<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended March 31, 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)
<TABLE>
<S> <C>
California 33-0140149
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
</TABLE>
1420 Village Way, Santa Ana, California
(Address of principal executive offices)
92705
(Zip Code)
(714) 835-8464
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
As of March 31, 1997, there were 8,748,680 shares of the Registrant's common
stock outstanding.
Transitional Small Business Disclosure Format
Yes No X
--- ---
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1997 And 1996
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1996
----------- -----------
<S> <C> <C>
A S S E T S:
Current assets:
Cash and cash equivalents $ 86,339 $ 247,288
Accounts receivable, net 540,023 466,861
Inventories 3,464,240 1,797,893
Notes receivable - Related Party 546,335
Prepaid expenses and other current assets 58,058 148,116
----------- -----------
Total current assets 4,694,995 2,660,158
Property, equipment and capitalized leases, net 1,120,896 1,102,704
Goodwill 3,078,015
Deposits and other assets 31,370 69,618
----------- -----------
Total assets $ 8,925,276 $ 3,832,480
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 952,355 $ 851,097
Other accrued expenses 1,118,523 859,105
Current portion of long-term debt 83,545 73,750
Current portion of notes payable 2,230,022 198,346
Notes payable to shareholders 36,000 181,000
----------- -----------
Total current liabilities 4,420,445 2,163,298
Deferred rent 69,313 108,478
Notes payable, less current portion 2,629,054 465,147
Long-term debt, less current portion 348,891 433,702
Note Payable to shareholder 36,000
----------- -----------
Total liabilities 7,503,703 3,170,625
----------- -----------
Commitments and contingencies (Note 5)
Shareholders' equity:
Preferred stock, no par value:
10,000,000 shares authorized, 7 issued and outstanding 1,102,500
Common stock, no par value; 25,000,000 shares
authorized at March 31, 1997; 8,748,680 and 5,905,912
issued and outstanding at March 31, 1997 and March 31, 1996 7,571,417 3,770,429
Accumulated deficit (7,252,344) (3,108,574)
----------- -----------
Total shareholders' equity 1,421,573 661,855
----------- -----------
Total liabilities and shareholders' equity $ 8,925,276 $ 3,832,480
=========== ===========
</TABLE>
See the accompanying notes to these consolidated financial statements.
<PAGE> 3
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Quarters Ended March 31, 1997, and 1996
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Product sales $3,177,872 $2,768,978
Financing contracts 1,796 77,920
---------- ----------
Total revenues 3,179,668 2,846,898
Cost of goods sold 2,489,427 2,149,773
---------- ----------
Gross profit 690,241 697,125
---------- ----------
Expenses:
Selling, general and administrative expenses 1,181,731 1,245,890
Depreciation and amortization 57,843 38,100
Interest expense 109,445 42,994
Franchise income (4,097)
Other expense 9,374
---------- ----------
Total expenses 1,358,393 1,322,887
---------- ----------
Loss before (provision) for
income taxes (668,152) (625,762)
(Provision) for income taxes 0 0
---------- ----------
Net loss $ (668,152) $ (625,762)
========== ==========
Net loss per share $ (0.08) $ (0.11)
========== ==========
Weighted average shares outstanding 8,748,680 5,609,105
========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
2
<PAGE> 4
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Quarters Ended March 31, 1997, And 1996
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (668,152) $(625,762)
----------- ---------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Deferred income taxes -- --
Loss from disposal of fixed assets --
Store closure costs
Depreciation and amortization 57,843 38,100
Past services compensated by Company common stock
Changes in assets and liabilities:
(Increase) in accounts receivable (397,896) (180,469)
(Increase) in inventories (2,021,814) (140,433)
Decrease (increase) in prepaid expenses and other
current assets (525,279) (17,021)
Increase in accounts payable 511,423 416,632
Increase in other accrued expenses 99,828 228,439
----------- ---------
Total adjustments (2,275,895) 345,248
----------- ---------
Net cash used in operating activities (2,944,047) (280,514)
----------- ---------
Cash flows from investing activities:
Decrease in deposits (1,862) 111,533
Payments for purchases of fixed assets (420,590) (394,164)
Increase in deferred rent 1,776 10,104
Investment - Joint Venture 1,508,855
Goodwill - ULTRA Acquisition Corp. (3,078,015)
----------- ---------
Net cash used in investing activities (1,989,836) (272,527)
----------- ---------
</TABLE>
See the accompanying notes to these consolidated financial statements.
