angeles, California, San Diego, California, Houston, Texas and
Daytona, Florida.
- Maintaining an adequate supply of quality used Harleys for
sale in each Superstore.
28
<PAGE> 29
- Selling and opening franchised Bikers Dream stores in
mid-sized areas not serviced by Company owned Superstores.
- Opening, staffing and stocking a central warehouse to
replenish inventories of Superstores and franchised stores and
fill mail-order catalogue orders.
- Publishing and distributing a new 300 page full color
mail-order catalogue to customers in areas not served by
Superstores or franchised Bikers Dream stores.
MARKETING AND ADVERTISING
There are currently in excess of 600,000 Harleys registered in the United States
and, based upon Harley-Davidson Company's current production plans, this number
is expected to grow to over 900,000 by 1999. New Harleys are in high demand,
with customers waiting up to one year or more to buy a new one. Many customers
have turned to the resale market to satisfy their desire for a Harley. The
Company believes that Harley customers typically spend between $4,000 and
$10,000 on accessories to customize and upgrade their newly acquired Harleys.
The Company markets exclusively to Harley customers, and its Superstores and
franchised stores have been designed to appeal to the new breed of Harley
customer. The Superstores feature a large inventory of quality used Harleys and
an extensive range of aftermarket parts and accessories.
The Company advertises its products in electronic and print media most
frequently seen or heard by the Company's targeted customer group. Catalogue
sales and retail locations are advertised nationally in various specialty
motorcycle magazines. Motorcycles are advertised in local trade publications and
in the automotive classified section of local newspapers. Direct mail, local
radio and, occasionally, local cable television are used during certain
promotions and to support special events.
CENTRAL WAREHOUSE
The Company plans to stock, staff and operate a strategically located warehouse
to function as a central distribution plant for its Superstores and franchise
outlets and to fill orders from its mail-order catalogue customers. The central
warehouse is expected to improve order fulfillment rates. Although the Company
anticipates that the central warehouse will be located in Nevada, the site
selection and timing have not been finalized, nor has sufficient capital been
raised to execute this strategy. As a result, these plans are "on hold". The
current estimated cost to build out a leased facility and provide adequate
inventory levels is approximately $3,000,000.
FRANCHISING ACTIVITIES
The Company is in the process of establishing a network of franchised Bikers
Dream stores. The franchise stores, which are modeled after the Company-owned
Superstores, will be located throughout the United States to service the
mid-size markets not served by Superstores. The Company has sold ten Bikers
Dream franchises (three in California and seven in other states) at a price of
$15,000 per franchise, three of which are currently open and operating. In
addition, the Company is conducting negotiations with several other potential
franchisees for the sale of a Bikers Dream franchise. The present franchise fee
is $20,000.
29
<PAGE> 30
The Company has marketed its franchises primarily by advertising in motorcycle
and specialty magazines. The franchise advertisement has appeared in a portion
of a larger general advertisement featuring the Company's products, service and
mail-order catalogue. The majority of responses to the franchise advertisements
have been from Harley owners and enthusiasts. The Company advertises in national
publications such as The Robb Report, The DuPont Registry and Big Twin.
Each franchisee receives an exclusive territory for which the franchisee pays an
initial franchise fee and monthly royalties based on sales. The Company provides
franchisees with in-house and on site training and a copy of the Company's
franchise operations manual, ongoing newsletters, site support and other
operational marketing assistance.
The Company was advised in 1995 by its retained special franchise counsel that
certain previous franchise sales and offers to sell franchises were not 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 violation. Consequently, the Company suspended its
franchise sales activities in March, 1995 while it was in the process of
preparing the required 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 has restructured its franchise program, and resumed its franchise
sales activities in August, 1995. Bikers Dream has resolved disputes with three
franchises, and one person who was negotiating to acquire a Bikers Dream
franchise in California in accordance with the remedies available under
California franchise laws. As a result the Company has acquired one operating
franchise from a California franchisee for approximately $340,000, another for
approximately $140,000, and has made refund to another franchisee in the amount
of $20,176. The Company has also returned the franchise fee for a franchise
which never opened. In addition, the Company has paid a prospective
California franchisee $22,500 for a full release of any and all past and future
claims.
The Company has signed a new franchise agreement with one of its existing
franchisees, and received notice of suit from two of its franchisees in February
and March of 1996, one of which has been settled, and the other of which
Management believes at this time is likely to be a claim of no material
consequence. The Company is currently evaluating its relationship with the two
other franchisees. The Company also signed a mutual release agreement in
February, 1996 with another franchise which cancelled the relationship with
Bikers Dream. Management believes that it will resolve the existing disputes
with one franchisee and that the remaining franchisee will accept the Company's
offer regarding the restructured franchise program and remain a franchise of the
Company.
30
<PAGE> 31
COMPETITION
The market in which Bikers Dream competes is highly competitive. The main source
of competition is the licensed Harley-Davidson motorcycle dealer network which
primarily sells new Harley-Davidson motorcycles, accessories and parts and
provides repair/maintenance service on all Harley-Davidson models. Bikers Dream
believes that most of the licensed Harley-Davidson dealers neither emphasize nor
use marketing or business practices and procedures comparable to those used by
the Company in the sale of used Harley-Davidson motorcycles or the sale of
aftermarket accessories and apparel. In addition, there are a substantial number
of independent motorcycle shops which provide aftermarket parts, services and
accessories to Harley-Davidson motorcycle owners. Bikers Dream believes that
most of the aftermarket motorcycle shops are small, privately owned businesses
with limited facilities, capital and other resources.
PATENTS, LICENSES AND TRADEMARKS
The Company has no patents or licenses. The Company has obtained a service mark
registration in the United States for the mark "BIKERS DREAM."
REGULATION
The Company's operations are subject to regulation, supervision and licensing
under various federal, state and local statutes, ordinances and regulations.
Compliance with existing laws and regulations applicable to the Company has not
had a material adverse effect on the Company's operations except for the
aforementioned franchise matters which have now been rectified. Management
believes that it now maintains all requisite licenses and permits and is in
substantial compliance with all applicable federal, state and local laws and
regulations.
EMPLOYEES
As of August 20, 1996 the Company had 55 full-time employees.
PROPERTIES
The Company leases approximately 12,000 square feet of space in Santa Ana,
California, approximately 10,000 square feet of space in Dallas, Texas,
approximately 10,500 square feet of space in Tampa Bay, Florida and
approximately 10,480 square feet in Sacramento, California. The Company pays
rent of approximately $10,970 per month under its Santa Ana lease and
approximately $8,000 per month under its Dallas lease. The Company has agreed to
pay monthly rent under its Tampa Bay lease of approximately $4,000 during the
first year and approximately $8,000, $8,400, $8,800 and $9,200 during each of
the remaining four years of the lease. The Company has agreed to pay monthly
rent under its Sacramento lease of approximately $3,039 per month. The Santa Ana
lease expires on August 31, 2003, with two successive five year options to
renew, the Dallas lease expires on December 31, 1999 with two successive five
year options to renew, the Tampa Bay lease expires on May 31, 2000 with a five
year option to renew and the Sacramento lease expires on June 30, 1999. All of
the leased property is in good condition.
31
<PAGE> 32
LEGAL PROCEEDINGS
In early 1996, the Company received two "cease and desist" notices of alleged
patent infringements related to Bikers Dream label products. The Company is
investigating these claims, and does not believe they are likely to have a
material effect on the Company's business.
In February and March, 1996, the Company was served with lawsuits from its
Oklahoma and North Carolina franchisees alleging, generally, certain violations
of state statutes governing franchise activities and failing to provide adequate
franchisee support.
The Oklahoma franchisee sought compensatory damages in the amount of $71,627 and
unspecified punitive damages, and the North Carolina complaint seeks damages in
excess of $10,000 for breach of contract, and a sum in excess of $10,000 for
punitive damages. The Oklahoma suit has been settled for a relatively nominal
sum.
The position of the Company at this time is that the remaining lawsuit is
without merit; however, investigation and the discovery process as to the suit
is in the early stages.
Management has provided a reserve in 1995 for its expected costs associated with
these claims and does not believe these claims are likely to have a material
effect on the Company's financing prospects in excess of the reserves provided.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's current management consists of the following persons, all of whom
have held office since March 13, 1995 (the date of the acquisition by the
Company of Bikers Dream, Inc.) other than Rowland W. Day II who has been a
director since October, 1985 serving in various capacities, including President,
from October, 1985 until March 13, 1995, and Donald J. Duffy, and Humbert B.
Powell, III, who became directors in December, 1995. Owen M. Naccarato,
corporate controller, was elected Assistant Secretary in July of 1996.
<TABLE>
<CAPTION>
NAME OFFICE
---- ------
<S> <C>
Dennis W. Campbell President, Chief Executive Officer and Director
William R. Gresher Senior Vice President, Chief Financial, Operating
and Administrative Officer and Director
Richard E. King, Jr. Secretary and Director
Owen M. Naccarato Corporate Controller and Assistant Secretary
Rowland W. Day II Director
Donald J. Duffy Director
Humbert B. Powell, III Director
</TABLE>
The Company has agreed for a period of three years commencing March 13, 1995 to
nominate and elect two members of the Company's Board of Directors (composed of
a total of six members) designated by Rowland W. Day II, one of whom may be Mr.
32
<PAGE> 33
Day and both of whom shall be "independent directors" (i.e., directors who are
not also officers and/or employees of the Company). As of the date of this
Prospectus, Mr. Day has designated Humbert B. Powell, III and himself to serve
on the Board of Directors.
Directors are elected on an annual basis at the Company's annual meeting of
stockholders. The present term for each director will expire at the next annual
meeting of stockholders or at such time as their successor is duly elected and
qualified. Executive officers are elected annually and, except to the extent
governed by employment contracts, serve at the discretion of the Board of
Directors.
Dennis Campbell, President, Chief Executive Officer, Director and founder of
Bikers Dream. Prior to founding Bikers Dream in 1990 as a sole proprietorship
and incorporating the business in 1991, Mr. Campbell had extensive experience in
developing, opening, and operating automobile parts and accessories stores. In
1983, Mr. Campbell opened Vee Dub Parts Unlimited, which offered custom parts
and accessories for Volkswagen automobiles. In 1985, Mr. Campbell started Vee
Dub Parts Unlimited Machine Shop, a division of Vee Dub Parts Unlimited,
dedicated to building engines, custom machining, and development of signature
series hi-flow racing heads. In 1986, Mr. Campbell purchased Ed's Machine, a
crankshaft manufacturing company, which provided a complete line of high
performance crankshafts for Volkswagen automobiles. In 1987, Mr. Campbell sold
Denmar Enterprises, Inc., a holding company for Vee Dub Parts Unlimited and Ed's
Machine. From 1987 to 1990, Mr. Campbell was employed as Finance Manager of Bill
Maxey Toyota in Huntington Beach, California.
William R. Gresher, Senior Vice President, Chief Financial, Operating and
Administrative Officer and Director. Prior to joining the Company on a full time
basis in September, 1995, Mr. Gresher was Vice President-Finance of Allergan,
Inc. Irvine, California. Mr. Gresher served in various financial executive
positions with Allergan since early 1990. Immediately prior to becoming Vice
President-Finance of Allergan, he was Vice President and Controller of Allergan
Europe, based in the U.K. Prior to joining Allergan he held various financial
executive positions with Baxter International, Deerfield, Illinois for 10 years,
Bell & Howell, in Lincolnwood, Illinois and Tokyo, Japan, and earlier as a
Senior Auditor with Arthur Andersen & Co., certified public accountants, at the
Chicago office for 5 years. Mr. Gresher retains his credential as a certified
public accountant and is an active member of the American Institute of Certified
Public Accountants and the California Society of Certified Public Accountants.
He holds Bachelor of Science and Master of Business Administration degrees from
Northern Illinois University.
33
<PAGE> 34
ascended through various divisions in Harley-Davidson, Inc., and Harley-Davidson
International, Inc. where he was involved in testing and development,
engineering and powertrain performance, international sales, marketing, and
distribution. He was also responsible for the strategic planning,
implementation, and management of all Harley-Davidson International "Designer
Store" franchise development, renovation, and merchandising programs outside of
North America. During his career with Harley-Davidson, he spent extensive
periods of time overseas engaged in negotiation, sales, and communication with
independent distributors, subsidiary management, and the franchise dealers
network.
