<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
[ ] 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 small business issuer as specified in its charter)
California 33-0140149
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3810 Wacker Drive, Mira Loma, California 91752
(Address of principal executive offices)
(909) 360-2500
(Issuer's telephone number)
11631 Sterling Avenue, Riverside, California 92503
(Former address)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities and Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of November 19, 1999, 5,213,606
shares of the issuer's common stock were outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
<PAGE> 2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Bikers Dream, Inc.
We have reviewed the accompanying balance sheet and the statements of operations
and cash flows of Bikers Dream, Inc. and consolidated subsidiaries as of
September 30, 1999, and for the nine-month period then ended. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
The accompanying statements of operations and cash flows for the nine-month
period ended September 30, 1998 for Bikers Dream, Inc. and consolidated
subsidiaries were not audited or reviewed by us, and accordingly, we do not
express an opinion on them.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1998, (as restated)
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the year then ended (not presented herein), and in our report
dated April 2, 1999, (except for Note 19, as to which the date is August 4,
1999) we expressed an unqualified opinion on those consolidated financial
statements.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
November 11, 1999
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) December 31,
September 30, 1998
1999 (As Restated)
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 495,048 $ 689,679
Marketable securities 213,679 200,634
Accounts receivable, net 2,992,084 2,633,649
Other receivables 49,933 43,098
Notes receivable 1,050 6,143
Inventories 9,433,148 7,644,793
Prepaid expenses and other current assets 314,416 221,096
------------ ------------
Total current assets 13,499,358 11,439,092
Furniture and equipment, net 1,383,463 1,011,371
Excess cost over fair value of net assets acquired, net 2,431,411 2,589,401
Debt issuance costs, net 151,289 169,533
Deposits and other assets 510,326 488,516
------------ ------------
Total assets $ 17,975,847 $ 15,697,913
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,715,049 $ 2,083,338
Accrued expenses 1,319,949 971,313
Advances on financing agreements - related party 359,595 1,486,174
Current portion of notes payable 61,741 160,991
Current portion of capital lease obligations 177,299 36,833
Notes payable to related parties 300,000 300,000
------------ ------------
Total current liabilities 5,933,633 5,038,649
Deferred rent 52,322 55,586
Notes payable, less current portion 4,665,138 4,731,749
Capital lease obligations, less current portion 102,124 54,735
------------ ------------
Total liabilities 10,753,217 9,880,719
Shareholders' equity:
Convertible preferred stock, Series A no par value, aggregate
liquidation preference of $175,000, 30 shares authorized,
0 and 1 share issued and outstanding at September 30, -- 157,500
1999 and December 31, 1998
Convertible preferred stock, Series B, no par value, cumulative
dividends, aggregate liquidation preference of $702,194, 8,000,000
shares authorized, 702,194 shares issued and outstanding at
September 30, 1999 and December 31, 1998 702,194 702,194
Convertible preferred stock, Series C, no par value, cumulative
dividends, liquidation preference of $25,000 per share, 300 shares
authorized, 0 shares issued and outstanding at September 30, -- --
1999 and December 31, 1998
Convertible preferred stock, Series D, $1,000 stated value, aggregate
liquidation preference of $1,545,000, 3,500 shares authorized, 1,545
and 0 shares issued and outstanding at September 30, 1999 and
December 31, 1998 1,367,000 --
Common stock, no par value, 25,000,000 shares authorized,
5,213,606 and 5,112,926 issued and outstanding at September
30, 1999 and December 31, 1998 23,497,792 22,642,205
Subscriptions receivable -- (90,000)
Accumulated deficit (18,344,356) (17,594,705)
------------ ------------
Total shareholders equity 7,222,630 5,817,194
------------ ------------
Total liabilities and shareholders' equity $ 17,975,847 $ 15,697,913
============ ============
</TABLE>
See the accompanying notes to these financial statements
<PAGE> 4
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters and Nine Months Ended September 30, 1999 and 1998
(In $000s Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ----------------------------
(As Restated, (As Restated,
(Unaudited) Unaudited) (Unaudited) Unaudited)
1999 1998 1999 1988
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 8,478 $ 9,697 $ 27,108 $ 22,696
COST OF GOODS SOLD 6,996 7,511 21,226 18,205
------- ------- -------- --------
GROSS PROFIT 1,482 2,186 5,882 4,491
OPERATING EXPENSES
Selling, general and administrative expenses 1,808 1,226 5,122 3,559
Depreciation and amortization 172 135 499 380
------- ------- -------- --------
Total expenses 1,980 1,361 5,621 3,939
------- ------- -------- --------
OPERATING INCOME (LOSS) (498) 825 261 552
------- ------- -------- --------
OTHER EXPENSE
Interest (expense) (193) (208) (594) (414)
Other income (expense), net 5 (4) 8 (23)
------- ------- -------- --------
Total other (expense) (188) (212) (586) (437)
------- ------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (686) 613 (325) 115
PROVISION FOR INCOME TAX -- -- -- --
------- ------- -------- --------
NET INCOME (LOSS) before Preferred Stock Dividends and
Beneficial Conversion Feature (686) 613 (325) 115
Beneficial conversion feature granted to Series C -- -- (318) (1,336)
Preferred Shareholders
Preferred stock dividends 71 270 -- 109
------- ------- -------- --------
NET INCOME (LOSS) available to Common Shareholders
$ (615) $ 883 $ (643) $ (1,112)
======= ======= ======== ========
(LOSS) PER COMMON SHARE:
Basic $ (0.12) $ 0.21 $ (0.13) $ (0.35)
======= ======= ======== ========
Diluted $ (0.12) $ 0.18 $ (0.13) $ (0.35)
======= ======= ======== ========
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING:
Basic 5,163 4,205 5,147 3,159*
======= ======= ======== ========
Diluted 5,163 5,035 5,147 3,159*
======= ======= ======== ========
</TABLE>
See the accompanying notes to these financial statements
* Adjusted for the Company's 1 for 5 reverse stock split of February 1998
<PAGE> 5
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
(In $000s)
<TABLE>
<CAPTION>
(Unaudited)
(Unaudited) 1998
1999 (As Restated)
---------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (325) $ 115
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 499 380
Issuance for common stock for services rendered 60 --
(Increase) decrease in:
Accounts receivable (358) (2,785)
Inventories (1,788) (4,618)
Prepaid expenses and other current assets (95) (356)
Deposits and other assets (22) --
Increase (decrease) in:
Accounts payable 1,632 1,135
Accrued expenses 294 (299)
------- -------
Net cash used in operating activities (103) (6,428)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (590) (176)
(Increase) in marketable securities (13) --
(Decrease) in deferred rent (3) (6)
Other 3 1
------- -------
Net cash used in investing activities (603) (181)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 4,500
Principal payment made on long-term debt and capital leases (53) (59)
Proceeds from issuance of preferred stock 1,500 3,075
Deferred offering costs (141) --
Proceeds from exercise of options -- 379
Redemption of outstanding warrants 168 --
Proceeds from issuance of convertible notes payable -- 800
Principal payments made on notes payable (53) (2,509)
Payments made on financing agreements with related parties (1,126) --
Payments made on notes payable to shareholders -- (36)
Additional paid in capital received from related parties 108 --
Payments on subscriptions receivables 90 --
Debt issuance costs 18 --
------- -------
Net cash provided by financing activities 511 6,150
------- -------
Net increase (decrease) in cash and cash
equivalents (195) (459)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 690 667
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 495 $ 208
======= =======
</TABLE>
See the accompanying notes to these financial statements
<PAGE> 6
BIKERS DREAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts of Bikers
Dream, Inc. and all of its wholly-owned subsidiaries. All significant
inter-company accounts and transactions are eliminated in consolidation.
