<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30,1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to .
------ -----
Commission File No. 0-15501
BIKERS DREAM, INC.
(Exact name of Registrant as specified in its charter)
California 33-0140149
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1420 Village Way, Santa Ana, California 92705
(Address of Principal Executive Offices)
(714) 835-8464
(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the Issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
---- -----
As of June 30,1997, there were 8,804,680 shares of the Registrant's common
stock outstanding.
Transitional Small Business Disclosure Format
Yes No X
------- ------
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 And 1996
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1996
---- ----
<S> <C> <C>
A S S E T S:
Current assets:
Cash and cash equivalents $ 279,336 $ 490,322
Accounts receivable, net 648,977 582,957
Inventories 3,165,769 1,663,567
Notes receivable - related party 546,335
Prepaid expenses and other current assets 489,849 69,301
---------- ----------
Total current assets 5,130,266 2,806,147
Property, equipment and capitalized leases, net 1,086,749 1,025,158
Goodwill 3,217,971
Deposits and other assets 37,570 75,794
---------- ----------
Total assets $9,472,556 $3,907,099
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $1,339,421 $450,226
Other accrued expenses 1,207,559 989,266
Current portion of long-term debt 85,589 76,151
Current portion of notes payable 3,625,238 373,102
Notes payable to shareholders 36,000 171,500
---------- ----------
Total current liabilities 6,293,807 2,060,245
Deferred rent 68,097 119,098
Notes payable, less current portion 2,781,840 96,928
Long-term debt, less current portion 326,852 413,738
Note Payable to shareholder 24,000
---------- ----------
Total liabilities 9,494,596 2,690,009
---------- ----------
Commitments and contingencies (Note 5)
Shareholders' equity:
Preferred stock, no par value:
10,000,000 shares authorized, 7 issued and outstanding 1,102,500 1,102,500
Common stock, no par value; 25,000,000 shares authorized
at June 30, 1997; 8,804,680 and 6,170,911 issued
and outstanding at June 30, 1997 and June 30, 1996 7,736,167 4,212,718
Accumulated deficit (8,860,707) (4,098,128)
---------- ----------
Total shareholders' equity (22,040) (1,217,090)
---------- ----------
Total liabilities and shareholders' equity $9,472,556 $3,907,099
========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
2
<PAGE> 3
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Quarters Ended June 30, 1997, and 1996
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1996
---- ----
<S> <C> <C>
Revenues:
Product sales $ 4,450,013 $2,783,711
Financing contracts 19,236 81,789
----------- ----------
Total revenues 4,469,249 2,865,500
Cost of goods sold 4,089,219 2,275,328
----------- ----------
Gross profit 380,030 590,172
----------- ----------
Expenses:
Selling, general and administrative expenses 1,709,332 1,355,272
Depreciation and amortization 102,403 58,220
Interest expense 162,222 38,405
Franchise income (28,205)
Other expense 14,036 156,034
----------- ----------
Total expenses 1,988,393 1,579,726
----------- ----------
Loss before (provision) for
income taxes (1,608,363) (989,554)
(Provision) for income taxes 0 0
----------- ----------
Net loss $(1,608,363) $ (989,554)
=========== ==========
Net loss per share $ (0.18) $ (0.17)
=========== ==========
Weighted average shares outstanding 8,804,680 6,118,494
=========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
3
<PAGE> 4
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended June 30, 1997, And 1996
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,276,515) $(1,615,316)
----------- -----------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Deferred income taxes -- --
Loss from disposal of fixed assets -- 26,046
Store closure costs 125,000
Depreciation and amortization 160,246 102,966
Changes in assets and liabilities:
(Increase) in accounts receivable (506,850) (296,565)
(Increase) in inventories (1,723,343) (6,107)
Decrease (increase) in prepaid expenses and other
current assets (957,070) 61,794
Increase in accounts payable 898,489 15,801
Increase in other accrued expenses 178,655 233,600
----------- ----------
Total adjustments (1,949,873) 262,495
------------ ---------
Net cash used in operating activities (4,226,388) (1,352,821)
----------- ----------
Cash flows from investing activities:
Decrease in deposits 8,062 105,357
Payments for purchases of fixed assets 488,846 (407,531)
Increase in deferred rent (560) 20,724
Investment - Joint Venture (1,508,855)
Goodwill - Ultra Acquisition Corporation 3,217,971
----------- ---------
Net cash used in investing activities (2,205,464) (281,450)
----------- ---------
</TABLE>
See the accompanying notes to these consolidated financial statements.