Richard E. King, Jr., Secretary and Director. Mr. King is a practicing attorney
in Newport Beach, California. He has practiced in the area of business and
corporate law, corporate finance, tax and international tax, and estate planning
for 33 years. He has also served as President and Chief Executive Officer of two
corporations in the construction and sports industries and has served on the
Board of Directors of a number of corporations. Mr. King is a member of the
California, Pennsylvania, Federal District Courts and U.S. Tax Court bars. He
holds a Bachelor of Arts degree from Denison University, Granville, Ohio and a
Juris Doctorate from the University of Michigan Law School, Ann Arbor.
Owen M. Naccarato, Corporate Controller and Assistant Secretary. Prior to
joining the Company in July, 1996, Mr. Naccarato has held various financial
management positions with Baxter International, Deerfield, Illinois for 10
years, and earlier with Tiger Leasing in Chicago, Illinois for 4 years. Mr.
Maccarato is a certified public accountant and a member of the California State
Bar. He holds a Bachelor of Science degree from Northern Illinois University,
an M.B.A. from DePaul University and a Juris Doctor from Western State
University.
Rowland W. Day II, Director. Mr. Day is a partner in the law firm of Day,
Campbell & McGill in Costa Mesa, California. He has practiced in the area of
business and corporate law and corporate finance for 13 years. Mr. Day is a
member of the California bar. He holds a bachelor of arts degree from California
State University at Fullerton and a Juris Doctorate from Whittier Law School.
Donald J. Duffy, 29, is a founder of Meyer, Duffy & Associates, a strategic
consulting group. He is also a founder and board member of Predictive Systems,
a network management consulting company, and has served in a variety of
analytical and investment management positions at Oak Hill Advisors, Inc. and
Sloate, Weisman, Murry & Company, Inc. specializing in research and investment
in retail and gaming companies. Mr. Duffy is a member of both the Company's
Audit Committee and the Compensation Committee, and has been a Director of the
Company since December, 1995.
Humbert B. Powell, III, 57, is Vice Chairman of Marleau, Lemire Securities,
Inc. and Chairman of Marleau, Lemire U.S.A. He previously served as Managing
Director in the Corporate Finance Department of Bear Sterns & Co. for eight
years. In addition, he has served as Senior Vice President and Director of E.F.
Hutton & Co. where he was employed for 18 years. He also serves as Director of
Marleau, Lemire, Inc., Tatham Offshore Corporation, and Salem-Teiko University.
Mr. Powell has been a member of the Board since December, 1995, and is a member
of the Compensation Committee.
34
<PAGE> 35
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established two standing committees.
Audit Committee - The Audit Committee nominates the firm of independent auditors
for appointment by the Board of Directors and meets with the independent
auditors to discuss the scope and results of their audit examination and the
fees related to such work. It also meets with the Company's Financial Management
to discuss the Company's accounting practices and procedures; to review the
adequacy of the Company's accounting and control systems; and to report to the
Board any considerations and recommendations the Audit Committee may have with
respect to such matters. The Committee also reviews the audit schedule and
considers any issues raised by its members, the independent public accountants
retained to audit the books and records of the Company, its legal advisors or
management. In addition, the Committee monitors the Business Ethics Policy for
the Company's employees, coordinates compliance reviews and investigates
noncompliance matters. Of the three members on the Audit Committee, only Mr.
Gresher is an officer and employee of the Company or any of its subsidiaries.
Roland W. Day, II and Donald J. Duffy also serve on the Audit Committee.
Compensation Committee - The Compensation Committee, which had two meetings in
1995, reviews performance of corporate officers, establishes overall employee
compensation policies; and recommends to the Board of Directors major
compensation programs. The Committee also reviews and approves compensation of
corporate officers, including salary and bonus awards. Members of management who
are on the Compensation Committee are not present when matters regarding their
personal compensation are being discussed. The Compensation Committee was
reformulated for 1996 so that all members of the Board serve thereon, with any
director whose compensation is at issue being excluded from deliberation and
vote on that matter.
COMPENSATION OF DIRECTORS
The Company currently has no standard compensation arrangements with its
directors. It expects in the future to pay an annual fee and/or per meeting fees
to each of its directors who is not an employee of the Company, but such amounts
have not yet been determined. All directors of the Company are eligible to
receive options under the Company's stock option plan. See "Management - Stock
Option Plans."
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid by the Company for services rendered during the last fiscal
year by the chief executive officer of the Company and executive officers.
The period reflected in the below table represents compensation from March 13,
1995 through December 31, 1995 which was the operating period following the
merger of HDL Communications and Bikers Dream, Inc. There are no other
employees whose annual salary and bonus compensation exceeded $100,000.
35
<PAGE> 36
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL OTHER
POSITION SALARY BONUS COMPENSATION
-------- ------ ----- ------------
<S> <C> <C> <C>
Dennis W. Campbell $95,000 $115,000 $60,511(1)
President, Chief Executive Officer
William R. Gresher $49,333 $--- $1,089
Chief Financial Officer
Jeffrey L. Simons $81,346 $17,750 $34,101(2)
Executive Vice President
</TABLE>
(1) In accordance with the HDL acquisition agreement to Bikers Dream, Inc., Mr.
Campbell was required to remove certain assets carried on the Company's books
from the Company prior to its acquisition. This action created additional
taxable income for Mr. Campbell and accordingly his employment contract was
amended to increase his compensation for the amount of assets withdrawn and the
related income taxes. The gross impact on this transaction was to increase
compensation in 1995 by $49,155. This is a non-recurring compensation component.
Also included in other compensation in 1995 is an automobile allowance, and
disability and medical insurance premiums paid by the Company. For additional
information see "Supplemental Disclosure of Non-Cash Activities" in the
Consolidated Statements of Cash Flows. (F-7)
(2) Accruals for exercise of stock options per terms of employment agreement.
EMPLOYMENT AGREEMENTS
Bikers Dream has entered into three executive employment contracts, one of which
was established by a predecessor corporation ("old" Bikers Dream, Inc.) and one
prior to the formation of the Compensation Committee in late 1995. These three
contracts are with the President, Chief Executive Officer, the Senior Vice
President, Chief Financial, Operational and Administrative Officer, and the
Executive Vice President. The Compensation Committee for 1996 consists of the
entire Board, with affected members on any issue excluded from deliberations and
vote.
The contract with Mr. Campbell, President and CEO, is a five year employment
agreement which became effective September 1, 1994. Pursuant to that contract,
Mr. Campbell is entitled to receive an annual salary of $120,000, a monthly car
allowance of $500, a bonus of $50,000 for each new Bikers Dream Superstore that
is opened and a bonus of 20% of the franchise fee for each Bikers Dream
franchise sold by the Company that is opened. The Company has also agreed to pay
the premiums on a disability policy providing income continuation of 60% of Mr.
Campbell's salary in the event he becomes disabled, and has also agreed to pay
the premiums on a term life insurance policy providing for death benefits in the
amount of $500,000 to a beneficiary designated by Mr. Campbell. The Company also
pays for Mr. Campbell's medical and dental insurance coverage under the
Company's sponsored benefits plan. Upon termination of the agreement by the
Company without good cause (as defined in the agreement), Mr. Campbell is
entitled to receive an amount equal to four years annual salary at the then
current rate of compensation.
36
<PAGE> 37
An employment agreement was entered into between the Company and William R.
Gresher effective September 25, 1995, pursuant to which Mr. Gresher is entitled
to receive an annual salary of $185,000. Mr. Gresher is also entitled to receive
a bonus of 5% of the first million dollars of annual net after-tax profits of
the Company. The Company has agreed to grant Mr. Gresher options to purchase, at
an exercise price of $2.50 per share, 300,000 shares of Common Stock, 240,000 of
which shall be granted under the Company's Incentive Stock Option Plan. The
options are immediately vested as to 50,000 of such shares and vest over a five
year period as to the balance of such shares. The Company has agreed to pay the
premiums on a term life insurance policy providing for death benefits in the
amount of $500,000 to a beneficiary designated by Mr. Gresher. Upon termination
of the agreement by the Company without good cause (as defined in the Agreement)
during the first 12 months of employment, Mr. Gresher is entitled to receive
severance pay in an amount equal to his monthly salary for a period of 12 months
plus one additional month for each month of service performed, up to an
additional 12 months.
STOCK OPTION PLANS
The Board of Directors adopted an Incentive Stock Option Agreement for employees
in April of 1995, which was approved by the shareholders. The options under the
Plan are intended to be qualified options which meet the requirements of Section
422A of the Internal Revenue Code of 1986, as amended.
Under the Plan, options may be granted by the Compensation Committee to its
officers, key employees, and other employees according to responsibility and
length of service. Options may not be granted to employees owning more than 10%
of the total combined voting power of stock of the corporation.
Options granted under the Plan shall be granted within 10 years of the date of
the adoption of the Plan, and must be exercised within 10 years of the date of
the grant.
The aggregate number of shares that may be issued pursuant to the Plan is
500,000 shares over the life of the Plan, and the aggregate fair market of the
stock for exercise by an Optionee for the first time during any calendar year is
$100,000 per individual.
37
<PAGE> 38
<TABLE>
<S> <C> <C>
The options vest as follows: 1 year from date of grant 25%
(unless specifically authorized 2 years from date of grant 50%
otherwise by the Board of 3 years from date of grant 75%
Directors) 4 years from date of grant 100%
</TABLE>
The option price is determined by the bid price of the Company's shares quoted
on NASDAQ or the Bulletin Board at the close of business on the date of the
grant.
Shares issued under the Plan are restricted, until or unless registered by the
Company.
A Non-Qualified Stock Plan was adopted by the Board of Directors in April of
1995, and approved by the shareholders.
This Plan exists to provide incentives to management and executive personnel of
the Company. The Plan is administered by the Board, 1,000,000 shares may be
granted pursuant to it, and the aggregate value of underlying shares granted in
any year for any single employee may not exceed $100,000 in value.
The option price is fixed by the bid price of the Company's shares as quoted on
NASDAQ or the Bulletin Board at the close of business on the date of the grant.
The options are not transferable.
Options must be exercised within 10 years of the grant thereof and shall vest at
such time or times as the board of directors shall fix on the date of the grant.
Shares issued pursuant to the Plan are restricted shares, until or unless
registered by the Company.
The Board of Directors adopted a Directors' Non-Qualified Stock Option Plan in
April of 1995, which has been approved by the shareholders.
The Plan provides, as amended, for 300,000 shares, 50,000 shares to be granted
to each director on assuming office. The underlying share price is determined by
the bid price on NASDAQ or the Bulletin Board on the date of the grant.
On April 4, 1995, 50,000 shares were granted each to the then directors, Dennis
W. Campbell, William R. Gresher, Richard E. King, Jr., and Rowland W. Day, II.
10,000 of the options vested immediately at $1.50 per option share in
recognition of services leading up to the merger/acquisition of HDL
Communications and Bikers Dream, Inc. The balance of these options vest in
increments of 2,500 options per quarter.
Members of the Board elected at a later date, Donald J. Duffy and Humbert B.
Powell, III, were each granted 50,000 options at the bid price on the date of
grant, with no immediate vesting until the quarterly vesting of 2,500 shares.
The Non-Qualified Plans bear different tax characteristics than that of the
Incentive Stock Option Plan.
38
<PAGE> 39
The grant of an Incentive Stock Option under the 1995 Plan will create no income
tax consequences to the participant or to the Company. A participant who is
granted a non-qualified Option will generally recognize ordinary income at the
time of exercise in an amount equal to the excess of the fair market value of
the Common Stock at such time over the exercise price. The Company will be
entitled to a deduction in the same amount and at the same time as ordinary
income is recognized by the participant. A subsequent disposition of Common
Stock acquired on exercise of an Option will give rise to capital gain or loss
to the extent the amount realized from the sale differs from the tax basis,
i.e., the fair market value of the Common Stock on the date of exercise. The
capital gain or loss will be a long-term capital gain or loss if the Common
Stock has been held for more than one year from the date of exercise. Generally,
for Incentive Stock Option Plan options, the appreciated value of the underlying
stock received upon exercise will be taxable to the participant as a capital
gain upon sale of the stock, and the Company will not receive any tax deduction.