3
<PAGE> 5
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For The Quarters Ended March 31, 1997, And 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from short-term notes 2,210,000 --
Proceeds from long-term debt 2,545,123 85,348
Principal payments made on long-term debt and
capitalized leases (20,598) (76,972)
Proceeds from issuance of common stock 2,811,189
Costs associated with issuance of common stock 93,504
Proceeds from issuance of preferred stock
Costs associated with issuance of preferred stock Proceeds
from issuance of convertible notes payable
Principal payments made on notes payable (33,489) (167,000)
Payments on notes payable to shareholders (12,000)
Advances received on employee note receivable (16,114)
Payments received on note receivable from stockholder 24,616
Preferred dividend (10,209)
--------- ---------
Net cash provided by financing activities 4,772,331 2,661,067
---------- ----------
Net increase in cash and cash equivalents (161,552) 177,187
Cash and cash equivalents, beginning of period 247,891 18,136
---------- ----------
Cash and cash equivalents, end of period $ 86,339 $ 195,323
========== ==========
</TABLE>
See the accompanying notes to these consolidated financial statements.
4
<PAGE> 6
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, And 1996
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, 1996. The results of
operations for the three months ended March 31, 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. 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 300,000 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 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 is 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 connection with the formation of the
joint venture, the Company granted an option to Mull Acres Investments,
Inc. to purchase 2,500,000 shares of common stock at a price of $1.65
per share.
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
5
<PAGE> 7
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1997, And 1996
2. Company Operations And Liquidity, Continued:
The Company has two lines of business: Retail Stores and the
manufacturing of motorcycles parts. The Company operates four retail
outlets known as Bikers Dream Superstores ("Superstores"), selling
Ultra Cycles, used Harley-Davidson motorcycles ("Harleys") and Big Dog
Motorcycles complemented by a full range of aftermarket parts,
accessories and services. 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 Harley-Davidson, Inc.
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
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 March 31, 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 $625,762 for the quarter ended March 31,
1996 and a net loss of $668,152 for the three months ended March 31,
1997. As of March 31, 1997 the Company had an accumulated deficit of
$7,252,344. The Company's working capital at March 31, 1997 was
$274,550. The Company experienced a decrease in its selling, general
and administrative expenses of $64,159 for the three month period ended
March 31, 1997 compared to the three month period ended March 31,
1996. This decrease resulted from a reduction in corporate overhead
offset by additional selling, general and administrative costs of
$282,956 from the newly acquired Ultra Kustom Cycles.
Continued
6
<PAGE> 8
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 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. and Bikers
Dream Eagle Enterprises, Inc. All significant intercompany accounts
and transactions are eliminated in consolidation
3. Summary Of Significant Accounting Policies:
Revenue Recognition:
Product Sales - Retail revenue from the sale of products is
recognized at the time of sale to a retail customer.
Manufacturing revenue from the sale of products 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 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.
Superstore Pre-Opening Costs:
All costs associated with opening a Company-owned and operated
Superstore, with the exception of capitalized furniture, fixtures and
equipment, are expensed when incurred.
Advertising Costs:
Those costs associated with placement of advertisements in various
periodicals are expensed when the advertisement is run. Internal
development costs are expensed as incurred.
Catalog Costs:
Internal costs associated with the development of mail order catalogs
are expensed as incurred. External costs, excluding printing, relating
to the development of the catalog are capitalized and amortized over 12
months from the first publication. Costs associated with printing
catalogs are inventoried when purchased and expensed as catalogs are
sold or distributed.
Continued
7
<PAGE> 9
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 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 March 31, 1997, the allowance for doubtful accounts was $53,872.
This balance was $23,251 as of March 31, 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 March 31, 1997,the reserve for obsolescence was
$100,000. The reserve at March 31, 1996 was $57,000.
Continued
8
<PAGE> 10
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 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 Harley Davidson motorcycles. Its future
success is dependent on the continuation of interest in the
recreational motorcycle industry.
Concentration Of Credit Risk:
Other financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
These concentrations are limited due to the large number of customers
comprising the Company's customer base and their dispersion across
different Geographic regions. The Company performs ongoing credit
evaluations of customers and generally does not require collateral.
Allowances are maintained For potential credit losses, and such losses
have been within management's expectations. As of March 31, 1997 and
1996, the Company has no significant concentrations of credit risk.