4
<PAGE> 5
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For The Quarters Ended June 30, 1997, And 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from short-term notes 6,217,042 $ 300,000
Proceeds from long-term debt 41,383 308,350
Principal payments made on long-term debt and
capitalized leases (258,254) (27,750)
Proceeds from issuance of common stock --
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 (12,000) (85,463)
Payments received on note receivable from stockholder
Preferred dividend accrual (71,208)
---------- ----------
Net cash provided by financing activities 6,463,297 1,988,857
---------- ----------
Net increase in cash and cash equivalents 31,445 354,586
Cash and cash equivalents, beginning of period 247,891 135,736
---------- ----------
Cash and cash equivalents, end of period $ 279,336 $ 490,322
========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
5
<PAGE> 6
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, And 1996
1. Basis of Presentation
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, 1996. The results of
operations for the three months and six months ended June 30,1997 are
not necessarily indicative of the results to be expected for the year
ending December 31, 1997. Net loss per share was computed by dividing
net loss by the weighted average number of common shares outstanding
during the respective quarters.
2. Company Operations And Liquidity:
Bikers Dream, Inc. (the "Company") was originally incorporated in 1991.
As of March 13, 1995, the Company acquired a publicly-traded dormant
entity formerly known as HDL Communications ("HDL") which was
originally incorporated in 1985. After the acquisition, the Company was
merged into HDL and HDL changed its name to Bikers Dream, Inc.
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 was in the business of selling previously owned
Harley Davidson motorcycles, custom manufactured motorcycles, parts,
accessories, apparel and service through Company-owned retail stores in
California and Texas.
In September 1996, the Company formed a joint venture with Mull Acres,
Investments Inc. ("MAI"), whose Ultra Kustom Cycles division of
Riverside, California was a manufacturer of custom V-twin motorcycles
and show-bikes. The joint venture was formed to act as the exclusive
distributor of Ultra Cycles in Southern California, Sacramento,
California, and Dallas Texas.
In February 1997, the Company, through its wholly owned subsidiary,
Ultra Acquisition Corporation, a Nevada corporation ("UAC") purchased
from MAI certain assets, including equipment and inventory, of MAI's
Ultra Kustom Cycles and Ultra Kustom Parts divisions that had been used
in connection with the manufacture, distribution and sale of
motorcycles and motorcycle parts and accessories.
Continued
6
<PAGE> 7
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997, And 1996
2. Company Operations And Liquidity, Continued:
The Company has two lines of business: motorcycle manufacturing and
operating four retail outlets known as Bikers Dream Superstores
("Superstores"), selling motorcycles manufactured by the Company, as
well as other new and used motorcycles, complemented by a full range of
aftermarket parts, accessories and services.
At present the Company's Superstores are located in San Diego,
California, Santa Ana, California, Sacramento, California and Dallas,
Texas. The Company is also establishing a network of Bikers Dream
Superstore dealers and independent Ultra Motorcycle dealers. The
Company intends to pursue a strategy of business growth that involves
increased production of Ultra motorcycles, the opening of additional
corporate-owned Superstores, the opening of additional Bikers Dream
Superstores dealers and the continued growth of the number of
independent Ultra Motorcycle dealers.
The Company's consolidated financial statements for the three months
ended June 30,1997, 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 $989,554 for the quarter ended June 30,
1996 and a net loss of $1,608,363 for the three months ended June 30,
1997. As of June 30, 1997 the Company had an accumulated deficit of
$8,680,707.