LIMITATION ON DIRECTORS' LIABILITIES UNDER CALIFORNIA LAW
The Company's Bylaws provide for indemnification of directors and officers
against certain liabilities. Officers and directors of the Company are
indemnified generally against expenses, judgments, fines and other amounts
actually and reasonably incurred in connection with actions, suits or
proceedings, whether civil or criminal, provided that it is determined that they
acted in good faith and in a manner they reasonably believed to be in the best
interests of the Company, and, in any criminal matter, had reasonable cause to
believe that their conduct was not unlawful; provided, however, that in the case
of a suit or proceeding by or in the right of the Company, such persons shall be
indemnified only to the extent of expenses actually and reasonably incurred by
them in connection with the defense or settlement thereof and no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Company, unless and only to the
extent that the court in which such corporate suit or proceeding was pending
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. The Company has also obtained directors' and officers' liability
insurance in the amount of $1,000,000.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors and officers of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
At December 31, 1994, the Company had a demand note receivable from its majority
shareholder that was non-interest-bearing in the amount of $24,616. This
obligation was forgiven by the Company and considered as compensation expense in
1995.
39
<PAGE> 40
During 1995 and 1994, the Company incurred $219,045 and $156,923, respectively,
in legal fees and/or consulting fees from a law firm of which Rowland W. Day,
II, a director of the Company, is a partner.
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 non-affiliates 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 (Note
9). Mr. Day has assigned his right to receive option to purchase 170,000 of such
shares to other persons, including his law partner Caldwell Campbell, and
investment advisors Eric Meyer and Donald J. Duffy, the latter of whom is now a
director of the Company, as compensation for their part in assisting the Merger.
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.
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 four-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. The interest rate is approximately 40%
per annum on this loan.
On April 6, 1995, the Company entered into a consulting agreement with Meyer
Duffy & Associates, Inc. ("Meyer Duffy"), and independent investment consulting
firm 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 primarily to provide assistance in
meeting working capital needs of the Company. The agreement was effective
through September, 1995, and the 15,000 shares were issued in December, 1995
at $2.00 per share. Donald Duffy, who subsequently became a member of the
Board of Directors of the Company in December 1995, is a principal of
Meyer Duffy.
40
<PAGE> 41
The Company has granted nonqualified options to Meyer Duffy to purchase 30,000
shares of common stock at $2.50 per share. The options vest 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 a principal
payment of $1,500 during 1995, leaving a balance of $22,500 as of December 31,
1995.
On December 31, 1995, Dennis Campbell loaned the Company $14,547 on demand at
10% interest, which note was outstanding at December 31, 1995, an subsequently
paid in full in January, 1996.
On December 31, 1995, the Company issued its demand note payable in lieu of
compensation to Dennis Campbell in the sum of $100,000, bearing interest at 10%,
in consideration of a bonus deferral.
On October 1, 1995, the Company entered into a consulting agreement with Meyer
Duffy, which was amended on November 1, 1995, whereby Meyer Duffy was retained
to provide consulting, financial advisory and investment banking services for a
ten-month term commencing October 1, 1995 to raise expansion and growth capital
in addition to working capital needs. The agreement provides for the payment
of $5,000 per month to Meyer Duffy.
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 is
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. The
maximum fee Meyer Duffy could earn on this part of the agreement was $50,000 of
which they actually earned $49,100.
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.
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, in addition 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,
41
<PAGE> 42
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.
During 1995, the Company incurred $28,557 in legal fees to the law offices of
Richard E. King, Jr. of which Richard E. King, Jr., Secretary and a director of
the Company, is the principal.
On April 10, 1996, the Company signed a ninety (90) day unsecured loan in the
amount of $300,000 with M.D. Strategic, L.P. of which Mr. Donald Duffy, a
director of the Company is a principal. The loan bears interest at an annual
rate of 14%, which was prepaid at the beginning of the note. This note was
extended for an additional thirty days with additional interest of $3,500 due
at maturity. This note was extended to August 31, 1996.
In August, 1996, the Company issued 10,000 shares to Richard E. King, Jr., a
director of the Company, in partial consideration of services rendered.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of August 22, 1996, information regarding
ownership of Common Stock by each person known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock, by
each director and by all executive officers and directors of the Company as a
group. All persons named have sole voting and investment power over their shares
except as otherwise noted.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME SHARES OWNED OF CLASS
---- ------------ --------
<S> <C> <C>
Dennis Campbell 2,477,990 (1) 36.2%
1420 Village Way
Santa Ana, California 92705
William R. Gresher 440,632 (2) 6.4%
1420 Village Way
Santa Ana, California 92705
Rowland W. Day II 881,181 (3) 12.9%
3070 Bristol Street, Suite 650
Costa Mesa, CA 92626
Donald J. Duffy 453,676 (4) 6.6%
237 Park Avenue, Eighth Floor
New York, New York 10017
Humbert B. Powell, III 5,000 (5) *
712 Fifth Avenue, Eleventh Floor
New York, New York 10019
Richard E. King, Jr. 35,000 (6) *
2244 West Coast Highway, Suite 100
Newport Beach, California 92663
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME SHARES OWNED OF CLASS
---- ------------ --------
<S> <C> <C>
Jeffrey L. Simons 15,000 (7) *
1420 Village Way
Santa Ana, California 92705
All officers and directors
as a group (7 persons) 4,308,479 (1)(2)(3) 62.1%
(4)(5)(6)(7)
</TABLE>
- ----------------
* Denotes less than 1%.
(1) Includes 20,000 shares subject to the presently exercisable portion of
an option held by Mr. Campbell to purchase a total of 50,000 shares as
a director.
(2) Includes 110,000 shares subject to the presently exercisable portion of
options held by Mr. Gresher to purchase a total of 300,000 shares in
accordance with the terms of his employment agreement and 50,000 shares
as a director.
(3) Includes 400,000 shares subject to the presently exercisable portion of
options held by Mr. Day and the Day Family Trust to purchase up to
50,000 shares as a director and up to 380,000 shares as part of the
acquisition of Bikers Dream.
(4) Includes 95,000 shares subject to the presently exercisable portion of
options held by Mr. Duffy and Meyer Duffy & Associates, Inc. to
purchase up to 50,000 shares as a director, 10,000 shares as part of
the HDL acquisition of Bikers Dream, and 80,000 shares as part of a
consulting agreement with Bikers Dream, Inc. Also includes 277,647
shares owned by MD Strategic L.P., an investment partnership in which
Mr. Duffy acts as one of two general partners who have full discretion
to invest the fund of the partnership.
(5) Includes 5,000 shares subject to the presently exercisable portion of
an option held by Mr. Powell to purchase up to 50,000 shares as a
director.
(6) Includes 20,000 shares subject to the presently exercisable portion of
options held by Mr. King to purchase a total of 50,000 shares as a
director.
(7) Includes 15,000 shares subject to the presently exercisable portion of
options held by Mr. Simons to purchase a total of 100,000 shares which
may be issued upon exercise of an option granted to Mr. Simons in
accordance with the terms of his employment agreement.
43
<PAGE> 44
SELLING STOCKHOLDERS
The Selling Stockholders are offering hereby a total of 2,301,380 shares of
Common Stock, including shares of Common Stock issuable upon the exercise of
options. The following table sets forth the name of each person who is a Selling
Stockholder, the number of securities owned by each such person as of August 22,
1995 and the number of shares of Common Stock such person will own after the
completion of this offering. The following table assumes the exercise of all
options beneficially owned by each such stockholder for which the underlying
shares of Common Stock are being offered hereby.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY SHARES BENEFICIALLY OWNED
OWNED INCLUDED AFTER OFFERING(1)
PRIOR IN THIS -----------------
NAME OF SELLING STOCKHOLDER TO OFFERING OFFERING NUMBER PERCENT
- --------------------------- ----------- -------- ------ -------
<S> <C> <C> <C> <C>
William James Bell 88,234 88,234 0 -
Castle Rock Partners 117,647 117,647 0 -
CLFS Equities Ltd. 15,000 15,000 0 -
Nicholas Du Biago 7,352 7,352 0 -
Dick Galley 25,882 25,882 0 -
Gresher Living Trust (2) 270,632 270,632 0 -
William Gresher (2) 350,000 350,000 0 -
William R. Gresher IRA (2) 60,000 37,737 0 -
Robert Lavinia 25,882 25,882 0 -
Joseph Malvasio 29,411 29,411 0 -
William McElroy, Jr. 23,529 23,529 0 -
Boyce Meyer 14,705 14,705 0 -
Paul Minor, Jr. 5,882 5,882 0 -
Mountain Investments 14,705 14,705 0 -
Saugathuck Partners 38,823 38,823 0 -
Seedling Fund L.P. 73,529 73,529 0 -
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY SHARES BENEFICIALLY OWNED
OWNED INCLUDED AFTER OFFERING(1)
PRIOR IN THIS -----------------
NAME OF SELLING STOCKHOLDER TO OFFERING OFFERING NUMBER PERCENT
- --------------------------- ----------- -------- ------ -------
<S> <C> <C> <C> <C>
M.D. Strategic, L.P. 117,647 117,647 0 -
George Van Brunt 7,352 7,352 0 -
William Whalen 29,411 29,411 0 -
Dennis W. Campbell (3) 2,262,191 600,000 1,662,191 32.1%
Roland W. Day, II (4) 121,544 50,000 71,544 1.0%
Richard E. King, Jr. (5) 64,500 60,000 4,500 *
Donald J. Duffy (6) 50,000 50,000 0 -
Herbert B. Powell, III (7) 50,000 50,000 0 -
Caldwell R. Campbell 224,228 109,558 114,670 3.2%
Eric C.S. Meyer 108,462 88,462 20,000 1.5%
</TABLE>
* Less than 1%
(1) Gives effect to exercise of all of the options for which the underlying
shares of Common Stock are being offered hereby and the sale of all of
the shares of Common Stock being offered by the Selling Stockholders.
(2) Mr. Gresher is Senior Vice President, Chief Financial, Operating and
Administrative Officer and a director of the Company. Includes 350,000
shares subject to options held by Mr. Gresher.
(3) Mr. Campbell is President, Chief Executive Officer, and a director of
the Company. Includes 50,000 shares subject to an option held by Mr.
Campbell.
(4) Mr. Day, a Co-Trustee of the Day Family Trust, is a director of the
Company. Includes 50,000 shares subject to an option held by Mr. Day.
(5) Mr. King is Secretary and a director of the Company. Includes 50,000
shares subject to an option held by Mr. King.
(6) Mr. Duffy is a director of the Company. Includes 50,000 shares subject
to an option held by Mr. Duffy.
(7) Mr. Powell is a director of the Company. Includes 50,000 shares subject
to an option held by Mr. Powell.
All costs, expenses and fees in connection with the registration of the shares
offered hereby will be borne by the Company. All brokerage commissions, if any,
attributable to the sale of shares will be borne by the Selling Stockholders.
45
<PAGE> 46
The Selling Stockholders' sales of shares of Common Stock may be effected from
time to time in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Common Stock, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Stockholders may effect such transactions by
selling Common Stock directly to purchasers or to or through broker-dealers
which may act as agents or principals. Such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
Selling Stockholders and/or the purchasers of Common Stock for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Stockholders and any broker-dealers that act
in connection with the sale of the Common Stock might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act. The
Selling Stockholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act.
Because the Selling Stockholders may each be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act, the Selling
Stockholders will be subject to prospectus delivery requirements under the
Securities Act. Furthermore, in the event of a "distribution" of its shares, the
Selling Stockholder, any selling broker or dealer and any "affiliated
purchasers" may be subject to Rule 10b-6 under the Exchange Act until its
participation in that distribution is completed.
The Selling Stockholders may also use Rule 144 under the Securities Act to sell
the shares if they meet the criteria and conform to the requirements of such
Rule.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of 25,000,000
shares of Common Stock without par value, of which approximately 6,378,931
shares were outstanding as of August 22, 1996. The shares are fully paid and not
subject to future calls or assessments.