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 Company's annual report on Form 10-KSB/A for the year ended
December 31, 1998. The results of operations for the nine months ended
September 30, 1999, are not necessarily indicative of the results to be
expected for the year ending December 31, 1999.
2. Summary Of Significant Accounting Policies:
Revenue Recognition:
Product Sales - Motorcycle manufacturing revenue from the sale of product
is recognized upon completion of the sales agreement. Retail revenue from
the sale of products is recognized at the time of sale to a retail
customer. Motorcycle manufacturing sales made to the Company-owned stores
are eliminated in consolidation.
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 will be 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 will be established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
Net Earnings or Loss Per Common Share:
The Company adopted SFAS No. 128, "Earnings per Share". Basic loss per
share is computed by dividing the net loss by the weighted-average number
of common shares available. Diluted loss per share is computed similar to
basic earnings per share except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the
additional common shares were dilutive.
Stock Split:
Effective February 5, 1998, the Company effected a 1-for-5 reverse stock
split of its common stock. All shares and per share data have been stated
to reflect the stock split.
Cash and Cash Equivalents:
For purposes of the balance sheet and the statement of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
<PAGE> 7
Inventories:
Inventories are valued at the lower of cost or market using a cost method
which is determined by the specific identification method for finished
motorcycles and work-in-process inventories and the average cost method
for parts inventories. The finished goods inventory consists of purchased
items together with labor that has been applied thereto.
Furniture and Equipment:
Furniture, 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 seven
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.
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.
Recently Issued Accounting Pronouncements:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effected for financial statements with fiscal years
beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. The company does not expect adoption SFAS No. 133 to have a
material effect, if any on its financial position or results of
operations.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," is effective for financial statements with the first
financial quarter beginning after December 15, 1998. The Company does not
expect adoption of SFAS No. 134 to have a material effect if any, on its
financial position or results of operation.
SFAS No. 135 "Rescission of FASB Statement No. 75 and Technical
Correction," is effective for financial years beginning February 1999.
This statement is not applicable to the Company.
3. Series C Preferred Stock
On April 16, 1998, the Company sold through a private offering 155 Units
at $25,000 per Unit, of Series C Preferred Stock. Each Unit consisted of
one share of the Company's Series C Preferred Stock (the "Preferred C")
and 1,250 Series F Common Stock Purchase Warrants (the "F Warrants") to
purchase one share of the Company's common stock at $5.00 per share, for
total consideration of $3,875,000. Each share of the Company's Preferred C
is convertible, at the option of the holder, at any time after the date of
issuance (the "Conversion Date"), into shares of the Company's common
stock. The price at which the Preferred C converts into the Company's
common stock (the "Conversion Price"), is determined by dividing $25,000
by the greater of; (1) seventy-five percent (75%) of the average closing
price of the Company's common stock for the ten trading days immediately
preceding the Conversion Date, or (2) $2.50, provided, however, that under
no circumstance shall the Conversion Price exceed $4.00. Under certain
circumstances, the Conversion Price is subject to adjustment. The
Preferred C shall be automatically converted into the Company's common
stock in the event the closing price equals or exceeds $8 per share for
any period of twenty (20) consecutive trading days. Each F Warrant
entitles the holder to purchase one (1) share of the Company's common
<PAGE> 8
stock at a purchase price of $5.00 per share. All shares of series C
Preferred Stock have been converted into common stock. Upon the issuance
of the Series C Preferred Stock, the Company calculated the conversion of
the Preferred Stock as if the conversion occurred upon issuance.
Accordingly, the Company recorded the beneficial conversion feature of
$1,335,534.
Series D Preferred Stock
In February 1999, the Company completed an offering of 1,545 shares of
newly issued Series D Preferred Stock for a total consideration of
$1,500,000. The outstanding shares of Series D Preferred Stock are
convertible into Common Stock pursuant to a formula. Each share of Series
D Preferred Stock has a Stated Value of $1,000. The number of shares of
Common Stock issuable upon the conversion of one share of Series D
Preferred Stock is calculated by adding $1,000 to the amount of accrued
and unpaid dividends on such share and dividing the resulting sum by the
conversion price. The conversion price is equal to the lesser of (i) 110%
of the closing bid price of the Common Stock on the last trading day
before the date of issuance of the share of Series D Preferred Stock being
converted, or (ii) 90% of the average of the four lowest closing bid
prices of the Common Stock during the last 22 trading days before the date
of conversion. The 1,545 shares of Series D Preferred Stock currently
outstanding could not be converted until April 7, 1999. The exact number
of shares of Common Stock into which currently outstanding Series D
Preferred Stock may ultimately be convertible will vary over time as the
result of ongoing changes in the trading price of the Company's Common
Stock. Decreases in the trading price of the Company's Common Stock are
likely to result in increases in the number of shares of Common Stock
issuable upon conversion. The Company issued warrants to the holders of
the Series D Preferred Stock enabling them to purchase a total of 60,000
shares of the Company's Common Stock. The warrants may be exercised at any
time until February 5, 2004 at an exercise price of $4.125 per share. In
October 1999 the investors in the Series D Preferred Stock Offering
purchased an additional $500,000 of Series D Preferred Stock and a total
of 23,333 additional warrants as approved by the Company's shareholders at
the Company's Annual Meeting of Stockholders on September 23, 1999. The
same investors have also committed to purchase an additional $1 million in
Series D Preferred Stock and another 25,000 warrants. This additional
purchase of $1 million of Series D Preferred Stock was also approved by
the shareholders at Company's Annual Meeting of Stockholders on September
23, 1999. Upon issuance of the Series D Preferred Stock in February 1999,
the Company calculated the beneficial conversion feature of Preferred
Stock as if the conversion occurred upon issuance. The total beneficial
conversion feature amounted to $318,428, of which $292,328 was recorded in
the three months ended March 31,1999 and $26,100 in the three months ended
June 30, 1999. There was no beneficial conversion feature recorded in the
three months ended September 30, 1999.