Continued
7
<PAGE> 8
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
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., Bikers
Dream Eagle Enterprises, Inc., and Ultra Acquisition Corporation. All
significant intracompany accounts and transactions are eliminated in
consolidation.
3. Summary Of Significant Accounting Policies:
Revenue Recognition:
Product Sales - Retail stores' sale of products is recognized
at the time of sale to a retail customer.
Manufacturing - Revenue from the sale of motorcycles and parts
is recognized at the time of shipment.
Financing Income - Financing income is the Company's commission
revenue resulting from certain motorcycle sales. Such revenue
is recognized at the time it is received.
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
8
<PAGE> 9
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
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, 1997, the allowance for doubtful accounts was $105,002.
This balance was $33,251 as of June 30, 1996.
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 30,1997, the reserve for obsolescence was
$116,216. The reserve at June 30, 1996 was $75,000.
Continued
9
<PAGE> 10
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 and 1996
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 cruiser motorcycles. Future success is
dependent on the continuation of interest in the recreational
motorcycle industry in general, and the continued popularity of cruiser
motorcycles.
Concentration Of Credit Risk:
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, 1997 the
Company has no significant concentrations of credit risk.
Continued
10
<PAGE> 11
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
3. Summary Of Significant Accounting Policies, Continued:
Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, and 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 1997 1996
------------ ---- ----
<S> <C> <C> <C>
Furniture and fixtures 7 years $ 140,567 $ 195,841
Leasehold improvements 7 years 204,726 208,579
Equipment 5-7 years 390,505 101,696
Computers 5 years 193,120 270,046
Autos and trucks 3-10 years 473,086 441,053
---------- ----------
1,402,004 1,217,215
Less, Accumulated depreciation and amortization (315,255) (192,057)
---------- ----------
$1,086,749 $1,025,158
========== ==========
</TABLE>
Assessments of whether there has been a permanent impairment in the
value of long-lived assets are periodically performed by considering
factors such as expected future operating results, trends and
prospects, as well as the effects of demand, competition and other
economic factors. The method used is to determine if an impairment has
occurred based upon a change in circumstances regarding the long lived
assets, followed by an analysis of cash flows regarding the assets in
question. If an impairment is determined to have occurred as a result
of the analysis, then the Company recognizes and measures that
impairment using discounted cash flow as provided by FAS 121. Since the
Company has just started many of its retail operations in the last 12
months, historical information is limited in evaluating future effects.
During the Second Quarter of 1996 the Company closed one of its former
franchises which was acquired in late 1995 resulting in a write-off of
$32,000 in leasehold improvements. Fixed assets were also reduced by
$146,000 as a result of the sale of the Clearwater, Florida Superstore
in third quarter 1996. Management believes no further permanent
impairment has occurred based upon the information currently available.
Continued
11
<PAGE> 12
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
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, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Computers $132,723 $132,723
Less, Accumulated amortization (77,711) (22,127)
-------- --------
$ 55,012 $110,596
======== ========
</TABLE>
5. Commitments And Contingencies:
Leases
The Company leases all of its operating facilities. The Santa Ana,
California operating facility, which serves as a retail Superstore as
well as Corporate warehouse and executive offices, is leased under a
non-cancelable 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 to renew.
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 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 a monthly
lease payment of $3,039. The monthly lease payments increase to $3,555
per month over the term of the lease. The Company has the option to
extend the lease for five years.
On October 31, 1996, the Company negotiated a lease for a new
Company-owned superstore in San Diego, California which opened in
February 1997. The lease term is 60 months commencing February 1, 1997
with monthly lease payments of $5,271. The Company has the option to
extend the lease for five years.
The Company acquired the following two leases with its acquisition of
Ultra Kustom Cycles and Ultra Kustom Parts:
1. An operating facility in Riverside, California which is used for
Ultra motorcycle manufacturing, general offices and parts warehouse.