Holders of shares of Common Stock are entitled to one vote for each share on all
matters to be voted on by the shareholders and, upon the giving of notice as
required by law, are entitled to cumulate their votes in the election of
directors. Holders of shares of Common Stock are entitled to share ratably in
dividends, if any, as may be declared, from time to time by the Board of
Directors in its discretion, from funds legally available therefor. In the event
of a liquidation, dissolution or winding up of the Company, the holders of
shares of Common Stock are entitled to share pro rata all assets remaining after
payment in full of all liabilities. Holders of Common Stock have no preemptive
or other subscription rights, and there are no conversion rights or redemption
or sinking fund provisions with respect to such shares.
46
<PAGE> 47
In connection with its acquisition of Bikers Dream, Inc., the Company agreed not
to issue, without the unanimous approval of its Board of Directors, during each
year of a three year period commencing on March 13, 1995, any shares of Common
Stock, or any shares convertible into Common Stock, or any options, warrants or
other rights to purchase shares of Common Stock, in excess of 5% of the total
number of shares of Common Stock outstanding immediately after the consummation
of such acquisition (such number of outstanding shares being 4,700,000), except
for shares issued in connection with acquisitions or shares issued upon exercise
of options and warrants outstanding immediately after the consummation of such
acquisition.
OPTIONS
The Company has granted options to purchase 550,000 shares of Common Stock at an
exercise price of $1.00 per share. The options are exercisable at any time prior
to March 13, 1998.
In April, 1995, the Company granted options under the Company's Non-Qualified
Stock Option Plan 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. The options
are immediately vested as to 10,000 shares and the balance will vest at the rate
of 2,500 shares per quarter over a four year period. Two directors appointed in
December, 1995, were each granted options to purchase 50,000 shares at prices of
$1.56 and $2.875 per share. See "Management - Stock Option Plans."
The Company has granted to employees under the Company's Incentive Stock Option
Plan options to purchase 132,500 shares of Common Stock at an exercise price of
$1.50 per share, and options to purchase 240,000 shares of Common Stock at an
exercise price of $2.50 per share. Incentive Stock Option Plan options have been
granted to additional employees to purchase up to 37,300 shares of common stock
at prices ranging from $1.875 per share up to $2.875 per share. See "Management
- - Stock Option Plans."
The Company has granted a Non-Qualified option to William R. Gresher to
purchase, at an exercise price of $2.50 per share, 60,000 shares of Common
Stock. The option is immediately vested as to 10,000 shares and the remaining
portion of the option is vested over a five year period commencing in September,
1995. See "Management - Employment Agreements."
The Company has granted a Non-Qualified option to Meyer Duffy to purchase, at an
exercise price of $2.50 per share, 30,000 shares of Common Stock, and another
option to purchase 50,000 shares at $1.70 per share. Additional Non-Qualified
options have been granted to another consultant to purchase, at an exercise
price of $2.125, 70,000 shares of common stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Company's Common Stock is American
Securities Transfer, 1825 Lawrence Street, Suite 444, Denver, Colorado 80202.
47
<PAGE> 48
LEGAL MATTERS
Certain matters with respect to the validity of the shares of Common Stock
offered hereby will be passed upon for the Company by The Law Offices of Richard
E. King, Jr. Newport Beach, California. Richard E. King, Jr. a principal of the
firm, is a director of the Company and owned 5,000 shares of the Company's
Common Stock as of the date of this Prospectus and also holds options to
purchase an additional 50,000 shares of the Company's Common Stock from the
Company.
EXPERTS
The audited financial statements of the Company as of December 31, 1994 and for
the year then ended in this Prospectus and the related Registration Statement,
have been audited by Lesley, Thomas, Schwarz & Postma, independent accountants.
The audited financial statements of the Company as of December 31, 1995 and for
the year then ended in this Prospectus and the related Registration Statement,
have been audited by Coopers & Lybrand L.L.P., independent accountants. The
information, as set forth in their reports thereon appearing elsewhere herein
and in the Registration Statement, are included in reliance upon such reports
given upon the authority of such firms as experts in accounting and auditing.
FURTHER INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission"), a Registration Statement on Form SB-2 with respect to the
securities which are offered by this Prospectus. This Prospectus omits certain
information which is contained in the Registration Statement as permitted by the
Rules and Regulations of the Commission. For further information, reference is
made to the Registration Statement including the exhibits filed therewith, which
may be examined without charge at the Washington, D.C. offices of the Commission
and copies of all or any part thereof may be obtained upon payment of the
Commission's charge for copying. The statement contained in this Prospectus as
to the contents of any contract or other document identified as exhibits in this
Prospectus are not necessarily complete, and in each instance, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each statement being qualified in any and all respects by such
reference.
48
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Accountants' Report of Coopers & Lybrand, L.L.P. F-2
Independent Accountants' Report of Lesley, Thomas, Schwarz & Postma, Inc. F-3
Consolidated Financial Statements as of December 31, 1995, December 31, 1994 and
December 31, 1993:
Consolidated Balance Sheets as of December 31, 1995 and December 31,
1994. F-4
Consolidated Statements of Operations for the years ended December
31, 1995, 1994, and 1993. F-5
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1995, 1994, 1993. F-6
Statements of Cash Flows for the years ended December 31, 1995,
1994, and 1993. F-7
Notes to Consolidated Financial Statements, for the years ended
December 31, 1995, 1994, and 1993. F-10
Consolidated Financial Statements as of June 30, 1996 (unaudited) and June 30,
1995 (unaudited):
Consolidated Balance Sheets as of June 30, 1996 and
June 30, 1995 (unaudited). F-29
Consolidated Statements of Operations for the three months ended
June 30, 1996 and June 30, 1995 (unaudited), and six months ended
June 30, 1996 and June 30, 1995 (unaudited). F-30
Statements of Cash Flows for the six months ended June 30, 1996
and June 30, 1995 (unaudited). F-32
Notes to Consolidated Financial Statements for the six months
ended June 30, 1996 and June 30, 1995 (unaudited). F-33
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Bikers Dream, Inc.
Santa Ana, California
We have audited the accompanying consolidated balance sheet of Bikers Dream,
Inc. and Subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bikers Dream,
Inc. and Subsidiaries as of December 31, 1995 and the consolidated results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has incurred recurring
losses from operations and the ability of the Company to raise additional funds
and ultimately achieve positive operating cash flows is uncertain and,
therefore, this raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Coopers & Lybrand L.L.P.
Newport Beach, California
February 27, 1996
F-2
<PAGE> 51
Independent Accountants' Report
To the Stockholders of
Bikers Dream, Inc.
We have audited the accompanying balance sheet of Bikers Dream, Inc. as
of December 31, 1994 and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1994 and
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Bikers Dream, Inc.
as of December 31, 1994, and the results of its operations and its cash flows
for the years ended December 31, 1994 and 1993 in conformity with generally
accepted accounting principles.
March 15, 1995 /s/ LESLEY THOMAS, SCHWARZ & POSTMA, INC.
Lesley, Thomas, Schwarz & Postma, Inc.
A Professional Accountancy Corporation
F-3
<PAGE> 52
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 And 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
A S S E T S:
Current assets:
Cash and cash equivalents $ 135,736 $ 18,136
Accounts receivable, net 286,392 98,014
Inventories 1,657,460 701,301
Note receivable from shareholder 24,616
Prepaid expenses and other current assets 131,095 60,296
----------- ----------
Total current assets 2,210,683 902,363
Property, equipment and capitalized leases, net 746,640 114,282
Deferred tax asset 64,785
Deposits and other assets 181,151 37,219
----------- ----------
Total assets $ 3,138,474 $1,118,649
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 434,465 $ 5,116
Other accrued expenses 630,666 125,748
Current portion of long-term debt 31,878 1,230
Current portion of notes payable 242,051 521,000
Notes payable to shareholders 197,047
----------- ----------
Total current liabilities 1,536,107 653,094
Deferred rent 98,374 73,504
Deferred tax liability 5,859
Notes payable, less current portion 642,426
Long-term debt, less current portion 177,412 72,324
----------- ----------
Total liabilities 2,454,319 804,781
----------- ----------
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, no par value; 25,000,000 shares
authorized at December 31, 1995; 5,535,920
issued and outstanding at December 31, 1995 3,166,970 448,990
Accumulated deficit (2,482,815) (135,122)
----------- ----------
Total shareholders' equity 684,155 313,868
----------- ----------
Total liabilities and shareholders' equity $ 3,138,474 $1,118,649
=========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-4
<PAGE> 53
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 1995, 1994 And 1993
--------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product sales $7,589,933 $4,626,821 $1,436,374
Financing contracts 200,157
--------- --------- ---------
Total revenues 7,790,090 4,626,821 1,436,374
Cost of goods sold 5,980,469 3,526,666 922,509
--------- --------- ---------
Gross profit 1,809,621 1,100,155 513,865
--------- --------- ---------
Expenses:
Selling, general and administrative expenses 3,870,014 1,121,484 641,986
Depreciation and amortization 74,543 20,115 16,004
Interest expense 33,359 19,990 22,980
Franchise income (146,996) (45,000)
Franchise reacquisition expense 269,918
Other (income) expense (3,250) (223) (2,830)
----------- --------- ---------
Total expenses 4,097,588 1,116,366 678,140
--------- --------- ---------
Loss before (provision) benefit for
income taxes (2,287,967) (16,211) (164,275)
(Provision) benefit for income taxes (59,726) 3,199 53,327
----------- --------- ---------
Net loss ($2,347,693) ($13,012) ($110,948)
========= ====== =======
Net loss per share ($0.50) ($0.004) ($0.10)
==== ===== ====
Weighted average shares outstanding 4,730,885 3,300,000 1,153,920
========= ========= =========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-5
<PAGE> 54
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended December 31, 1995, 1994 And 1993
--------------------
<TABLE>
<CAPTION>
Common Stock Total
--------------------- Accumulated Shareholders'
Shares Amount Deficit Equity
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1992 124,947 $17,000 ($11,162) $5,838
Issuance of common stock 1,028,973 140,000 140,000
Net loss (110,948) (110,948)
--------- --------- --------- ---------
Balances, December 31, 1993 1,153,920 157,000 (122,110) 34,890
Issuance of common stock 2,146,080 291,990 291,990
Net loss (13,012) (13,012)
--------- --------- --------- ---------
Balances, December 31, 1994 3,300,000 448,990 (135,122) 313,868
Reverse merger 300,920 300,920 300,920
Private placement 600,000 900,000 900,000
Notes payable conversions 1,120,000 1,740,000 1,740,000
Stock for services 15,000 30,000 30,000
Warrants exercised for cash 200,000 300,000 300,000
Costs associated with stock issuances (552,940) (552,940)
Net loss (2,347,693) (2,347,693)
--------- ---------- ----------- ----------
Balances, December 31, 1995 5,535,920 $3,166,970 ($2,482,815) $ 684,155
========= ========== =========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-6
<PAGE> 55
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1995, 1994 And 1993
--------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($2,347,693) ($13,012) ($110,948)
----------- -------- ---------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Deferred income taxes 58,926 (3,999) (54,127)
Note receivable from shareholder - forgiven 24,616
Depreciation and amortization 74,543 20,115 16,004
Franchise reacquisition expense 269,918
Stock issuance for consulting services 30,000
Abandonment of fixed assets 8,161
Changes in assets and liabilities, excluding effects of
franchise acquisitions:
Decrease (increase) in accounts receivable (184,850) (90,945) 12,535
Decrease (increase) in inventories (895,191) (463,890) 133,091
Decrease (increase) in prepaid expenses and other
current assets (64,127) (60,296) 9,408
Increase (decrease) in accounts payable 458,745 (73,735) (147,985)
Increase in cash overdraft (41,922) (1,083)
Increase in other accrued expenses 504,918 3,648 80,057
----------- -------- ---------
Total adjustments 277,498 (711,024) 56,061
----------- -------- ---------
Net cash used in operating activities (2,070,195) (724,036) (54,887)
----------- -------- ---------
Cash flows from investing activities:
Increase in deposits (133,753) (18,509) (12,069)
Payments for purchases of fixed assets (387,431) (63,647) (56,213)
Acquisition of franchises (94,871)
Increase in deferred rent 24,870 73,504
----------- -------- ---------
Net cash used in investing activities (591,185) (8,652) (68,282)
----------- -------- ---------
</TABLE>
Continued
See the accompanying notes to these consolidated financial statements.