4. Commitments and Contingencies:
Leases
The Company leases all of its operating facilities located in Santa
Ana, California, Sacramento, California, San Diego, California, Mira
Loma, California, Farmers Branch, Texas, and Conover, North Carolina.
5. Legal Proceedings
On October 1, 1999, Cana Capital Corp. ("CCC") filed suit against the
Company in the County Court for the Fourth Judicial Circuit for Duval
County, Florida, case number 99-1438-CA, in order to recover the
balance owing on a flooring credit agreement with the Company. CCC is
owned by Bruce Scott, who served on the board of directors of Bikers
Dream from July 1998 until he resigned in August 1999. CCC provided
floor financing for four of Bikers Dream's Superstores from May 1998
until approximately April 1999. In March 1999, Mr. Scott caused
notice to be sent to Bikers Dream that CCC would no longer provide
such financing and demanded payment of the outstanding balance of
approximately $1.5 million then outstanding under the line. Bikers
Dream has paid down the balance of the loan substantially since April
1999. It estimates the principal balance remaining to be $344,560.
CCC also contends that the Company sold motorcycles "out-of-trust,"
which were covered by the flooring agreement. In addition to seeking
monetary damages, CCC is seeking recovery of possession of the
remaining motorcycles covered by the flooring agreement.
The Company has potential offsets against CCC which exceed any sums
owed to CCC. It has not yet been decided whether these offsets will
be asserted in a cross-complaint or counter-claim in the CCC lawsuit,
or included as additional causes of action in a separate suit which
Bikers Dream intends to file in federal court in California against
Mr. Scott and his corporate entities for various contract and tort
damages, including breach of Mr. Scott's fiduciary duties as a board
member of the Company.
Three motorcycle dealerships owned by Mr. Scott have filed individual
actions for claims of $33,724 in the aggregate in Florida state court
against the Company's subsidiary, Ultra Acquisition Corporation,
seeking recovery for warranty repairs made by those stores to Ultra
motorcycles. Ultra disputes the amounts claimed by these stores and,
in fact, claims its accounts receivable for parts shipped to those
stores exceeds the amounts it owes in warranty claims.
The Company is also involved from time to time in litigation arising
out of its operations in the normal course of business. As of the
date of this report, in the opinion of the Company's management,
liability, if any, under these actions is adequately covered by
insurance or will not have a material effect on the Company's
financial position or results of operations.
6. Related Party Transactions:
In February 1998, Meyer Duffy & Associates, through various
partnerships, provided the Company an $800,000 "bridge loan", bearing
interest at 12% per annum, pending completion of the Series C
Preferred Stock offering described in Note 3. Donald Duffy, a
principal of Meyer, Duffy & Associates, was Chairman of the Board of
the Company at June 30, 1998. The Company currently maintains a
consulting arrangement with Meyer Duffy. Upon completion of the
Series C Preferred offering (as described in note 3), the bridge loan
was converted into Series C Preferred Stock. 25,000 stock options and
150,000 warrants to purchase the Company's Common Stock were also
issued to Meyer Duffy and other investors who were parties to the
bridge loan.
In February 1998, the Company entered into a license agreement with
Big Bike Boutique, Inc. ("BBB"), a company owned by Bruce Scott, then
a director of the
<PAGE> 9
Company, pursuant to which the Company licensed its name to BBB for
the purpose of selling apparel and accessories. The agreement was
terminated in October 1998 pursuant to a termination of license
agreement and mutual release. In connection with the termination
agreement, the Company issued to Mr. Scott, in February 1999, 16,000
shares of Common Stock.
On April 1, 1998, Meyer, Duffy entered into a consulting agreement
with the Company pursuant to the terms of which Meyer, Duffy agreed
to provide the Company consulting services with respect to capital
raising efforts and providing industry research in exchange for a fee
of $117,600 (payable in monthly installments of $4,900 over a period
of two years) and warrants to purchase 25,000 shares of Common Stock
of the Company with an exercise price of $4.00 per share.
In order to finance its current working capital needs, the Company
holds a $300,000 note payable which it obtained in October 1998 from
MD Strategic L.P. of which Donald Duffy, a Director of the Company,
is a member of the general partner. The MD Strategic loan is
evidenced by an unsecured note bearing interest at eighteen percent
(18%) per annum and is due, together with accrued interest, on the
earlier of December 31, 1999, or upon receipt by the Company of funds
from a third-party lender. The Company is in the process of
negotiating a revolving line of credit with an institutional lender
and anticipates that it will repay the remaining line of credit with
MD Strategic upon obtaining such financing.