The term of the lease is 36 months commencing on March 1, 1996 with a
monthly lease payment of $6,200 with increases on each of the
subsequent years;
2. An operating facility in Riverside, California which is used for
warehousing and assembly of Ultra motorcycle parts. The term of the
lease is 24 months commencing on October 15, 1996 with a monthly lease
payment of $1,400.
Continued
12
<PAGE> 13
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
5. Commitments And Contingencies, Continued:
Litigation
The Company is involved in litigation arising from the sale of one
franchise, trademark infringements and related claims by
Harley-Davidson, a claim based on a judgement against MAI, and claims
arising 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, with the exception of
the claim against MAI, in the June 30, 1997 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
13
<PAGE> 14
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
6. Long-Term Debt:
Long-term debt at June 30, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<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 $59,704 $73,351
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 1,547 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 251,852 291,314
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 January, 2001 33,580 39,529
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 65,758 81,788
-------- --------
412,441 489,889
Less, Current portion (85,589) (76,151)
-------- --------
Long-term debt, net of current portion $326,852 $413,738
======== ========
</TABLE>
Continued
14
<PAGE> 15
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
7. Notes Payable:
The notes payable at June 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Note payable to bank which was assumed in connection 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. 89,873 97,779
Note payable to former franchisee in connection with the acquisition of
former franchise operation. Note is uncollateralized,
non-interest-bearing and is payable in 24 equal monthly installments of
$1,221 through November 1997. 12,205 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
Note payable to unrelated party is in connection with the acquisition
Of former franchise operation. $100,000 due in October, 1995, and
balance accruing interest at 9% and payable in equal monthly
installments to September 1996 collateralized by all the assets of
the Company. --- 51,502
Note payable to Mull Acres Investments, Inc. ("MAI"). On January 30,
1997, the Company purchased the assets of Ultra Kustom Cycles and
Ultra Kustom Parts from MAI for the amount of $2,700,000. This amount
is payable on March 31, 1998 with an interest rate of 2.7037%. Interest
is payable in twelve monthly installments of $6,083. The discounted
value is $2,545,123. 2,700,000
Notes payable. On January 30, 1997, the Company issued notes payable
amounting to $2,210,000 to raise funds for the purchase of Ultra Kustom
Cycles and Ultra Kustoms Parts and to fund the opening of a Bikers Dream
Superstore. These notes are payable on January 30, 1998 with an interest
rate of 12% per annum. 2,210,000
--------- -------
Sub Total 5,012,078 470,030
Less, Current portion (2,230,238) (373,102)
---------- ---------
Notes payable, long-term portion $2,781,840 $ 96,928
========== =========
</TABLE>
Continued
15
<PAGE> 16
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 and 1996
8. Preferred Stock
In July, 1996, the Company sold 7 units (each unit consisting of one
share of preferred stock and the right to receive 70,000 shares of
common stock) for a price of $175,000 per unit, for a total
consideration of $1,102,500, net of offering costs. Each share of
convertible Preferred stock pays annual dividends of 10% payable in
shares of common stock of the Company. Each share of preferred stock is
convertible at the option of the holder, after the effective date of a
registration statement relating to the underlying common stock, into
70,000 shares of the Company's common stock at a conversion rate of
$2.50 per share. If at the time of conversion 75% of the current bid
price is less than $3.50 per share, the holder will receive a greater
number of shares, but in no case will the conversion rate be less than
$1.50 per share. In addition, the Company may call for the conversion
of the preferred stock if the average closing price of the Company's
common stock is $5.00 per share for ten consecutive trading days or any
time after the third anniversary of the private placement. Preferred
shareholders have preferences on liquidation over common shareholders.
The holder of each unit was entitled to receive 50,000 warrants at an
exercise price of $3.15 per share or lower if the Board of Directors
deems appropriate, six months after the issuance of the preferred
stock, unless the holder converted the preferred shares prior to the
end of such six month period. None of the preferred shareholders
elected to convert their preferred shares within six months after the
date of issuance, and none of such preferred shareholders had been
converted as of June 30, 1997. The warrants expire three years after
issuance. In addition, warrants are callable if the Company's common
stock closes at $5.00 per share for ten consecutive trading days after
registration of the Preferred stock. As of June 30, 1997, none of the
warrants have been exercised.