F-7
<PAGE> 56
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For The Years Ended December 31, 1995, 1994 And 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt $ 64,000
Principal payments made on long-term debt and
capitalized leases ($89,690) ($83,144) (65,127)
Payments received on note receivable from shareholder 20,978 2,868
Proceeds from issuance of common stock 1,200,000 291,990 140,000
Costs associated with issuance of common stock (252,020)
Proceeds from issuance of notes payable 521,000 15,000
Proceeds from issuance of convertible notes payable 1,869,000
Principal payments made on notes payable (145,357)
Advances on note receivable from shareholder (33,572)
Proceeds from notes payable to shareholders 198,547
Payments on notes payable to shareholders (1,500)
--------- -------- --------
Net cash provided by financing activities 2,778,980 750,824 123,169
--------- -------- --------
Net increase in cash and cash equivalents 117,600 18,136 -
Cash and cash equivalents, beginning of year 18,136
--------- -------- --------
Cash and cash equivalents, end of year $ 135,736 $ 18,136 $ -
========= ======== =========
</TABLE>
Supplemental Information:
For the years ended December 31, 1995, 1994 and 1993, $33,359, $19,990 and
$22,986, respectively, of cash was paid for interest expense, and $800 of
cash was paid for state income taxes each year.
Supplemental Disclosures Of Noncash Activities:
The Company entered into capital leases on fixed assets in the amount of
$127,928 during 1995.
In September 1995, the Company purchased assets in the amount of $103,359
from a former franchisee, consisting of inventory of $30,961, deposits of
$8,820 and equipment of $63,578. In connection with this transaction, notes
payable in the amount of $247,950 were issued and cash paid of $94,871. In
November 1995, the Company purchased assets from a second franchisee in
the amount of $101,338, consisting of inventory of $44,155, deposits and
other assets of $13,752 and equipment of $43,431. In connection with this
transaction a note payable of $29,293 was issued to the former franchisee
and debt was assumed in the amount of $102,591. With respect to both of the
above transactions, the excess of the purchase price over assets acquired
was expensed during 1995 as these franchises were reacquired due to disputes
with the franchisees as a result of the Company's franchise circular not
being in compliance with applicable federal and state laws.
Continued
See the accompanying notes to these consolidated financial statements.
F-8
<PAGE> 57
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For The Years Ended December 31, 1995, 1994 And 1993
------------
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 June and July 1995, the Company issued convertible notes in the amount of
$625,000 and $615,000, respectively. These notes were converted into a
total of 620,000 shares of common stock of the Company during the year.
In December 1995, the Company entered into a note payable with a lender for
a Kenworth T-100 tractor in the amount of $97,498.
During 1994, the Company's President and CEO assumed ownership of a Company
automobile and truck, with a net book value of $36,901, along with
forgiveness of a note payable to the Company in the amount of $24,616, which
were treated as compensation expense.
See the accompanying notes to these consolidated financial statements.
F-9
<PAGE> 58
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 And 1993
------------
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"). 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 year ended
December 31, 1995 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 as of December 31, 1995 had an accumulated deficit of
$2,482,815. The Company's working capital at December 31, 1995 is
$674,576. The Company experienced an increase in its selling and
administrative expenses of $2,748,530 over the prior year. This
increase was
Continued
F-10
<PAGE> 59
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
------------
1. Company Operations And Liquidity, Continued:
primarily the result of hiring additional corporate employees to
continue the Company's growth, the startup expenses associated with
the opening of two new Company-owned Superstores, an increase in audit
and legal fees related to the Company becoming an SEC reporting
company and expenses related to the Company's re-registration of its
franchise circular.
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. As a result, the reliance by the Company on
equity sourcing is critical and may not be sufficient to fund
operations in the future and continue support of the corporate and
administrative expense structure.
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.
The Company has incurred recurring losses from operations and the
ability of the Company to raise additional funds and ultimately
achieve positive operating cash flows is uncertain and, therefore,
this raises substantial doubt about the Company's ability to continue
as a going concern.
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
F-11
<PAGE> 60
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
---------------
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
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 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 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
F-12
<PAGE> 61
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
---------------
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. The provision for income taxes
represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Net Loss Per 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 December 31, 1995, the allowance for doubtful accounts was $23,251.
There was no such allowance at December 31, 1994.
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 December 31, 1995, the reserve for obsolescence
was $30,000. There was no inventory reserve at December 31, 1994.
Continued
F-13
<PAGE> 62
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
---------------
2. 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.
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 December 31, 1995.
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 disper-
sion across different geographic regions. The Company performs
ongoing credit evaluations of customers and generally does not
require collateral. Allowances are maintained for potential credit
losses, and such losses have been within management's expectations.
As of December 31, 1995 and 1994, the Company has no significant
concentrations of credit risk.
Continued
F-14
<PAGE> 63
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
---------------
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>
December 31,
Estimated -----------------
Useful Lives 1995 1994
------------ ---- ----
<S> <C> <C> <C>
Furniture and fixtures 7 years $156,171 $31,012
Leasehold improvements 7 years 226,884 22,255
Equipment 5-7 years 102,326 59,604
Computers 5 years 263,742 29,493
Autos and trucks 3-10 years 97,498
-------- --------
846,621 142,364
Less, Accumulated depreciation and amortization (99,981) (28,082)
-------- --------
$746,640 $114,282
======== ========
</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 by the Company 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 recognized and measures
that impairment using discounted cash flows as provided by FAS 121.
Since the Company has just started many of it's retail operations in
the last 12 months, historical information is limited in evaluating
future effects. Management believes no further permanent impairment
has occurred based upon the information currently available.
Continued
F-15
<PAGE> 64
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
---------------
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
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 December 31, 1995 are as follows:
<TABLE>
<S> <C>
Computers $127,928
Less, Accumulated amortization (8,535)
--------
$119,393
========
</TABLE>
There were no assets under capital lease during fiscal 1994. In
February, 1996, the Company contracted to have a custom trailer built
for its Dream Wheels mobile store operation. The Company has secured
a loan in 1996 in the amount of $343,555 for which the custom trailer
is pledged as collateral. Scheduled monthly payments against this
loan will be $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
F-16
<PAGE> 65
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
---------------
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.
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.
Total rent expense incurred by the Company for the years ended
December 31, 1995, 1994 and 1993 was $313,924, $142,878 and $76,930
respectively.
Minimum future annual non cancelable commitments are as follows
<TABLE>
<CAPTION>
For The Years Ending December 31,
---------------------------------
<S> <C>
1996 $399,867
1997 425,070
1998 434,017
1999 415,614
2000 210,020
Thereafter 379,685
----------
$2,264,273
==========
</TABLE>
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
and result of operations of the Company.
Continued
F-17
<PAGE> 66
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
---------------
5. Long-Term Debt:
Long-term debt at December 31, 1995 and 1994 consists of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<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. $73,554
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
$79,212
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
42,580
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 2001
87,498
-------- -------
209,290 73,554
Less, Current portion (31,878) (1,230)
-------- -------
Long-term debt, net of current portion $177,412 $72,324
======== =======
</TABLE>
Continued
F-18
<PAGE> 67
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
---------------
5. Long-Term Debt, Continued:
Minimum future principal debt payments at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Capitalized
Leases Other Total
----------- ----- -----
For The Years Ending December 31,
---------------------------------
<S> <C> <C> <C>
1996 $ 38,510 $ 20,568 $ 59,078
1997 38,510 22,438 60,948
1998 38,510 22,438 60,948
1999 38,510 22,438 60,948
2000 22,603 22,438 45,041
Thereafter 4,258 1,870 6,128
-------- -------- --------
180,901 112,190 293,091
Less, Amounts representing interest (59,109) (24,692) (83,801)
-------- -------- --------
$121,792 $ 87,498 $209,290
======== ======== ========
</TABLE>
6. Income Taxes:
The following table presents the current and deferred income tax
provision (benefit) for federal and state income taxes:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
----------------------- ---- ---- ----
<S> <C> <C> <C>
Current:
Federal - - -
State $800 $800 $800
--- --- ---
800 800 800
--- --- ---
Deferred:
Federal 50,710 (3,999) (54,127)
State 8,216 - -
----- ------ -------
58,926 (3,999) (54,127)
------ ------ -------
Provision (benefit) for
income taxes $59,726 ($3,199) ($53,327)
======= ====== =======
</TABLE>
Continued
F-19
<PAGE> 68
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
---------------
6. Income Taxes, Continued:
The tax effects of temporary differences which give rise to the
deferred tax (provision) benefit consists of:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Property and equipment ($19,983) ($3,851)
Accrued liabilities 19,320
Accounts receivable allowance 10,068
Inventory reserve 12,990
Net operating losses 813,984 (11,047)
Other 23,964 18,897
Valuation allowance (919,269)
-------- -------
($58,926) $3,999
======== ======
</TABLE>
The provision (benefit) for income taxes differs from the amount that
would result from applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
For The Year Ended
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Statutory regular federal income tax rate (34.0%) (34.0%)
State income taxes, net of federal benefit .2
Change in valuation allowance 36.5
Other (.1) 14.3
----- -----
2.6% (19.7%)
===== ======
</TABLE>
Continued
F-20
<PAGE> 69
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
6. Income Taxes, Continued:
The components of the deferred income tax assets (liabilities) as of
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Property and equipment ($26,785) ($5,859)
Accrued expenses 19,320
Accounts receivable allowance 10,068
Inventory reserve 12,990
Net operating loss carryforwards 860,591 46,607
Other 43,085 18,178
-------- ------
Valuation allowance (919,269)
-------- ------
Net deferred tax assets $ - $58,926
======== =======
</TABLE>
As of December 31, 1995, the Company had net operating loss
carryforwards for federal and state purposes of approximately
$2,234,000 and $1,084,000, respectively. The net operating loss
carryforwards begin expiring in 2005 and 1997, respectively. The
utilization of net operating loss carryforwards may be limited due to
the ownership change, under the provisions of Internal Revenue Code
Section 382 and similar state provisions.
7. Notes Payable:
The notes payable at December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Note payable to related party, HDL, accruing interest at a
prime rate plus 1% on $200,000 of the unpaid principal balance,
principal plus any accrued interest due March 1995, collateralized
by all assets of the Company. This note was converted into
333,333 shares of common stock in March 1995. $500,000
Note payable to lender, due on demand. This note was paid
in February 1995. 21,000
</TABLE>
Continued
F-21
<PAGE> 70
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
7. Notes Payable, Continued:
<TABLE>
<CAPTION>
1995 1994
---- ----
<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. $125,924
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. 101,480
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. 28,073
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 March 14, 1996 and were
converted into shares of common stock at $1.70 per share. 629,000
------- ---------
884,477 $ 521,000
(242,051) (521,000)
Less, Current portion ------- ---------
$642,426 $ -
Notes payable, long-term portion ======== =========
</TABLE>
Continued
F-22
<PAGE> 71
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
8. Franchise Income:
The Company entered into five and three franchise store agreements
during fiscal years 1995 and 1994, respectively. The Company received
a $15,000 fee for each store and is due to receive 5% of each store's
weekly sales through the term of the franchise agreements. The
franchise agreement initial term does not exceed twenty years. During
1995 the Company reacquired two franchise operations and refunded the
franchise fee at a third franchisee.
9. Stock Options:
The Company has three active stock option plans. All plans were
adopted by the Board of Directors in 1995 and will be presented to the
shareholders for approval at their first annual meeting in June 1996.
The stock option plans have effectively been approved in 1995 as the
Board of Directors constitutes a majority of the shareholders. The
shares issued pursuant to the plans are restricted shares, until or
unless registered by the Company.
The Incentive Stock Option Plan is intended to meet the requirements
of Section 422A of the Internal Revenue Code of 1986, as amended.
Under the plan, options may be granted by the Compensation Committee
to its officers, key employees, and other employees according to
responsibility and length of service. Options may not be granted to
employees owning more than 10% of the total combined voting power of
the stock of the corporation. Options granted under the plan shall be
granted within 10 years of the date of the adoption of the plan, and
must be exercised within 10 years of the grant. The aggregate number
of shares that may be issued pursuant to the plan is 500,000 over the
life of the plan, and the aggregate fair market value of the stock for
exercise for the first time during any calendar year is $100,000 per
individual. Options vest pro rata over a four-year period. The
option price is determined by the bid price of the Company's shares as
quoted on NASDAQ or the Bulletin Board at the close of business on the
date of the grant.