7. Earnings (Loss) Per Share **
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1999 1998 1999 1998
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income (Loss) $ (686) $ 613 $ (325) $ 115
Beneficial conversion feature granted on
Series C & D preferred shares -- -- (318) (1,336)
Dividends on preferred shares, net of forfeited dividends 71 270 -- 109
------- ------ ------- -------
Loss available to common shareholders $ (615) 883 $ (643) $(1,112)
------- ------ ------- -------
Basic loss per common shareholder $ (0.12) $ 0.21 $ (0.13) $ (0.35)
------- ------ ------- -------
Diluted loss per common shareholder $ (0.12) $ 0.18 $ (0.13) $ (0.35)
------- ------ ------- -------
Weighted-average shares outstanding:
Basic 5,163 4,205 5,147 3,159
Diluted 5,163 5,035 5,147 3,159
</TABLE>
** In $000s except per share data
8. Restatement of certain transactions as of December 31, 1998 (Balance Sheet)
Goodwill (Excess of Cost Over Fair Market Value)
During the year ended December 31, 1997 the Company entered into a
Mutual Settlement and Release Agreement with Mull Acres and several
individuals affiliated with Mull Acres. Under the terms of the
agreement, certain terms of the Purchase Agreement and Note
Conversion Agreement were clarified and modified. Some of the terms
clarified and modified related to non-competition, non-solicitation
of customers and non-interference with the Company's employees by
Mull Acres and certain specified individuals affiliated with Mull
Acres. To secure the performance of Mull Acres and the individuals
affiliated with Mull Acres, 730,000 shares of Series Preferred B
convertible stock were retained by the Company in escrow.
During the year ended December 31, 1998, management of the Company
and its legal counsel concluded that the individuals affiliated with
Mull Acres violated the terms of the Mutual Release and Settlement
Agreement sufficiently enough to allow the Company to reacquire the
730,000 shares of Series B convertible preferred stock that were
retained in escrow.
<PAGE> 10
Originally the Company recorded other income of $730,000. It was
later determined once the shares were placed in escrow, they were no
longer outstanding. Accordingly, the Company restated the financial
statements reflecting the Mutual Settlement and Release Agreement to
reflect the reduction of goodwill (excess of cost over fair value)
and Series B preferred stock by $730,000. Since goodwill (excess of
cost over fair value) was reduced, the Company also recalculated
amortization expense.
The above restatement reduces goodwill (excess of cost over fair
value) and total assets by $680,870, decreases depreciation and
amortization expense by $39,304, decreases other income by $730,000
and decreases net loss before preferred stock dividends and
beneficial conversion feature by $690,696.
9. Restatement of certain transactions for the quarter ended and nine months
ended September 30, 1998 (Consolidated statement of operations)
Accrued Preferred Dividends
The Series A, B and C preferred stock accrues dividends at certain
stated rates. The Series B and C preferred shareholders were not
entitled to accrued dividends unless the shares were outstanding for
a specific time. The Series B and C preferred shareholders did not
qualify for the dividend because the shares were not outstanding for
the specific time, therefore the Company did not declare the
dividends or accrue these amounts. Although the dividends were not
accrued the Company should have deducted cumulative dividends when
calculating net income or loss available to common shareholders. As
of September 30, 1998 cumulative undeclared dividends on Series A, B
and C totaled $195,639.
The above restatement decreased net loss available to common
shareholders for the quarter ended September 30, 1998 by $270,000 for
the decrease in cumulative dividends (since the preferred
shareholders forfeited more dividends than were accrued) from
December 31, 1997 to September 30, 1998.
The above restatement decreased net loss available to common
shareholders for the nine months ended September 30, 1998 by $109,000
for the decrease in cumulative dividends (since the preferred
shareholders forfeited more dividends than were accrued) from
December 31, 1997 to September 30, 1998.
Series C Preferred Beneficial Conversion Feature
Upon the issuance of the Series C preferred stock, the Company was
required to calculate the beneficial conversion feature granted to
the Series C preferred shareholders. Accordingly, the Company
calculated a beneficial conversion feature of $1,335,534. Since the
shares were immediately convertible the Company recorded the total
amount.
The above restatement increases the net loss available to common
shareholders by $1,335,534.
10. Subsequent Events
In October 1999, the Company completed an additional offering of
Series D Preferred Stock in the amount of 515 shares, for an
aggregate purchase price of $500,000. The outstanding shares of
Series D Preferred Stock are convertible into Common Stock pursuant
to a formula. Each share of Series D Preferred Stock has a Stated
Value of $1,000. The number of shares of Common Stock issuable upon
the conversion of one share of Series D Preferred Stock is calculated
by adding $1,000 to the amount of accrued and unpaid dividends on
such share and dividing the resulting sum by the conversion price.
The conversion price is equal to the lesser of (i) 110% of the
closing bid price of the Common Stock on the last trading day before
the date of issuance of the share of Series D Preferred Stock being
converted, or (ii) 90% of the average of the four lowest closing bid
prices of the Common Stock during the last 22 trading days before the
date of conversion. The exact number of shares of Common Stock into
which currently outstanding Series D Preferred Stock may ultimately
be convertible will vary over time as the result of ongoing changes
in the trading price of the Company's Common Stock. Decreases in the
trading price of the Company's Common Stock are likely to result in
increases in the number of shares
<PAGE> 11
of Common Stock issuable upon conversion. The Company issued warrants
to the holders of the Series D Preferred Stock enabling them to
purchase a total of 23,333 shares of the Company's Common Stock. The
warrants may be exercised at any time until September 30, 2004 at an
exercise price of $1.82 per share.
Subject to certain conditions, the same investors have also committed
to purchase an additional $1 million in Series D Preferred Stock and
another 25,000 warrants, following the effectiveness of a
registration statement with respect to the shares of common stock
issuable upon conversion of the Series D Preferred Stock issued in
October 1999.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain matters discussed in this Quarterly Report on Form 10-QSB are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects," "estimates," or words of similar meaning. Similarly,
references to the Company's future plans, objectives or goals are
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those anticipated as of the date of this report. Specific
factors that may cause such a difference include, but are not limited to, the
Company's history of operating losses and accumulated deficit, the Company's
limited experience with manufacturing operations, and competition from other
motorcycle manufacturers and retailers. See additional discussion under the
heading "Certain Trends and Uncertainties" in Item 6 of the Company's annual
report for 1998 on Form 10-KSB/A. Shareholders, potential investors, and other
readers are urged to consider these factors in evaluating the forward-looking
statements, and are cautioned not to rely on such forward-looking statements.
The forward-looking statements included herein are only made as of the date of
this report and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
GENERAL
From 1990 until 1996, the Company operated primarily as a retailer of
motorcycles, parts and accessories. Prior to 1997 the Company was attempting to
establish a network of franchised Bikers Dream stores, but suspended such
efforts at the end of 1996. In 1997 the Company established its Motorcycle
Manufacturing and Distribution division by completing the acquisition of the
motorcycle manufacturing and other assets of Ultra Kustom Cycles. During 1997
and 1998 a significant amount of the Company's resources were devoted to
restructuring and repositioning the Company from a retailer to a premier
heavyweight cruiser motorcycle manufacturer and distributor. The franchising
program was replaced by a rapidly growing network of licensed Bikers Dream
Superstores and Ultra Cycles dealers. Bikers Dream Superstore dealers are
modeled after the Company-owned Superstores and are located throughout the
United States to service the markets not directly serviced by large
Company-owned Superstores.