In 1996, the Company declared dividends of Common stock valued at
$61,000.
Continued
16
<PAGE> 17
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
9. Related Party Transactions:
During 1996 and 1995, the Company incurred $133,689 and $219,045,
respectively, in legal fees and/or consulting fees from a law firm of
which Rowland W. Day, II, who until June 20, 1997 was a member of the
Board of Directors and Co-Chief Executive Officer of the Company,
is a partner.
In February 1995, Rowland W. Day, II loaned $50,000 to the Company, the
proceeds of which were used to purchase four used Harley-Davidson
motorcycles. The Company repaid the loan and interest thereon in the
amount of $2,000 to Mr. Day in March 1995.
The Company agreed to grant to Rowland W. Day, II and/or his assigns,
upon consummation of the Bikers Dream Acquisition, an irrevocable
three-year option to purchase, at a price of $1.00 per share, 550,000
shares of common stock . Mr. Day has assigned his right to receive
options to purchase 170,000 of such shares to other persons.
The Company has granted options to Company officers, in connection with
employment agreements, to purchase 100,000 shares and 350,000 shares of
common stock at a per share exercise price of $1.50 and $2.50,
respectively. The options vest over a five-year period commencing in
March 1995 and September 1995, respectively. The options expire 10
years following the date of the option grant. .
Continued
17
<PAGE> 18
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
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 and Chief
Executive Officer of the Company, is a principal of Meyer Duffy.
The Company has granted non-qualified options to Meyer Duffy to
purchase 30,000 shares of common stock at $2.50 per share. The options
vested at the time of grant for services rendered, and are exercisable
within two years following the date of grant in April 1995.
On August 31, 1995, Dennis Campbell loaned the Company $24,000 on a
demand note at an interest rate of 16% per annum. This note was repaid
in September 1996.
On December 31, 1995, Dennis Campbell loaned the Company $14,547 on
demand at 10% interest. This note was paid in full during January 1996.
On October 1, 1995, the Company entered into a consulting agreement
with Meyer Duffy, which was amended on November 1, 1995, whereby Meyer
Duffy & Associates was retained to provide consulting, financial
advisory and investment banking services for a ten-month term
commencing October 1, 1995. The agreement provided for the payment of
$5,000 per month to Meyer Duffy. The agreement was not renewed upon
expiration.
Continued
18
<PAGE> 19
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
9. Related Party Transactions, Continued:
On October 17, 1995, William R. Gresher, then Senior Vice President,
Chief Financial Officer and a director of the Company, loaned $50,000
to the Company, pursuant to a note bearing interest at 11% per annum,
on demand, and on October 24, 1995, Mr. Gresher loaned an additional
$10,000 to the Company on the same terms. These notes were paid in
September, 1996.
On November 3, 1995, M.D. Strategic L.P., a partnership of which Donald
Duffy, a director of the Company, is a principal, loaned $100,003 to
the Company for 90 days at 8% interest per annum, receiving notes which
are convertible into shares of common stock of the Company at $1.70 per
share on certain conditions related to proposed asset-based financing
of the Company. On December 3, 1995, M.D. Strategic made an additional
loan of $49,997 to the Company, and on December 5, 1995, a similar loan
was consummated in the sum of $50,000, for convertible notes bearing
the same terms and due 90 days from the funding thereof. These notes
were converted on March 14, 1996 into common stock of the Company.
During 1996 and 1995, the Company incurred $52,201 and $28,557 in legal
fees to the law offices of Robert E. King, Jr. of which Richard E.
King, Jr., then Secretary and a director of the company, is the
principal. (Mr. King subsequently resigned has position with the
Company).