The Nonqualified Stock Plan was adopted by the Board of Directors in
April 1995, subject to approval by the shareholders. This plan
provides for incentives to management, executive personnel of the
Company and others. The plan limits the number of shares to 500,000,
and the aggregate value of underlying shares granted in any year for
any single employee may not exceed $100,000 in value. The option
price is fixed by the bid price of the Company's shares as quoted on
NASDAQ or the Bulletin Board at the close of business on the date of
the grant. Options must be exercised within 10 years of the date of
grant thereof and shall vest at such time or times as the Board of
Directors shall fix on the date of grant.
Continued
F-23
<PAGE> 72
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
9. Stock Options, Continued:
The Director's plan is a Nonqualified Plan adopted in April 1995. The
plan provides, as amended, for 300,000 shares in total, 50,000 shares
to be granted to each director on assuming office. The underlying
share price is determined by the bid price on NASDAQ or the Bulletin
Board on the date of the grant. The options vest over a five-year
period.
Information regarding the Company's stock option plans is summarized
below:
<TABLE>
<CAPTION>
Director's
Incentive Stock Nonqualified Nonqualified
Option Plan Option Plan Option Plan
--------------- ------------ ------------
<S> <C> <C> <C>
Shares under option:
Activity during 1995:
Granted 374,800 690,000 300,000
Exercised
Canceled
------- ------- -------
Outstanding at December 31, 1995 374,800 690,000 300,000
======= ======= =======
Grant price per share $1.50-$2.875 $1.50-$2.875 $1.50-$2.875
Exercisable at December 31, 1995 55,000 640,000 60,000
</TABLE>
The Company also has issued nonqualified options, in conjunction with
the HDL and Company merger, to purchase 550,000 shares of common stock
at an exercise price of $1.00 per share. The options are exercisable
at any time prior to March 13, 1998. The $1.00 exercise price was
established at the time the Company agreed to be acquired by HDL in
August 1994.
Prior to April 1995, when options were granted to key employees and
directors at an option price of $1.50 per share, there was no active
trading of the shares. To set the option value, the Company looked to
the valuation of the most recent large transaction, i.e., shares
issued at a price of $1.50 per share in connection with the HDL
acquisition of the Company in March 1995. Subsequent to that period,
the Company has used the bid price for the shares.
Refer also to stock option transactions described in Note 10.
Continued
F-24
<PAGE> 73
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
10. Related Party Transactions:
At December 31, 1994, the Company had a demand note receivable from
its majority shareholder that was noninterest-bearing in the amount of
$24,616. This obligation was forgiven by the Company and considered
as compensation expense in 1995.
During 1995 and 1994, the Company incurred $219,045 and $156,923,
respectively, in legal fees and/or consulting fees from a law firm of
which Rowland W. Day, II, a director of the Company, is a partner.
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 (Note 9). 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
F-25
<PAGE> 74
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
10. 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
reduced by a principal payment of $1,500 during 1995, leaving a
balance of $22,500 as of December 31, 1995.
On December 31, 1995, Dennis Campbell loaned the Company $14,547 on
demand at 10% interest, which note was outstanding at December 31,
1995, and subsequently paid in full in January 1996.
On December 31, 1995, the Company issued its demand note payable in
lieu of compensation to Dennis Campbell in the sum of $100,000,
bearing interest at 10%, in consideration of a bonus deferral.
On October 1, 1995, the Company entered into a consulting agreement
with Meyer Duffy, which was amended on November 1, 1995, whereby Meyer
Duffy 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
F-26
<PAGE> 75
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
10. Related Party Transactions, Continued:
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.
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.
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.
During 1995, the Company incurred $28,557 in legal fees to the law
offices of Richard E. King, Jr. of which Richard E. King, Jr.,
Secretary and a director of the Company, is the principal.
Continued
F-27
<PAGE> 76
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
December 31, 1995, 1994 And 1993
11. Fair Value Of Financial Instruments:
The fair value of the Company's long-term debt and notes payable
approximates the carrying value at December 31, 1995. 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.
12. 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.
13. Subsequent Events (Unaudited):
On January 19, 1996 the Company issued convertible notes at $450,500,
bearing interest at 8% annually. The notes are convertible into
common stock at $1.70 per share on April 19, 1996.
On April 10, 1996 the Company signed a ninety day loan for $300,000
with Meyer & Duffy. The loan bears interest, which is prepaid at 14.0%
annually.
Continued
F-28
<PAGE> 77
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 And 1995
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1996 1995
---------- ----------
<S> <C> <C>
A S S E T S:
Current assets:
Cash and cash equivalents $ 490,322 $ 234,228
Accounts receivable, net 582,957 133,487
Inventories 1,663,567 1,211,125
Prepaid expenses and other current assets 69,301 78,077
---------- ----------
Total current assets 2,806,147 1,656,917
Property, equipment and capitalized leases, net 1,025,158 429,837
Deposits and other assets 75,794 29,170
---------- ----------
Total assets $3,907,099 $2,115,924
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 450,226 $ 197,178
Other accrued expenses 989,266 314,741
Current portion of long-term debt 76,151
Current portion of notes payable 373,102 679,499
Notes payable to shareholders 171,500
---------- ----------
Total current liabilities 2,060,245 1,191,418
Deferred rent 119,098 82,624
Notes payable, less current portion 96,928
Deferred tax liability 3,425
Long-term debt, less current portion 413,738 80,804
---------- ----------
Total liabilities 2,690,009 1,358,271
---------- ----------
Commitments and contingencies (Note 4)
Shareholders' equity:
10% convertible preferred stock, no par value, 10,000,000 shares
authorized at June 30, 1996: 7 shares
issued and outstanding at June 30, 1996 1,102,500
Common stock, no par value; 25,000,000 shares
authorized at June 30, 1996; 6,170,911 and 4,700,920
issued and outstanding at June 30, 1996 and June 30,1995 4,212,718 1,789,555
Accumulated deficit (4,098,128) (1,031,901)
---------- ----------
Total shareholders' equity 1,217,090 757,654
---------- ----------
Total liabilities and shareholders' equity $3,907,099 $2,115,924
========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-29
<PAGE> 78
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Three Months For The Six Months
-------------------- ------------------
Ended June 30, Ended June 30,
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $2,783,711 $1,820,650 $5,552,689 $3,246,266
Financing contracts 81,789 (3,668) 159,709 3,590
---------- ---------- ----------- ----------
Total revenues 2,865,500 1,816,982 5,712,398 3,249,856
Cost of goods sold 2,275,328 1,145,716 4,464,076 2,504,872
---------- ---------- ----------- ----------
Gross profit 590,172 331,266 1,248,322 744,984
---------- ---------- ----------- ----------
Expenses:
Selling, general and administrative expenses 1,355,272 999,273 2,562,188 1,544,878
Depreciation and amortization 58,220 25,823 96,320 33,639
Interest expense 38,405 (384) 81,399 8,598
Franchise income (28,205) (6,500) (32,302) (8,500)
Other expense 156,034 96 156,034
---------- ---------- ----------- ----------
Total expenses 1,579,726 1,018,308 2,863,638 1,578,615
---------- ---------- ----------- ----------
Loss before (provision) for
income taxes (989,554) (687,042) (1,615,316) (833,631)
(Provision) for income taxes 0 (63,151) 0 (63,151)
---------- ---------- ----------- -----------
Net loss $ (989,554) $ (750,193) $(1,615,316) $ (896,782)
========== ========== =========== ==========
Net loss per share $ (0.17) $ (0.16) $ (0.28) $ (0.22)
========== ========== =========== ==========
Weighted average shares outstanding 6,118,494 4,700,920 5,863,799 4,151,388
========== ========== =========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-30
<PAGE> 79
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Six Months Ended June 30, 1996, And 1995
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,615,316) $(896,779)
----------- ---------
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 125,000
Depreciation and amortization 102,966 33,639
Changes in assets and liabilities:
(Increase) in accounts receivable (296,565) (19,629)
(Increase) in inventories (6,107) (509,824)
Decrease (increase) in prepaid expenses and other
current assets 61,794 (13,874)
Increase in accounts payable 15,801 192,052
Increase in other accrued expenses 233,600 188,191
----------- ---------
Total adjustments 262,495 (67,094)
----------- ---------
Net cash used in operating activities (1,352,821) (963,873)
----------- ---------
Cash flows from investing activities:
Decrease in deposits 105,357 8,049
Payments for purchases of fixed assets (407,531) (349,184)
Increase in deferred rent 20,724 9,120
----------- ---------
Net cash used in investing activities (281,450) (332,015)
----------- ---------
</TABLE>
See the accompanying notes to these consolidated financial statements.
F-31
<PAGE> 80
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For Six Months Ended June 30, 1996, And 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from short-term notes $ 300,000 $ 705,803
Proceeds from long-term debt 308,350 --
Principal payments made on long-term debt and (40,055)
capitalized leases (27,750)
Proceeds from issuance of common stock 840,565
Costs associated with issuance of common stock (33,733)
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 (85,463)
Payments on notes payable to shareholders (25,547)
Advances received on employee note receivable (18,949)
Payments received on note receivable from stockholder 24,616
---------- ----------
Net cash provided by financing activities 1,988,857 1,511,980
---------- ----------
Net increase in cash and cash equivalents 354,586 216,092
Cash and cash equivalents, beginning of period 135,736 18,136
---------- ----------
Cash and cash equivalents, end of period $ 490,322 $ 234,228
========== ==========
</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.
In April 1996, the Company converted promissory notes in the amount of
$450,500 into 264,999 shares of common stock of the Company.
See the accompanying notes to these consolidated financial statements.
F-32
<PAGE> 81
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June, 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 six months ended June 30, 1996 are not necessarily
indicative of the results to be expected for the year ending December
31, 1996. Earnings per share were computed by dividing net loss by the
weighed 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, parts, accessories, apparel and service
through Company-owned retail stores throughout the United States and
selling franchises based upon the Company concept.
Continued
F-33
<PAGE> 82
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June, 1996, And 1995
2. Company Operations And Liquidity, Continued:
The Company's consolidated financial statements for the six months
ended June 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 $1,615,316 for the six months ended June
30, 1996. As of June 30, 1996 the Company had an accumulated deficit
of $4,098,128. The Company's working capital at June 30, 1996 is
$749,902. The Company experienced an increase in its selling and
administrative expenses of $1,017,310 over the same six month period
last year. This increase was 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 upon 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.
The Company has incurred recurring losses from operations and the
ability of the Company to raise additional funds and ultimately
achieve positive operating cash flows is uncertain and, therefore,
this raises substantial doubt about the Company's ability to continue
as a going concern.
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
F-34
<PAGE> 83
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 And 1995
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
F-35
<PAGE> 84
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 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 June 30, 1996, the allowance for doubtful accounts was $33,251.
The balance was $14,911 as of June 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. At June 30, 1996, the reserve for obsolescence was
$75,000. The reserve at June 30, 1995 was $58,000.
Continued
F-36
<PAGE> 85
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 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.
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 June 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
June 30, 1996 and 1995, the Company has no significant concentrations
of credit risk.
Continued
F-37
<PAGE> 86
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 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 June 30,
-----------------------
Useful Lives 1996 1995
------------ ---- ----
<S> <C> <C> <C>
Furniture and fixtures 7 years $ 195,841 $ 55,150
Leasehold improvements 7 years 208,579 191,584
Equipment 5-7 years 101,696 43,212
Computers 5 years 270,046 170,546
Autos and trucks 3-10 years 441,053 331,066
---------- --------
1,217,215 491,558
Less, Accumulated depreciation and amortization (192,057) (61,721)
---------- --------
$1,025,158 $429,837
========== ========
</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 SFAS 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. The Company has, however, closed one of its former franchises
which was acquired in late 1995, and as a result, has recorded a write
off of leasehold improvements in the amount of $32,000 and $125,000 of
other costs during the Second Quarter of 1996. Management believes no
further permanent impairment has occurred based upon the information
currently available.