RESULTS OF OPERATIONS
The Company conducts its operations through two operating divisions: Motorcycle
Manufacturing and Distribution ("Motorcycle") and Retail Stores ("Retail"). The
Motorcycle division includes the manufacture of large displacement "V"
twin-powered heavyweight cruiser motorcycles at the Company's Mira Loma,
California facility, and the sale of these motorcycles to dealers in its
independent dealer network and through its five Company-owned Superstores. The
Retail division includes sales of motorcycles, parts and accessories by the
Company's Superstores.
In accordance with the Company's business plan, the Company's efforts are
currently focused primarily on the growth of the Motorcycle division through
increasing its manufacturing capability and the expansion of the Company's
independent dealer network. The Company expects that in future periods, an
increasing proportion of the Company's
<PAGE> 12
revenues will be derived from the Motorcycle division, not withstanding general
seasonal trends that it believes are characteristic of the motorcycle industry.
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998:
Total revenues for the three months ended SEPTEMBER 30, 1999, were $8,478,000 as
compared to $9,697,000 for the same quarter in 1998, representing a decrease of
$1,219,000, or 13%.
After giving effect to the elimination of interdivisional charges of $1,254,000
revenues attributable to the Company's Motorcycle and Retail divisions for the
three months ended September 30, 1999, were $5,846,000 and $2,632,000,
respectively, as compared to $6,388,000 and $3,309,000 for the comparable period
a year earlier.
The decrease in revenues in the Motorcycle division was primarily attributable
to a decrease in units sold to 404 from 469 for the comparable period a year
earlier, offset by selected price increases of the Company's products. The
principal factor contributing to the reduction in unit sales, was a reduced
number of units produced and available for sale during the quarter as the result
of missed motorcycle shipments at the factory level as a result of poor vendor
performance. Management also implemented several quality improvements and
engineering changes.
Currently, the Company has the capacity to manufacture over 300 units per month.
The Company is pursuing a long-term strategy to significantly increase its
motorcycle production capacity with a goal of having the capacity to manufacture
more than 400 units a month by the end of 2000. The Company does not expect that
such an increased capacity can be supported by sales through the Company's
existing dealer network, and the Company's ability to increase sales in
accordance with its strategy is therefore dependent on the continued expansion
of the Company's dealer network. The Company also seeks to stimulate demand for
its motorcycles by additional marketing efforts, advertising through different
media such as television and other national advertising of its products, which
the Company believes will aid in attracting new dealers and will promote
increased sales from existing dealers. The Company expects that the number of
units sold will continue to rise in the foreseeable future, although no
assurances can be given.
The decrease in revenues in the Retail division was attributable to the
discontinuation of operations of one Superstore in Deep Ellum, Texas, which was
in operation during the comparable period in 1998, as well as a reduced number
of units available for sale from the Motorcycle division of the Company. The
Company's Superstores range in size from 5,000 to 12,000 square feet and sell a
product line which consists primarily of new Ultra Cycles manufactured by the
Company, and used Harley-Davidsons. The Company does not currently plan to open
additional Company-owned Superstores.
Cost of goods sold for the three months ended September 30, 1999, was $6,996,000
(i.e. 83% of revenues) compared to $7,511,000 (i.e. 77% of revenues) for the
comparable period a year earlier, representing a decrease of $515,000, or 7%.
With revenues decreasing at a faster rate than cost of goods sold, the Company's
gross margin declined to 17% from 23%, and gross profit decreased by $704,000,
to $1,482,000 for the three months ended September 30, 1999, from $2,186,000 for
the comparable period a year earlier.
Gross margins in the Motorcycle division were approximately 22% during the three
months ended September 30, 1999, as compared to approximately 7% for the Retail
division. Management believes that gross margins in the Motorcycle division
should continue to improve with increases in production, as the Company expects
to benefit from growing economies of scale, although no assurances can be given.
As described in more detail in the Company's annual report for the year ended
December 31, 1998, on Form 10-KSB/A, cost of goods sold for the year ended
December 31, 1998 included approximately $2,000,000 due to the recording of a
charge during the fourth quarter of 1998 resulting from the difference between
the Company's inventory total as of the year end as shown in its internal
accounting records and a lesser amount observed in the physical inventory review
conducted in connection with the Company's annual independent
<PAGE> 13
audit. In order to determine the cause of this difference, the Company has
conducted a review under the supervision of the Audit Committee of the Board of
Directors and engaged an independent accounting firm to conduct its own review.
Such reviews concluded that the Company suffered in 1998 from significant
material handling and inventory control weaknesses.
It is possible, although not yet certain as of the date of this report, that a
portion of the charges and adjustments described above may relate back to the
third quarter of 1998. If any of such charges or adjustments did in fact relate
back to the second quarter of 1998, then the Company's gross margins for such
quarter may have been different than previously reported by the Company.
Consequently, the comparability of gross margins for the third quarters of 1998
and 1999, respectively, may be affected.
In order to prevent a reoccurrence of this situation, the Company has
implemented new inventory control procedures, has employed additional management
personnel with experience in inventory control matters, has upgraded its
inventory control system and has implemented improved training procedures for
existing Company personnel. The Company believes that such procedures will
satisfactorily remedy the previous weaknesses in the Company's inventory control
system noted in both the Company's internal investigation and the independent
investigation commissioned by the Audit Committee.
Selling, general and administrative expenses were $1,808,000 (i.e. 21% of total
revenues), for the three months ended September 30, 1999, compared to $1,226,000
(i.e. 13% of total revenues), for the three months ended September 30, 1998,
representing an increase of $582,000, or 47%. Selling, general, and
administrative expenses consist primarily of corporate operating expenses,
professional fees, and salaries. The percentage increase in selling, general and
administrative expenses was substantially higher due to the Company's move of
corporate headquarters and manufacturing facility in 1999, increased salary
expense due to the expansion of corporate administration and dealer support
staff as well as an increase in advertising cost due primarily to marketing
efforts in the Motorcycle division to expand and strengthen the dealer network
and increase brand awareness.