Continued
9
<PAGE> 11
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 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>
March 31,
Estimated -----------------------
Useful Lives 1997 1996
------------ ---- ----
<S> <C> <C> <C>
Furniture and fixtures 7 years $ 139,900 $ 198,545
Leasehold improvements 7 years 188,263 227,884
Equipment 5-7 years 385,545 109,633
Computers 5 years 188,731 270,045
Autos and trucks 3-10 years 472,042 441,053
---------- ----------
1,374,481 1,247,160
Less, Accumulated depreciation and amortization (253,585) (144,456)
---------- ----------
$1,120,896 $1,102,704
========== ==========
</TABLE>
Assessments of whether there has been a permanent impairment in the
value of long-lived assets are periodically performed by considering
factors such as expected future operating results, trends and
prospects, as well as the effects of demand, competition and other
economic factors. The method used is to determine if an impairment has
occurred based upon a change in circumstances regarding the long lived
assets, followed by an analysis of cash flows regarding the assets in
question. If an impairment is determined to have occurred as a result
of the analysis, then the Company recognizes and measures that
impairment using discounted cash flow as provided by FAS 121. Since the
Company has just started many of its retail operations in the last 12
months, historical information is limited in evaluating future effects.
During the Second Quarter of 1996 the Company closed one of its former
franchises which was acquired in late 1995 resulting in a writeoff of
$32,000 in leasehold improvements. 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
10
<PAGE> 12
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 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 March 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Computers $132,600 $132,723
Less, Accumulated amortization (34,255) (15,091)
-------- --------
$ 98,345 $117,632
======== ========
</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 January 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 in connection 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
11
<PAGE> 13
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 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 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 in the March 31, 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
12
<PAGE> 14
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1997 And 1996
6. Long-Term Debt:
Long-term debt at March 31, 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 $63,377 $76,355
Capitalized lease obligation payable to a finance company,
collateralized by certain computer equipment, requiring principal and
interest payments of $232 per month with
interest at 16% per annum through January 1998 2,171 4,447
Long Term Note Payable to a finance company, collateralized by a
trailer requiring principal and interest payments of $5,739 per month,
with interest at 11% per
annum through February 2002 262,116 300,535
Capitalized lease obligation payable to a finance company,
collateralized by certain computer equipment, requiring principal and
interest payments of $937 per month, with interest
at 16% per annum through December 2000 plus a $4,258 payment in 35,157 40,872
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 69,615 85,243
2001 -------- -------
432,436 507,452
Less, Current portion (83,545) (73,750)
-------- -------
Long-term debt, net of current portion $348,891 $433,702
======== ========
</TABLE>
Continued
13
<PAGE> 15
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1997 And 1996
7. Notes Payable:
The notes payable at March 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Note payable to former franchisee in conjunction with acquisition
of former franchise operation. The note is due October 1996. $ 89,130
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. 91,747 99,452
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. 12,206 24,411
Convertible notes payable. These notes bear an interest rate of 8% per
annum and were convertible into shares of the Company's Common stock at
$1.70 per share. These notes were converted into
Shares of common stock on April 19, 1996. 450,500
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. 250,000
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. 2,545,123
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 4,859,076 663,493
Less, Current portion (2,230,022) (198,346)
----------- ---------
Notes payable, long-term portion $ 2,629,054 $ 465,147
=========== =========
</TABLE>
Continued
14
<PAGE> 16
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 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 50,000 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
50,000 shares of the Company's common stock at a conversion rate of
$3.50 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 $7.50 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 $5.00 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 share had been converted
as of March 31, 1997. The warrants expire three years after issuance.
In addition, warrants are callable if the Company's common stock closes
at $7.50 per share for ten consecutive trading days after registration
of the common stock issuable upon conversion of the Preferred stock. As
of December 31, 1996, the Company has outstanding $350,000 of the above
warrants.
In 1996, the Company declared dividends of Common stock valued at
$61,000.
Continued
15
<PAGE> 17
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 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, a member of the Board of Directors and
Co-Chief Executive Officer of the Company, is a partner.
In August 1994, Rowland W. Day, II loaned $300,000 to HDL. HDL used the
proceeds of the loan from Mr. Day, along with the proceeds of other
loans from non-affiliates 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 non-interest-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 . 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
16
<PAGE> 18
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 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 Co-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 provides for the payment of
$5,000 per month to Meyer Duffy.
Continued
17
<PAGE> 19
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 1997 And 1996
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, 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
18
<PAGE> 20
BIKERS DREAM, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
March 31, 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 od 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
officers 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 with a cashless exercise feature.
10. Fair Value Of Financial Instruments:
The fair value of the Company's long-term debt and notes payable
approximates the carrying value at September 30, 1996. This estimate is
based on the fact that the majority of the long-term debt and notes
payable were negotiated transactions, and the negotiated interest rates
approximate a market rate at that time.