Continued
F-38
<PAGE> 87
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 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 June 30, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Computers $132,723 $80,803
Less, Accumulated amortization (22,127)
-------- -------
$110,596 $80,803
======== =======
</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 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
F-39
<PAGE> 88
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 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
F-40
<PAGE> 89
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 And 1995
6. Long-Term Debt:
Long-term debt at June 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 $73,351 $80,804
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 3,907
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 291,314
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 39,529
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 81,788
2001 -------- -------
489,889 80,804
Less, Current portion (76,151) (0)
-------- -------
Long-term debt, net of current portion $413,738 $80,804
======== =======
</TABLE>
Continued
F-41
<PAGE> 90
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 And 1995
7. Notes Payable:
The notes payable at June 30, 1996 and 1995 consist 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
$ 54,499
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. $ 51,502
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. 97,779
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. 20,749
M.D. Strategic L.P. due and payable August 31, 1996, with total
interest of $14,000 of which $10,500 is in prepaid assets. 300,000
Convertible notes payable to various lenders under a Note
Agreement dated June 19, 1995, accruing interest at a rate of 8%
per annum, principal and accrued interest due and payable one
year after the date of each note through June 1996. The notes
were converted into shares of common stock of the Company in
August, 1995 at $2.00 per share. 0 625,000
--------- -------
Sub Total 470,030 679,499
Less, Current portion (373,102) (679,499)
--------- ---------
Notes payable, long-term portion $ 96,928 $ 0
========= =========
</TABLE>
Continued
F-42
<PAGE> 91
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 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 holder 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 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
F-43
<PAGE> 92
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 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 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 a Company officer, in connection
with an employment agreement, to purchase 350,000 shares of common
stock at a per share exercise price of $2.50. The options vest over
a five-year period commencing in September 1995. The options expire
10 years following the date of the option grant.
Continued
F-44
<PAGE> 93
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 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
reduced by principal payments totaling $3,687 during 1995, and 1996
leaving a balance of $20,313 as of June 30, 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
F-45
<PAGE> 94
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 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.
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 have not been
paid as of June 30, 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 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. This note was extended for 30 days until
August 10, 1996 for additional interest of $3,500 for that period.
Continued
F-46
<PAGE> 95
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1996 And 1995
10. Fair Value Of Financial Instruments:
The fair value of the Company's long-term debt and notes payable
approximates the carrying value at June 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
F-47
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
22. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws and Section 317 of the California General Corporation Law
provide for indemnification of directors and officers against certain
liabilities. Officers and directors of the Company are indemnified generally
against expenses, judgments, fines and other amounts actually and reasonably
incurred in connection with actions, suits or proceedings, whether civil or
criminal, provided that it is determined that they acted in good faith and in a
manner they reasonably believed to be in the best interests of the Company, and,
in any criminal matter, had reasonable cause to believe that their conduct was
not unlawful.
23. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration fee $ 1,564
Legal fees and expenses 15,000
Accounting fees and expenses 6,000
Printing 1,006
Miscellaneous 430
-------
Total(1) $24,000
=======
</TABLE>
(1) All of the above expenses except the SEC registration fee are
estimates. All of the above expenses will be paid by the Company.
24. RECENT SALES OF UNREGISTERED SECURITIES
The Company has sold the following securities within the last three years:
Prior to its acquisition by the Company, Bikers Dream, Inc. sold a total of
658,013 shares of Common Stock to a total of eight persons, three of whom were
officers, one of whom was related to one of the officers, and the rest of whom
were prior business acquaintances of one of the officers. The issuance of such
securities was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) thereof and Regulation D promulgated thereunder.
In April, 1993, the Company issued 66,014 shares of Common Stock for consulting
and acquisition investigation services valued at $63,000 to Rowland W. Day II,
Robert C. Horlick and Caldwell R. Campbell. The issuance of such securities was
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) thereof and Regulation D promulgated thereunder.
In August, 1994, the Company issued secured convertible promissory notes in the
aggregate principal amount of $500,000 to Rowland W. Day II, Glenoaks Overseas
Corp. and Silverstone International Corp., which notes were converted into
500,000 shares of the Company's Common Stock in March, 1995. The issuance of
such securities was exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) thereof and Regulation D promulgated thereunder and/or
pursuant to Regulation S.
II-1
<PAGE> 97
In August, 1994, the Company issued warrants to purchase an aggregate of 200,000
shares of Common Stock at a price of $1.50 per share to Glenoaks Overseas Corp.
and Silverstone International Corp. The warrants were issued pursuant to
Regulation S promulgated under the Securities Act of 1933. The Warrants were
exercised in September, 1995.
In March, 1995, the Company issued 600,000 shares of Common Stock for $900,000
cash to accredited investors. The issuance of such securities was exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) thereof
and Regulation D promulgated thereunder.
In March, 1995, the Company issued 3,300,000 shares of Common Stock to the
stockholders of Bikers Dream, Inc. in exchange for all of their shares of stock
of Bikers Dream, Inc. pursuant to the terms and conditions of an Agreement and
Plan of Reorganization among the Company, Bikers Dream, Inc. and the
stockholders of Bikers Dream, Inc. The issuance of such securities was exempt
from registration under the Securities Act of 1933 pursuant to Section 4(2)
thereof and Regulation D promulgated thereunder.
In March, 1995, the Company granted options to purchase, at a price of $1.00 per
share, 200,000 shares, 180,000 shares, 100,000 shares, 50,000 shares, 10,000
shares and 10,000 shares to Rowland W. Day II IRA, the Day Family Trust,
Caldwell R. Campbell, Rowland W. Day, Eric Meyer and Don Duffy, respectively.
The grant of such options was exempt from registration under the Securities Act
of 1933 pursuant to Section 4(2) thereof and Regulation D promulgated
thereunder.
In April, 1995, the Company granted options to purchase 50,000 shares of Common
Stock at a price of $1.50 per share to each of Dennis Campbell, William R.
Gresher, Richard E. King, Jr. and Rowland W. Day II, the Company's current
directors. The grant of such options was exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D
promulgated thereunder.
In April, 1995, the Company granted options to purchase, at a price of $1.50 per
share, a total of 137,500 shares to four key employees. The grant of such
options was exempt from registration under the Securities Act of 1933 pursuant
to Section 4(2) thereof and Regulation D promulgated thereunder.
In July and August, 1995, the Company issued its convertible promissory notes in
the aggregate principal amount of $1,240,000 to accredited investors. The
convertible notes were converted into a total of 620,000 shares of Common Stock
in August and September, 1995. The issuance of such securities was exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) thereof
and Regulation D promulgated thereunder.
In October, 1995, the Company issued 15,000 shares of Common Stock and granted
an option to purchase, at an exercise price of $2.50 per share, 30,000 shares of
Common Stock, to Meyer, Duffy and Associates, Inc. for consulting services. The
issuance of such securities was exempt from registration under the Securities
Act of 1933 pursuant to Section 4(2) thereof and Regulation D promulgated
thereunder.
II-2
<PAGE> 98
In September, 1995, the Company granted options to William R. Gresher to
purchase, at an exercise price of $2.50 per share, 300,000 shares of Common
Stock. The grant of such options was exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D
promulgated thereunder.
In December, 1995, the Company issued its convertible promissory notes in the
aggregate principal amount of $629,000 to accredited investors. The convertible
notes were converted into 369,992 shares of Common Stock in March, 1996. The
issuance of securities was exempt from registration under the Securities Act of
1933 pursuant to Section 4(2) thereof and Regulation D promulgated thereunder.
In January, 1996, the Company issued its convertible promissory notes in the
aggregate principal amount of $450,500 to accredited investors. The convertible
notes were converted into 264,999 shares of Common Stock in April, 1996. The
issuance of securities was exempt from registration under the Securities Act of
1933 pursuant to Section 4(2) thereof and Regulation D promulgated thereunder.
In June, 1996, the Company issued convertible preferred securities,
principally to institutional investors, for a total of $1,225,000.
25. EXHIBITS
<TABLE>
<S> <C>
2.1 Agreement and Plan of Reorganization dated August 4, 1994 among HDL
Communications (now known as Bikers Dream, Inc.), Bikers Dream, Inc.
and the stockholders of Bikers Dream, Inc., as amended by agreements
dated November 11, 1994, February 3, 1995 and February 20, 1995.*
3.1 Articles of Incorporation, as amended, of Bikers Dream, Inc. (formerly
known as HDL Communications).*
3.1.1 Certificate of Amendment, Articles of Incorporation, June, 1996.*
3.2 Certificate of Ownership of HDL Communications (now known as Bikers
Dream, Inc.).*
3.3 Bylaws, as amended, of Bikers Dream, Inc.*
5.1 Opinion of Richard E. King, Jr.
5.2 Consent of Richard E. King, Jr., Counsel for Registrant.
5.2.1 Letter to SEC regarding reason for amendment.
10.1 Loan and Security Agreement between the Company and Rowland W. Day II
dated August 4, 1994, as amended by agreement dated February 3, 1995.*
10.2 Convertible Secured Promissory Note of the Company dated August 4, 1994
payable to Rowland W. Day II in the amount of $300,000.*
10.3 Loan and Security Agreement among the Company, Glenoaks Overseas Corp.
and Silverstone International Corp. dated August 4, 1994, as amended by
agreement dated February 3, 1995.*
10.4 Convertible Secured Promissory Note of the Company dated August 4, 1994
payable to Glenoaks Overseas Corp. in the amount of $100,000.*
</TABLE>
II-3
<PAGE> 99
<TABLE>
<S> <C>
10.5 Convertible Secured Promissory Note of the Company dated August 4, 1994
payable to Silverstone International Corp. in the amount of $100,000.*
10.6 Common Stock Purchase Warrant dated August 4, 1994 to purchase 100,000
shares of Common Stock issued in the name of Glenoaks Overseas Corp.*
10.7 Common Stock Purchase Warrant dated August 4, 1994 to purchase 100,000
shares of Common Stock issued in the name of Silverstone International
Corp.*
10.8 Option dated March 13, 1995 granted to Rowland W. Day II IRA to
purchase 200,000 shares of Common Stock at a price of $1.00 per share.*
10.9 Option dated March 13, 1995 granted to the Day Family Trust to purchase
180,000 shares of Common Stock at a price of $1.00 per share.*
10.10 Option dated March 13, 1995 granted to Caldwell R. Campbell to purchase
100,000 shares of Common Stock at a price of $1.00 per share.*
10.11 Option dated March 13, 1995 granted to Rowland W. Day to purchase
50,000 shares of Common Stock at a price of $1.00 per share.*
10.12 Option dated March 13, 1995 granted to Eric Meyer to purchase 10,000
shares of Common Stock at a price of $1.00 per share.*
10.13 Option dated March 13, 1995 granted to Donald Duffy to purchase 10,000
shares of Common Stock at a price of $1.00 per share.*
10.14 Employment Agreement dated as of September 1, 1994 between the Company
and Dennis Campbell.*
10.15 Employment Agreement dated as of February 8, 1995 between the Company
and Jeffrey L. Simons, as amended.*
10.16 Lease dated August 5, 1993 between the Company and McFadden Plaza.*
10.17 Lease dated November 1, 1994 between the Company and Valley View
Partnership.*
10.18 Lease dated February 20, 1995 between the Company and KD Sauder Trust.*
10.19 Franchise Agreement between the Company and Steven Hyder, and a
Schedule identifying other franchise agreements to which the Company is
a party which are substantially identical to the above-described
</TABLE>
II-4
<PAGE> 100
<TABLE>
<S> <C>
Franchise Agreement except with respect to the parties thereto, dates
of execution and territory.*
10.20 Consulting Agreement dated April 6, 1995 between the Company and Meyer,
Duffy & Associates.*
10.21 The Non Qualified Directors Stock Option Plan of the Company.*
10.22 The Incentive Stock Option Plan of the Company.*
10.23 Employment Agreement dated as of September 11, 1995 between the Company
and William R. Gresher.*
10.24 Consulting Agreement effective as of October 1, 1995 between the
Company and Meyer, Duffy and Associates.*
10.25 Asset Purchase Agreement dated September 22, 1995 between the Company,
Joe Melia and Charles Melia.*
10.26 Lease Agreement dated June 9, 1994 between Charles Melia and Joe Melia
and Westlake Professional Center Partnership and Assignment thereof to
the Company dated September 22, 1995.*
10.27 The 1995 Incentive Stock Option Plan of the Company, as amended.(1)
10.28 The 1995 Non-Qualified Stock Option Plan of the Company, as amended.(2)
10.29 The 1995 Non-Qualified Directors' Stock Option Plan of the Company, as
amended.(3)
10.30 Amendment to Consulting Agreement and Stock Option Agreement dated
November 1, 1995, between the Company and Meyer Duffy & Associates.(4)
10.31 Consulting Agreement with G.M. Astor and Associates dated April 1,
1996.(5)
</TABLE>
- ---------------------
(1) Form 10-KSB, filed April 19, 1996, Exhibit 10.22 thereof incorporated
by reference.