In April 1996 the Company obtained a ninety day unsecured loan in the
amount of $299,880 from M.D. Strategic L.P., a partnership of which
Donald Duffy is a principal. The loan bears interest at 14.0% per annum
and was extended until September 10, 1996 when it was converted into
142,800 Units (each unit consists of two shares of common stock, one
Series A warrant to purchase one share of common stock for $1.05 per
share, and one Series B warrant to purchase one share of common stock
for $1.50 per share).
Continued
19
<PAGE> 20
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
June 30, 1997 And 1996
9. Related Party Transactions, Continued:
In 1996 the Company obtained a ninety day unsecured loan in the amount
of $199,920 from M.D. Strategic L.P., a partnership of which Donald
Duffy is a principal. The loan bears interest at 14.0% per annum and
was extended until September 10, 1996 when it was converted into 92,200
Units (each unit consists of two shares of common stock, one Series A
warrant to purchase one share of common stock for $1.05 per share, and
one Series B warrant to purchase one share of common stock for $1.50
per share).
In September 1996, the Company converted consulting expenses of $53,177
due to Meyer Duffy into 38,562 shares of common stock.
In September 1996, the Company converted accrued legal and consulting
expenses Of $82,290 due to Day, Campbell & McGill into 59,557 shares of
common stock.
In September 1996, for past services, 50,000 shares of common stock of
the company were issued to Day Campbell & McGill, 50,000 shares to
Meyer Duffy & Associates and 10,000 shares to Richard King Jr. at $1.38
per share.
In September 1996, the Company granted 200,000 stock options to both
Rowland W. Day II and Donald J. Duffy at an exercise price of $1.05,
vesting immediately, with piggyback registration rights and exercisable
over two years.
In January 1997, the Company received $350,000 from MD Strategic, L.P.
and $400,000 from PVII, partnerships of which Donald Duffy is a
principal. These investments are in the form of 12% promissory notes.
10. Fair Value Of Financial Instruments:
The fair value of the Company's long-term debt and notes payable
approximates the carrying value at September 30, 1996. This estimate is
based on the fact that the majority of the long-term debt and notes
payable were negotiated transactions, and the negotiated interest rates
approximate a market rate at that time.
11. Recently Issued Accounting Standard:
The Financial Accounting Standards Board has issued a Statement of
Financial Accounting Standards No. 123 (FAS 123) entitled "Accounting
for Stock-Based Compensation." Since adoption of FAS 123 in fiscal
1996, the Company continues to account for stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25 and will
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
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and the notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth for the period indicated the unaudited income and
expense items.
<TABLE>
<CAPTION>
For the Quarter Ended
June 30, 1997
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net Revenue $4,469,249 $2,865,500
Cost of Goods Sold 4,089,219 2,275,328
Gross Profit 380,030 590,172
Other (Income) and Expenses
Selling, general and
administrative expenses 1,709,332 1,355,272
Depreciation and Amortization 102,803 58,220
Interest (income) expense 162,222 38,405
Franchise income 0 (28,205)
Other expense (income) 14,036 156,034
---------- ----------
Total 1,988,393 1,579,726
Income (loss) Before
provision For Income Taxes (1,608,363) (989,554)
(Provision) For Taxes 0 0
---------- ----------
Net Income (loss) $(1,608,363) $ (989,554)
========== ==========
</TABLE>
Continued
21
<PAGE> 22
COMPARISON OF FIRST QUARTER ENDED JUNE 30, 1997 AND 1996:
Net revenue for the second quarter ended June 30,1997 was $4,469,249 an increase
of $1.6 million or 56% from the same period in 1996. The store operations
generated gross revenue of $2.8 million. Manufacturing operations generated
gross revenue and net revenue of $2.6 million and $1.7 million respectively. The
difference between gross revenue and net revenue from manufacturing operations
is due to inter-company sales elimination which occurs when manufacturing sells
motorcycles to company-owned stores.
The increase in net revenue is due to the additional revenue from Ultra, which
was not owned by the Company in 1996, and an increase in store sales as the
Company opened a new Superstore in San Diego, CA in the first quarter of 1997,
offset by the loss of sales from the sale of the Clearwater, FL Superstore in
the third quarter of 1996, and the closing of the Thousand Oaks Superstore in
the second quarter of 1996.