Depreciation and amortization expense for the three months ended September 30,
1999, totaled $172,000 compared to $135,000 for the same period in 1998. The
increase is primarily attributable to the additional equipment and tenant
improvements acquired by the Motorcycle division and corporate headquarters upon
the relocation to a new facility during 1999.
As a result of the foregoing, the Company's operating loss was $498,000 for the
three months ended September 30, 1999, compared to operating income of $825,000
for the comparable period a year earlier.
Interest expense decreased to $193,000, from $208,000 for the three months ended
September 30, 1998. The decrease is attributable to interest earned on savings
instruments.
There is no provision for income taxes in 1999. The Company has fully reserved
for the deferred tax asset 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.
For the three-month period ended September 30, 1999, the Company reported net
loss of $686,000, before Preferred Stock Dividends and Beneficial Conversion
Feature, compared to net income of $613,000, before Preferred Stock Dividends
and Beneficial Conversion Feature, for the comparable period a year earlier. Net
Loss available to Common Shareholders after the Preferred Stock Dividends and
Beneficial Conversion Feature was $615,000 compared to Net Income of $883,000,
for the comparable period a year earlier. The decreased profitability is the
result of the aforementioned decrease in unit production and unit sales due to
poor vendor performance, as well as increased selling, general, and
administrative costs during the quarter ended September 30, 1999.
The Company's ability to continue to improve its profitability in future periods
will depend upon a number of factors including, without limitation, continued
demand for heavyweight cruiser motorcycles, generally, and the Company's
products, specifically, the ability of the Company to continue the expansion of
its dealer network, and the ability of the Company to increase its manufacturing
capability on a cost-effective basis.
<PAGE> 14
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998:
Total revenues for the nine months ended September 30, 1999, were $27,108,000 as
compared to $22,696,000 for the same quarter in 1998, representing an increase
of $4,412,000, or 19%.
After giving effect to the elimination of interdivisional charges of $3,123,000,
revenues attributable to the Company's Motorcycle and Retail divisions for the
nine months ended September 30, 1999, were $18,108,000 and $9,000,000,
respectively, as compared to $13,294,000 and $9,402,000 for the comparable
period a year earlier.
The increase in revenues in the Motorcycle division was primarily attributable
to an increase in units sold to 1,237 from 1,068 for the comparable period a
year earlier, as well as selected price increases of the Company's products. The
increase in units sold was primarily attributable to the introduction of two new
popular ST model motorcycles.
The decrease in revenues in the Retail division was attributable to the closing
of the Superstore in Deep Ellum, Texas, which was in operation during the
comparable period in 1998, offset in part by the operations of a new Superstore
in Conover, North Carolina. In January 1999, the Company assumed the operation
of a store in Conover, North Carolina formerly operated by one of the Company's
ex-franchisees. The Company's Superstores range in size from 5,000 to 12,000
square feet and sell a product line which consists primarily of new Ultra Cycles
manufactured by the Company, and used Harley-Davidsons. The Company does not
currently plan to open additional Company-owned Superstores.
Cost of goods sold for the nine months ended September 30, 1999, was $21,226,000
(i.e. 78% of revenues) compared to $18,205,000 (i.e. 80% of revenues) for the
comparable period a year earlier, representing an increase of $3,021,000, or
17%. With revenues rising at a faster rate than cost of goods sold, the
Company's gross margin improved to 22% from 20%, and gross profit increased by
$1,391,000, to $5,882,000 for the nine months ended September 30, 1999, from
$4,491,000 for the comparable period a year earlier.
The increase in gross margins is due to the increased production in the
Company's Motorcycle division, which permitted improved cost efficiencies, as
well as selected price increases of the Company's products. Gross margins in the
Motorcycle division were approximately 28% during the nine months ended
September 30, 1999, as compared to approximately 9% for the Retail division.
Management believes that gross margins in the Motorcycle division should
continue to improve with increases in production, as the Company expects to
benefit from growing economies of scale, although no assurances can be given.
As described in more detail in the Company's annual report for the year ended
December 31, 1998, on Form 10-KSB/A, cost of goods sold for the year ended
December 31, 1998 included approximately $2,000,000 due to the recording of a
charge during the fourth quarter of 1998 resulting from the difference between
the Company's inventory total as of the year end as shown in its internal
accounting records and a lesser amount observed in the physical inventory review
conducted in connection with the Company's annual independent audit. In order to
determine the cause of this difference, the Company has conducted a review under
the supervision of the Audit Committee of the Board of Directors and engaged an
independent accounting firm to conduct its own review. Such reviews concluded
that the Company suffered in 1998 from significant material handling and
inventory control weaknesses.
It is possible, although not yet certain as of the date of this report, that a
portion of the charges and adjustments described above may relate back to the
nine month period of 1998. If any of such charges or adjustments did in fact
relate back to the nine month period of 1998, then the Company's gross margins
for such period may have been different than previously reported by the Company.
Consequently, the comparability of gross margins for the first half of 1998 and
1999, respectively, may be affected.
<PAGE> 15
In order to prevent a reoccurrence of this situation, the Company has
implemented new inventory control procedures, including those described in the
Company's 1998 Form 10-KSB/A, has employed additional management personnel with
experience in inventory control matters, has upgraded its inventory control
system and has implemented improved training procedures for existing Company
personnel. The Company believes that such procedures will satisfactorily remedy
the previous weaknesses in the Company's inventory control system noted in both
the Company's internal investigation and the independent investigation
commissioned by the Audit Committee.
Selling, general and administrative expenses were $5,122,000 (i.e. 19% of total
revenues), for the nine months ended September 30, 1999, compared to $3,559,000
(i.e. 16% of total revenues), for the nine months ended September 30, 1998,
representing an increase of $1,563,000, or 44%. Selling, general, and
administrative expenses consist primarily of corporate operating expenses,
professional fees, and salaries. The percentage increase in selling, general and
administrative expenses was due to the Company's move of its corporate
headquarters and manufacturing facility, increased salary expense due to the
expansion of corporate administration and dealer support staff as well as an
increase in advertising cost due primarily to marketing efforts in the
Motorcycle division to expand and strengthen the dealer network and increase
brand awareness.