(2) Form 10-KSB, filed April 19, 1996, Exhibit 10.23 thereof incorporated
by reference.
(3) Form 10-KSB, filed April 19, 1996, Exhibit 10.24 thereof incorporated
by reference.
(4) Form 10-KSB, filed April 19, 1996, Exhibit 10.25 thereof incorporated
by reference.
(5) Form 10-KSB, filed April 19, 1996, Exhibit 10.25 thereof
(continued . . .)
II-5
<PAGE> 101
<TABLE>
<S> <C>
16.0 Letter on change of certifying accountant - Lesley, Thomas, Schwarz &
Postma, Inc.(6)
16.1 Letter on change of certifying accountant - KPMG Peat Marwick, L.L.P.
(7)
21.1 List of Subsidiaries.(8)
23.1 Consent of Coopers & Lybrand, L.L.P.
23.3 Consent of Lesley, Thomas, Schwarz & Postma.
24.1 Power of Attorney.*
</TABLE>
Post-effective amendment of Registration Statement on form SB-2 filed on May 24,
1996.
26. UNDERTAKINGS
A. Supplementary and Periodic Information, Documents and Reports
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority in that
Section.
B. Item 512 Undertaking with Respect to Rule 415 Under the Securities Act
of 1933
The undersigned Registrant hereby undertakes:
- ---------------------
(5) (. . . continued)
incorporated by reference.
(6) Form 10-KSB, filed April 19, 1996, Exhibit 16.0 thereof incorporated by
reference.
(7) Form 10-KSB, filed April 19, 1996, Exhibit 16.1 thereof incorporated by
reference.
(8) Form 10-KSB, filed April 19, 1996, Exhibit 21.0 thereof incorporated by
reference.
II-6
<PAGE> 102
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement; and
(c) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
C. Indemnification
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Securities Act") may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
D. Item 512 Undertaking with Respect to Rule 430A
The undersigned registrant hereby undertakes that:
II-7
<PAGE> 103
(i) For purposes of determining any liability under the
Securities Act of 1933, the registrant will treat the
information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act as part of this registration statement as of
the time it was declared effective.
(ii) For the purpose of determining any liability under the
Securities Act of 1933, the registrant will treat each
post-effective amendment that contains a form of prospectus as
a new registration statement for the securities offered in the
registration statement, and the offering of such securities at
that time as the initial bona fide offering thereof.
II-8
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Ana, State of California on August 22, 1996.
BIKERS DREAM, INC.
By:/s/ Dennis Campbell
Dennis Campbell, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
/s/ Dennis Campbell August 22, 1996
- -------------------------------------------------------------------------------
Dennis Campbell, President (Principal
Executive Officer) and Director
/s/ William R. Gresher August 22, 1996
- -------------------------------------------------------------------------------
William R. Gresher, Senior Vice President and
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
and Director
/s/ Richard E. King, Jr.* August 22, 1996
- -------------------------------------------------------------------------------
Richard E. King, Jr.,
Secretary and Director
Rowland W. Day II * August 22, 1996
- -------------------------------------------------------------------------------
Rowland W. Day II, Director
* Richard E. King, Jr., by signing his name hereto, does sign this
Registration Statement on behalf of each of the indicated persons on
the date indicated pursuant to a power of attorney duly executed by
such person.
/s/ Richard E. King, Jr.
- -------------------------------------------------------------------------------
Richard E. King, Jr., Attorney-in-Fact
II-9
<PAGE> 105
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NO. EXHIBITS PAGE NO.
- --- -------- --------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated August 4, 1994 among HDL
Communications (now known as Bikers Dream, Inc.), Bikers Dream, Inc.
and the stockholders of Bikers Dream, Inc., as amended by agreements
dated November 11, 1994, February 3, 1995 and February 20, 1995.*
3.1 Articles of Incorporation, as amended, of Bikers Dream, Inc. (formerly
known as HDL Communications).*
3.1.1 Certificate of Amendment, Articles of Incorporation, June, 1996.*
3.2 Certificate of Ownership of HDL Communications (now known as Bikers
Dream, Inc.).*
3.3 Bylaws, as amended, of Bikers Dream, Inc.*
5.1 Opinion of Richard E. King, Jr.
5.2 Consent of Richard E. King, Jr., Counsel for Registrant.
5.2.1 Letter to SEC regarding reason for amendment.
10.1 Loan and Security Agreement between the Company and Rowland W. Day II
dated August 4, 1994, as amended by agreement dated February 3, 1995.*
10.2 Convertible Secured Promissory Note of the Company dated August 4, 1994
payable to Rowland W. Day II in the amount of $300,000.*
10.3 Loan and Security Agreement among the Company, Glenoaks Overseas Corp.
and Silverstone International Corp. dated August 4, 1994, as amended by
agreement dated February 3, 1995.*
10.4 Convertible Secured Promissory Note of the Company dated August 4, 1994
payable to Glenoaks Overseas Corp. in the amount of $100,000.*
10.5 Convertible Secured Promissory Note of the Company dated August 4, 1994
payable to Silverstone International Corp. in the amount of $100,000.*
10.6 Common Stock Purchase Warrant dated August 4, 1994 to purchase 100,000
shares of Common Stock issued in the name of Glenoaks Overseas Corp.*
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
NO. EXHIBITS PAGE NO.
- --- -------- --------
<S> <C> <C>
10.7 Common Stock Purchase Warrant dated August 4, 1994 to purchase 100,000
shares of Common Stock issued in the name of Silverstone International
Corp.*
10.8 Option dated March 13, 1995 granted to Rowland W. Day II IRA to
purchase 200,000 shares of Common Stock at a price of $1.00 per share.*
10.9 Option dated March 13, 1995 granted to the Day Family Trust to purchase
180,000 shares of Common Stock at a price of $1.00 per share.*
10.10 Option dated March 13, 1995 granted to Caldwell R. Campbell to purchase
100,000 shares of Common Stock at a price of $1.00 per share.*
10.11 Option dated March 13, 1995 granted to Rowland W. Day to purchase
50,000 shares of Common Stock at a price of $1.00 per share.*
10.12 Option dated March 13, 1995 granted to Eric Meyer to purchase 10,000
shares of Common Stock at a price of $1.00 per share.*
10.13 Option dated March 13, 1995 granted to Donald Duffy to purchase 10,000
shares of Common Stock at a price of $1.00 per share.*
10.14 Employment Agreement dated as of September 1, 1994 between the Company
and Dennis Campbell.*
10.15 Employment Agreement dated as of February 8, 1995 between the Company
and Jeffrey L. Simons, as amended.*
10.16 Lease dated August 5, 1993 between the Company and McFadden Plaza.*
10.17 Lease dated November 1, 1994 between the Company and Valley View
Partnership.*
10.18 Lease dated February 20, 1995 between the Company and KD Sauder Trust.*
10.19 Franchise Agreement between the Company and Steven R. Hyder, and a
Schedule identifying other franchise agreements to which the Company is
a party which are substantially identical to the above-described
Franchise Agreement except with respect to the parties thereto, dates
of execution and territory.*
10.20 Consulting Agreement dated April 6, 1995 between the Company and Meyer,
Duffy & Associates.*
10.21 The Non Qualified Directors Stock Option Plan of the Company.*
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
NO. EXHIBITS PAGE NO.
- --- -------- --------
<S> <C> <C>
10.22 The Incentive Stock Option Plan of the Company.*
10.23 Employment Agreement dated as of September 11, 1995 between the Company
and William R. Gresher, as amended.*
10.24 Consulting Agreement effective as of October 1, 1995 between the
Company and Meyer, Duffy and Associates.*
10.25 Asset Purchase Agreement dated September 22, 1995 between the Company,
Joe Melia and Charles Melia.*
10.26 Lease Agreement dated June 9, 1994 between Charles Melia and Joe Melia
and Westlake Professional Center Partnership, and Assignment thereof to
the Company.*
10.27 The 1995 Incentive Stock Option Plan of the Company, as amended.*
10.28 The 1995 Non-Qualified Stock Option Plan of the Company, as amended.*
10.29 The 1995 Non-Qualified Directors' Stock Option Plan of the Company as
amended.*
10.30 Amendment to Consulting Agreement and Stock Option Agreement dated
November 1, 1995, between the Company and Meyer Duffy & Associates.*
10.31 Consulting Agreement with G. M. Astor & Associates dated April 1,
1996.*
16.0 Letter on change of certifying accountant - Lesley, Thomas, Schwarz &
Postma, Inc.*
16.1 Letter on change of certifying accountant - KPMG Peat Markwick, L.L.P.*
21.1 List of Subsidiaries. (8)*
23.1 Consent of Coopers & Lybrand, L.L.P.
23.2 Consent of Lesley, Thomas, Schwarz & Postma.
23.5 Opinion Letter of Richard E. King, Jr., counsel for the Registrant
included in Exhibit 5.1.
23.6 Consent of Richard E. King, Jr., counsel for the Registrant included in
Exhibit 5.2.
24.1 Power of Attorney.*
</TABLE>
*Previously filed, Registration Statement on Form SB-2 filed on May 24, 1996,
and as incorporated by reference therein.
<PAGE> 1
[LAW OFFICES OF RICHARD E. KING, JR. LETTERHEAD]
August 14, 1996
Securities and Exchange Commission
450 Fifth Street N.W.
Mail Stop F-2
Washington, D.C. 20549
Re: Bikers Dream, Inc.
Form SB-2 Registration Statement
Amendment No. 1
Gentlemen:
In connection with Amendment No. 1 to the Company's Registration Statement,
under the Securities Act of 1933, originally filed on June 19, 1996, and as of
the date of this letter we are of opining as follows:
The shares of Common Stock offered by means of the prospectus are validly
issued and non-assessable, nor are such shares subject to any preemptive rights
or rights of redemption.
Yours truly,
/s/ RICHARD E. KING, JR.
- --------------------------------
Richard E. King, Jr.
REK/kli
Exhibit 5.1
<PAGE> 1
[LAW OFFICES OF RICHARD E. KING, JR. LETTERHEAD]
August 14, 1996
Securities and Exchange Commission
450 Fifth Street N.W.
Mail Stop F-2
Washington, D.C. 20549
Re: Bikers Dream, Inc.
Form SB-2 Registration Statement
Registration No. 333-6331
Amendment No. 1
Consent of Law Firm
Gentlemen:
We consent to the use in this Amendment No. 1 to the Registration Statement on
Form SB-2 of our opinion dated June 19, 1996 with respect to the validity of
the shares of Common Stock offered thereby.
Yours truly,
/s/ RICHARD E. KING, JR.
- --------------------------------
Richard E. King, Jr.
REK/kli
Exhibit 5.2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form SB-2 (File
No. 33-36331) of our report dated February 27, 1996 on our audit of the
financial statements of Bikers Dream, Inc. for the year ended December 31,
1995, which report includes an explanatory paragraph relating to substantial
doubt about the entity's ability to continue as a going concern. We also
consent to the reference to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
Newport Beach, California
August 22, 1996
<PAGE> 1
[LESLEY, THOMAS, SCHWARZ & POSTMA, INC. LETTERHEAD]
August 7, 1996
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Amendment No. 1 Registration Statement on
Form SB-2 of our report dated March 15, 1995 relating to the financial
statements of Bikers Dream, Inc. for the year ended December 31, 1994, and the
reference to our firm under the caption "EXPERTS" in the Prospectus.
/s/ Lesley, Thomas, Schwarz & Postma, Inc.
LESLEY, THOMAS, SCHWARZ & POSTMA
CERTIFIED PUBLIC ACCOUNTANTS
Newport Beach, California
August 7, 1996
Bikers Dream, Inc.
Amendment No. 1 to
Form SB-2
Exhibit 23.2