Total gross profit for the quarter ended June 30, 1997, was $380,030, a
decrease of $210,142, or 36% from the same period in 1996. The decrease in
gross profit is primarily due to negative gross profit at motorcycle
manufacturing offset by an increase in gross profit from store operation.
Manufacturing generated a negative gross profit of $239,943. The losses were
due to inefficiencies in cost of materials, higher than anticipated labor costs
as the Company expanded production, and higher than expected warranty costs.
The increase in gross profit from store operations is primarily due to the
opening of a new superstore in San Diego in the first quarter of 1997.
Selling, general and administrative expenses were $1,709,332 for the quarter
ended June 30, 1997, an increase of $354,060, or 26%. The increase is mainly due
to the selling, general and administrative costs of manufacturing operations,
which were not a part of the Company in 1996.
Depreciation and amortization increased 77% to $102,403 in the quarter ended
June 30, 1997, from the prior year quarter. The increase was due to the
inclusion of depreciation and amortization from the manufacturing operations,
which were not a part of the Company in the prior year quarter. Interest expense
increased $124,217, or 322%, to $162,622 for the quarter ended June 30, 1997,
from the prior year quarter. The increase in interest expense was primarily due
to the interest expense associated with the note offering and debt related to
the acquisition of manufacturing operations.
Continued
22
<PAGE> 23
The Company experienced no franchise income as franchise operations were
suspended in 1996. Other expenses decreased to $14,036 in the quarter ended June
30, 1997, from $156,034.
There was no provision for income taxes in this quarter. The Company decided to
fully reserve for the Deferred Tax Asset primarily related to its net operating
loss carry forwards. The Company's management has concluded that, based upon its
assessment of all available evidence, the future benefit of this asset cannot be
projected accurately at this time.
The net loss for the quarter ended June 30, 1997 was $1,608,363 as compared to a
loss of $989,554 in the same period in 1996. The increase was primarily due to
losses incurred from motorcycle manufacturing.
Continued
23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied substantially on equity capital and bridge loan financing
to meet its operating and growth needs.
In April 1996, the Company received a 90 day loan in the amount of $300,000 from
MD Strategic, of which one of the Company's directors is a principal, to meet
its additional cash needs for operating losses and debt service. This note was
extended and subsequently converted into shares of the Company's Common Stock in
September, 1996 at a price of $1.05 a share.
In addition, the Company retained an investment banking firm in April 1996 to
advise and assist in the sale of additional equity securities. The securities
offered, principally to institutional investors, were units consisting of
convertible preferred stock with warrants to purchase additional common shares
at a purchase price of $175,000 per unit. Through September 30, 1996, the
Company has sold 7 units and received $1,102,500 net of commissions.
In September 1996 the Company converted promissory notes in the amount of
$500,000 into 476,100 shares of common stock of the Company, liabilities of
$136,267 were converted into a total of 98,109 shares of common stock of the
Company, and 110,000 shares of common stock of the Company were issued at a
price of $1.38 per share as compensation for past services.
In September 1996, the Company issued 1,222,596 Units (each Unit consisting of
two shares of common stock, one Series A warrant to purchase, at a price of
$2.10 per share, one share of common stock, and one Series B Warrant to
purchase, at a price of $3.10 per share, one share of common stock) for total
gross proceeds of $2,567,450.
In September 1996, the Company sold its Clearwater, Florida Superstore to its
former President, Dennis Campbell, in exchange for consideration which included
the cancellation of 950,000 shares of the Company's common stock owned by Mr.
Campbell.
In January 1997 the Company issued $2,210,000 in the form of 12% promissory
notes maturing January 1998. These funds were used primarily for the
acquisition of Ultra Kustom Cycles and working capital.
During June 1997, Mull Acres converted $1,370,000 of a $2,700,000 Senior
Subordinated Note dated January 30, 1997 into equity.