Depreciation and amortization expense for the nine months ended September 30,
1999, totaled $499,000 compared to $380,000 for the same period in 1998. The
increase is primarily attributable to the depreciation recorded on the
additional assets acquired by the Motorcycle division and corporate headquarters
upon the relocation of these operations to a new facility.
As a result of the foregoing, the Company's operating income was $261,000 for
the nine months ended September 30, 1999, as compared to an operating income of
$552,000 for the comparable period a year earlier.
Interest expense increased by $180,000, from $414,000 for the nine months ended
September 30, 1998, to $594,000 for the nine months ended September 30, 1999.
The increase is attributable to interest on a note payable received in October
1998, as well as an increase in capital lease obligations.
There is no provision for income taxes in 1999. The Company has fully reserved
for the deferred tax asset 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.
For the nine-month period ended September 30, 1999, the Company reported net
loss of $325,000, before Preferred Stock Dividends and Beneficial Conversion
Feature, compared to a net income of $115,000, before Preferred Stock Dividends
and Beneficial Conversion Feature, for the comparable period a year earlier. Net
Loss available to Common Shareholders after the Preferred Stock Dividends and
Beneficial Conversion Feature was $643,000, compared to $1,112,000, for the
comparable period a year earlier. The decreased profitability is the primarily
attributable to the aforementioned increases in selling, general, and
administrative expense.
GENERAL DISCUSSION OF LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes its working capital primarily to finance the motorcycles
which it manufactures. Typically, manufacturing costs are incurred one to two
months prior to receipt of payment for the finished product. Management believes
that the Company can, at its current level of operations, adequately service its
existing indebtedness and meet its working capital needs by using available
internal cash. However, as the manufacturing operations of the Company expand,
internally generated cash is not sufficient to meet the Company's working
capital needs. Accordingly, the Company has needed to look to outside funding
sources to address its liquidity and working capital needs.
Historically, the Company has addressed its liquidity and working capital needs
primarily through private equity placements and secured debt-financing
arrangements with lenders. The Company has relied on term loans from several
lenders which include a three-year term loan in the amount of $4.5 million which
the Company obtained from Tandem Capital of Nashville, Tennessee in June 1998,
and a $300,000 bridge loan which it obtained in October
<PAGE> 16
1998 from MD Strategic L.P. ("MD Strategic"), of which Donald Duffy, a director
of the Company, is a member of the general partner.
In February 1999, the Company completed a private placement of 1,545 shares of
Series D Convertible Preferred Stock, which generated approximately $1,367,000
in cash, net of associated costs. In October 1999 the investors in the Series D
Preferred Stock Offering purchased an additional $500,000 of Series D Preferred
Stock and a total of 23,333 additional warrants. Subject to certain conditions,
the same group of investors have also committed to purchase an additional $1
million in Series D Preferred Stock and another 25,000 warrants following the
effectiveness of a registration statement with respect to the shares of common
stock issuable upon conversion of the Series D Preferred Stock issued in October
1999.
The Company will require additional outside sources of capital to continue to
expand its manufacturing operations. The Company is currently negotiating an
inventory-based and receivables-based line of credit of up to $10 million which
will be used to pay off part, or all, of its existing indebtedness to expand the
manufacturing capabilities of its motorcycle division and working capital needs.
Management believes that such a credit facility, combined with the proceeds of
Series D Preferred Stock offerings, would provide the Company with sufficient
working capital for the current year. If the Company does not obtain such a
credit facility, the Company will be unable to meet its expansion goals unless
it obtains other debt or equity financing on acceptable terms. The Company is
continually in discussions with lenders and potential equity partners regarding
funding options to fuel the Company's growth strategy.
Any additional equity financing that the Company obtains may be dilutive to
shareholders, and any additional debt financing may impose substantial
restrictions on the ability of the Company to operate and raise additional
funds. The Board of Directors will determine the terms of any financing at the
appropriate time based upon management's good faith evaluation of the best
interests of the Company and its shareholders. There can be no assurance that
additional capital will be available or that, if available, such capital will be
made available on satisfactory terms.
Cash used in operating activities totaled $103,000 for the nine months ended
September 30, 1999, as compared to cash used in operating activities of
$6,428,000 for the same period in 1998. Significant working capital changes
included a decrease in accounts receivable of $2,427,000, a decrease in
inventories of $2,830,000 offset by an increase in accounts payable of $497,000,
and an increase in accrued expenses of $593,000.
Cash used in investing activities totaled $603,000 for the nine months ended
September 30, 1999, as compared to cash used in investing activities of $181,000
during the prior year's period. The increase is primarily the result of
furniture, equipment and tenant improvement purchases for the relocated
manufacturing facility and corporate headquarters.
Cash provided by financing activities totaled $511,000 for the nine months ended
September 30, 1999, as compared to cash provided by financing activities of
$6,150,000 during the prior year's period. Net proceeds from the issuance of
preferred stock totaled $1,367,000 for the period ended September 30, 1999, as
compared to $3,075,000 for the same period in 1998.
OUTLOOK
As the Company continues to pursue its growth strategy, additional financing
will be required principally for the expansion of its motorcycle manufacturing
operations. The Company currently has the capacity to manufacture approximately
300 units per month, with a goal of increasing capacity to over 400 units a
month by the end of 2000. In May 1999, the Company completed its move to a new
manufacturing facility with approximately three times the manufacturing space it
formerly possessed.
Assuming that revenues generated by its Superstores do not materially decline,
the Company does not believe that working capital from external sources will be
needed for its Retail division. The Company does not currently plan to open
additional Company-owned Superstores.
Although the Company believes it can, at its current level of operations,
adequately service its existing indebtedness and meet its working capital needs
utilizing available internal cash, additional cash and/or credit availability
will be required to meet its manufacturing expansion goals. It is currently
expected that the Company's additional
<PAGE> 17
financing will be in the form of both additional placements of equity and
receivable- and inventory-based debt financing; however, the Company will
continue to evaluate financing alternatives based upon changing market
conditions. The Company believes that its available cash and cash resources,
combined with additional financing which it can reasonably expect to obtain,
will be sufficient to fund current activities.
There can be no assurances, however, that the Company will be able to meet its
expansion goals. Such expansion goals may not be met if, for example, the
Company is unable to raise additional equity capital or debt financing, or the
Company is unable (due to a lack of dealers or demand) to sell all of the
motorcycles which it may have the capacity to produce.