11. Recently Issued Accounting Standard:
The Financial Accounting Standards Board has issued a Statement of
Financial Accounting Standards No. 123 (FAS 123) entitled "Accounting
for Stock-Based Compensation." Upon adoption of FAS 123 in fiscal 1996,
the Company will continue to account for stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25 and provide
disclosure with respect to the fair value of the Company's options. The
Company has not yet determined the impact of this disclosure on its
financial statements.
Continued
19
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and the notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth for the period indicated the unaudited income and
expense items.
<TABLE>
<CAPTION>
For the Quarter Ended
March 31, 1997
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net Revenue $3,179,668 $2,846,898
Cost of Goods Sold 2,489,427 2,149,773
Gross Profit 690,241 697,125
Other (Income) and Expenses
Selling, general and
administrative expenses 1,181,731 1,245,890
Depreciation and Amortization 57,843 38,100
Interest (income) expense 109,445 42,994
Franchise income (4,097)
Other expense (income) 9,374
---------- ----------
Total 1,358,393 1,322,887
Income (loss) Before
provision For Income Taxes (668,152) (625,762)
(Provision) For Taxes 0 0
---------- ----------
Net Income (loss) $ (668,152) $ (625,762)
========== ==========
</TABLE>
Continued
20
<PAGE> 22
COMPARISON OF FIRST QUARTER ENDED MARCH 31, 1997 AND 1996:
Net revenues for the first quarter ended March 31, 1997 was $3,179,668, an
increase of $332,770 or 11.7% from the same period in 1996. The increase in net
revenue is due to $807,240 of sales to dealers by Ultra Kustom Cycles and Ultra
Kustom Parts plus sales from the San Diego Superstore opened in 1997, offset by
the loss in sales resulting from the closing of the Thousand Oaks Superstore in
April of 1996 and the sale of the Clearwater, Florida Superstore in September
1996.
Total gross profit for the quarter ended March 31, 1997 was $690,241, a decrease
of $6,884 or 1% below the same period in 1996. The decrease was mainly
attributable to the closing of the Thousand Oaks store and the sale of the
Clearwater, Florida Superstore. The gross profit rate for the quarter was 21.7%
compared to 24.5% for the same period in 1995. The change in gross profit rate
was mainly due to a decrease of 2.8% in financing contracts gross margin.
Selling, general and administrative expenses were $1,181,731 for the quarter
ended March 31, 1997, a decrease of $64,159 or 5.1% from the same period in
1995. This decrease is mainly a result of the closing of the Thousand Oaks
store, the sale of the Clearwater, Florida Superstore and a reduction in
management salaries offset by the selling, general and administrative expenses
attributable to Ultra Kustom Cycles and Ultra Kustom Parts and the new San Diego
Superstore.
Depreciation and amortization expense was $57,843 for the quarter ended March
31, 1997, which was $19,743 or 51.8% higher than the same period in 1996. The
increase is due to the addition of the machinery and equipment acquired through
Ultra Kustom Cycles and Ultra Kustom Parts.
Continued
21
<PAGE> 23
Other expense for the quarter ended March 31, 1997 was $9,374.
There was no provision for income taxes in 1997. The Company decided to fully
reserve for the Deferred Tax Asset primarily related to its net operating loss
carry forwards beginning in the second quarter of 1995. The Company's management
has concluded that, based upon its assessment of all available evidence, the
future benefit of this asset cannot be projected accurately at this time.
The net loss for the quarter ended March 31, 1997 was $668,152 as compared to a
loss of $625,762 in the same period in 1996. This increase of $42,390 was mainly
due to a loss in manufacturing operations, the cost related to the issuance of
common stock, additional provisions for service warranty and inventory shrinkage
and costs associated with opening the new San Diego Superstore, offset by the
closing of the Thousand Oaks store and the sale of the Clearwater, Florida
Superstore.
While the Company does not expect inflation to have a material impact upon its
operating results, there can be no assurance that inflation will not affect the
Company's business in the future. The Company expects to mitigate inflationary
increases through securing additional purchase volume discounts as net sales
increase through the opening of future Superstores.
Continued
22
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied substantially on equity capital to meet its operating and
growth needs until late 1995 when debt in the amount of $281,883 was used to
acquire two former franchises. In early 1996, third party debt was used to
acquire the Dream Wheels tractor/trailer in the amount of $391,053.