In July 1997, the Company issued $2,710,000 in the form of 9.75% promissory
notes due 90 days after the date after the note was signed unless earlier
converted into shares of preferred stock. These funds will primarily be used
to fund working capital requirements.
In order to continue to meet its operating needs and expand the manufacturing
and retail lines of its business, the Company will be seeking additional
funding from a number of sources including private placement of debt and
equity. There can be no assurance that such financing will be available on
terms acceptable to the Company, or at all.
24
<PAGE> 25
Part II
Item 1. Legal Proceedings
1. A trial date of October 21, 1997 has been set in the
previously disclosed Harley-Davidson litigation, and discovery
is continuing.
2. The previously disclosed Simon and Quan lawsuits have been
settled.
3. On June 18, 1997, the Company was served as a co-defendant in
a claim filed on March 12, 1997 in Superior Court of the State
of California for the County of Orange by Frank Pierce Jones.
The complaint names several co-defendants, including Mull
Acres Investments, Inc. ("MAI"), and seeks to recover from
these several entities a $300,000 judgement previously
obtained by the plaintiff from Tiffany Coachworks, Inc.
("TCI"). Plaintiff has sued the Company on the theory that the
Company is a successor to TCI, insofar as the Company
purchased the Ultra Kustom Cycles and Ultra Kustom Parts
business from MAI, which is allegedly an affiliate of TCI. The
Company has obtained demurrers to several of plaintiff's
causes of action, and intends to defend itself vigorously
against this claim. The Company also believes it is entitled
to indemnification from MAI.
Item 5. Other Events
1. Effective June 30, 1997 MAI agreed, subject to certain
conditions to (a) cancel $1,370,000 of the Company's Senior
Secured Promissory Note dated January 30, 1997, held by MAI,
in the amount of $2,700,000 (the "Note") in consideration of
payment of the exercise price of options to purchase 1,370,000
shares of the Company's common stock, pursuant to the option
agreement dated September 13, 1996, as amended, at a reduced
exercise price of $1.00 per share and (b) to convert an
additional $1,330,000 of the note into preferred stock at a
conversion price of $1.00 per share, of which $730,000 will be
held in escrow pending the outcome of the Harley-Davidson
litigation.
2. Rowland W. Day II resigned his position as co-chairman and
co-chief executive to pursue other interests. This resignation
was effective June 20, 1997.
3. The Company named Terence Quinn and John Russell directors,
effective June 19, 1997. Terence Quinn is a portfolio manager
of Crestwood Capital Partners, L.P., an affiliate of Furman
Selz, Inc. John Russell owns a retail and wholesale fine arts
business.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) The Company filed a Form 8-K/A, Amendment No.1 to its Form 8-K
Reports dated January 30, 1997, on April 15, 1997, amending
the financial statements of Ultra Bikers, LLC for (a) the
period from inception on September 19, 1996 to December 31,
1996 and (b) the year ended December 15, 1996.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 14, 1997
BIKERS DREAM, INC.
By: /s/ Herm Rosenman
--------------------------------------
Herm Rosenman, Chief Executive Officer
and Chief Financial Officer
26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 279,336
<SECURITIES> 0
<RECEIVABLES> 771,869
<ALLOWANCES> (122,892)
<INVENTORY> 3,165,769
<CURRENT-ASSETS> 5,130,366
<PP&E> 1,402,004
<DEPRECIATION> (315,255)
<TOTAL-ASSETS> 9,472,556
<CURRENT-LIABILITIES> 6,293,807
<BONDS> 0
0
1,102,500
<COMMON> 7,736,167
<OTHER-SE> (8,860,707)
<TOTAL-LIABILITY-AND-EQUITY> 9,472,556
<SALES> 7,627,885
<TOTAL-REVENUES> 7,648,917
<CGS> 6,578,646
<TOTAL-COSTS> 3,346,786
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 89,641
<INTEREST-EXPENSE> 271,667
<INCOME-PRETAX> (2,276,515)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,276,515)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,276,515)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