In December 1995 and January 1996 the Company raised $629,000 and $450,500
respectively through the issuance of Convertible Notes. These notes were
converted into shares of the Company's Common Stock in March and April of 1996
at a conversion rate of $1.70 per common share. These funds were used
principally to fund current operating losses and debt service.
In April 1996, the Company received a 90 day loan in the amount of $300,000 from
MD Strategic, of which one of the Company's directors is a principal, to meet
its additional cash needs for operating losses and debt service. This note was
extended and subsequently converted into shares of the Company's Common Stock in
September, 1996 at a price of $1.05 a share.
In addition, the Company retained an investment banking firm in April 1996 to
advise and assist in the sale of additional equity securities. The securities
offered, principally to institutional investors, were units consisting of
convertible preferred stock with warrants to purchase additional common shares
at a purchase price of $175,000 per unit. Through September 30, 1996, the
Company has sold 7 units and received $1,102,500 net of commissions.
In September 1996 the Company converted promissory notes in the amount of
$500,000 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.
23
<PAGE> 25
Part II
Item 2. Change in securities.
(c) The company sold securities that were not registered under the
Securities Act of 1933, other than unregistered sales made in
reliance on Regulation S, as follows:
1. On January 1, 1997, the Company granted incentive stock
options to twenty two employees to purchase an aggregate of
97,000 shares of common stock with an exercise price of $1.65
per share. The options were issued pursuant to Section 4(2) of
the Securities Act of 1933 and Regulation D promulgated
thereunder.
2. On January 30, 1997, the Company issued 12% promissory notes
in the aggregate amount of $2,210,000 due January 30, 1998 to
thirteen accredited investors. In addition, each holder of the
notes received Series "C" five-year warrants to purchase the
Company's Common stock at an exercise price of $1,625 per
share (the "Warrants") for a number of shares equal to the
respective principal amounts of their Notes divided by $2.00.
The Company expensed a $22,100 finders fee for the offering,
to Meyer, Duffy & Associates, of which Donald Duffy, the
Co-CEO, CFO and a director of the Company, is a principal. The
securities were issued pursuant to Section 4(2) of the
Securities Act of 1933 and Regulation D promulgated
thereunder.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) The Company filed the following Reports on form 8-K:
1. Form 8-K dated December 13, 1996, reporting that its former
independent accountant, Coopers & Lybrand L.L.P., resigned its
auditor-client relationship with the Company as of that date,
and that as of December 1, 1996 the Registrant engaged Singer,
Lewak. Greenbaum & Goldstein LLP as its new independent
accountant.
2. Form 8-K dated January 30, 1997, reporting that pursuant to an
Asset Purchase Agreement between the Company, the Company's
wholly owned subsidiary, Ultra Acquisition Corporation, a
Nevada Corporation ("UAC") and Mull Acres Investments, Inc.
("Mull Acres"), the Company, through UAC, purchased from Mull
Acres certain assets, including equipment and inventory, of
Mull Acres' Ultra Kustom Cycles and Ultra Kustom Parts
Divisions that had been used in connection with the
manufacture, distribution and sales of motorcycles and
motorcycle parts and accessories.
3. Form 8-K/A Amendment No. 1, dated January 30, 1997,
reporting (1) the combined audited financial statements of
Ultra Bikers, LLC and Ultra Kustom cycles for the period of
inception (September 19, 1996) to December 31, 1996, and (2)
the pro forma financial statements of Bikers Dream, Inc., Ultra
Bikers, LLC and Ultra Kustom Cycles for the year ended December
31, 1996.
24
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 20, 1997 BIKERS DREAM, INC.
By: /s/ Donald J. Duffy
--------------------------------
Donald J. Duffy, Co-Chief Executive
Officer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 86,339
<SECURITIES> 0
<RECEIVABLES> 593,895
<ALLOWANCES> (53,872)
<INVENTORY> 3,464,240
<CURRENT-ASSETS> 4,694,995
<PP&E> 1,374,481
<DEPRECIATION> (253,585)
<TOTAL-ASSETS> 8,925,276
<CURRENT-LIABILITIES> 4,420,445
<BONDS> 0
0
1,102,500
<COMMON> 7,571,417
<OTHER-SE> (7,252,344)
<TOTAL-LIABILITY-AND-EQUITY> 8,925,276
<SALES> 3,177,872
<TOTAL-REVENUES> 3,179,668
<CGS> 2,489,427
<TOTAL-COSTS> 1,358,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,872
<INTEREST-EXPENSE> 109,445
<INCOME-PRETAX> (668,152)
<INCOME-TAX> 0
<INCOME-CONTINUING> (668,152)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (668,152)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