SEASONALITY
Generally, the Company's Motorcycle division exhibits a moderate level of
seasonality as dealer demand for motorcycles tends to increase in the months of
February through September as motorcycle sales are greatest in the spring and
summer months. The Company's Retail division also experiences seasonality in the
months of February through September due to the peak in the riding season in the
spring and summer.
INFLATION
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 production
continues to increase, as well as selected price increases for its products.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Some of the
Company's computer programs that have data sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar business activity.
Based on a recent assessment, the Company believes that the software and
hardware used in its Motorcycle division and corporate headquarters are Year
2000 compliant. The Company has completed its review of the software and
hardware of its Retail division and has determined that it may be required to
modify and replace certain portions of its software and hardware so that its
computer systems will properly utilize dates beyond December 31, 1999, however,
it has not implemented the required changes. The Company's computer systems are
entirely "PC" based utilizing "off-the-shelf" software produced by a limited
number of major software suppliers.
The Company has initiated formal communications with all of the significant
suppliers of its information technology ("IT") and non-IT systems in order to
receive assurances that both its IT and non-IT systems are Year 2000 compliant.
Based upon the responses received, the Company has successfully completed test
transactions on all of its systems to confirm the Year 2000 operability of such
systems.
The Company has received written verification from all of its significant and
large suppliers to the effect that their systems are Year 2000 compliant. In any
event, however, the Company has a relatively small number of suppliers, and it
believes that to the extent any such suppliers are not year 2000 compliant,
alternative vendors are available to the Company.
As the number of units held by a dealer at any one time range from one to
fifteen, the Company believes that the ordering and invoicing process with such
dealers could, if need be, be handled on a manual basis for a limited time until
compliance is obtained.
The worst case scenario for the Company is the failure of banking institutions,
through which the Company clears its financial transactions, to become Year 2000
compliant. In the event any such banking institutions do not become Year 2000
compliant in a timely manner,
<PAGE> 18
the Company may be unable to gain access to funds when needed or to pay its
obligations when due. The Company would be required to delay or defer financial
transactions, which could severely and adversely affect the Company's financial
condition. To the extent that operations could continue on a manual basis, there
would be an impact relating to the additional cost and delay associated with
manual processing.
The Company will continue to monitor Year 2000 issues throughout the remainder
of 1999, and into 2000, to ensure that any additional or previously unidentified
issues are properly addressed. The Company is currently developing contingency
plans, primarily for its Retail division, relating to its critical business
systems and processes. These plans are expected to be complete by mid-December
1999.
<PAGE> 19
PART II - Other Information
Item 1 - Legal Proceedings
On October 1, 1999, Cana Capital Corp. ("CCC") filed suit against the Company in
the County Court for the Fourth Judicial Circuit for Duval County, Florida, case
number 99-1438-CA, in order to recover the balance owing on a flooring credit
agreement with the Company. CCC is owned by Bruce Scott, who served on the board
of directors of Bikers Dream from July 1998 until he resigned in August 1999.
CCC provided floor financing for four of Bikers Dream's stores from May 1998
until approximately April 1999. In March 1999, Mr. Scott caused notice to be
sent to Bikers Dream that CCC would no longer provide such financing and
demanded payment of the outstanding balance of approximately $1.5 million then
outstanding under the line. Bikers Dream has paid down the balance of the loan
substantially since April 1999. It estimates the principal balance remaining to
be $344,560. CCC also contends that the Company sold motorcycles "out-of-trust,"
which were covered by the flooring agreement. In addition to seeking monetary
damages, CCC is seeking recovery of possession of the remaining motorcycles
covered by the flooring agreement.
The Company has potential offsets against CCC which exceed any sums owed to CCC.
It has not yet been decided whether these offsets will be asserted in a
cross-complaint or counter-claim in the CCC lawsuit, or included as additional
causes of action in a separate suit which Bikers Dream intends to file in
federal court in California against Mr. Scott and his corporate entities for
various contract and tort damages, including breach of Mr. Scott's fiduciary
duties as a board member of the Company.
Three motorcycle dealerships owned by Mr. Scott have filed individual actions
for claims of $33,724 in the aggregate in Florida state court against the
Company's subsidiary, Ultra Acquisition Corporation, seeking recovery for
warranty repairs made by those stores to Ultra motorcycles. Ultra disputes the
amounts claimed by these stores and, in fact, claims its accounts receivable for
parts shipped to those stores exceeds the amounts it owes in warranty claims.
The Company is also involved from time to time in litigation arising out of its
operations in the normal course of business. As of the date of this report, in
the opinion of the Company's management, liability, if any, under these actions
is adequately covered by insurance or will not have a material effect on the
Company's financial position or results of operations.
See "Item 3. -- Legal Proceedings" included in the Company's latest Form
10-KSB/A for a complete discussion.
Item 2 - Changes in Securities and Use of Proceeds
In September 1999, the Company issued a total of 8,000 options to Directors at
an exercised price of $1.75 pursuant to the terms of the Company's option plan
adopted in September 1998.
In October 1999 the investors in the Series D Preferred Stock Offering purchased
an additional $500,000 of Series D Preferred Stock and a total of 23,333
additional warrants as approved by the Company's shareholders at the Company's
Annual Meeting of Stockholders on September 23, 1999. The investors in the
October 1999 offering purchased $1.5 million of Series D Preferred Stock in
February 1999. Each share of Series D Preferred Stock has a Stated Value of
$1,000 and is convertible into Common Stock of the Company. The number of shares
of Common Stock issuable upon the conversion of one share of Series D Preferred
Stock is calculated by adding $1,000 to the amount of accrued and unpaid
dividends on such share and dividing the resulting sum by the conversion price.
The conversion price is equal to the lesser of (i) 110% of the closing bid price
of the Common Stock on the last trading day before the date of issuance of the
share of Series D Preferred Stock being converted, or (ii) 90% of the average of
the four lowest closing bid prices of the Common Stock during the last 22
trading days before the date of conversion.
<PAGE> 20
The exact number of shares of Common Stock into which the 2,030
currently outstanding shares of Series D Preferred Stock may ultimately be
convertible will vary over time as the result of ongoing changes in the trading
price of the Company's Common Stock. Decreases in the trading price of the
Company's Common Stock are likely to result in increases in the number of shares
of Common Stock issuable upon conversion.
In connection with the October 1999 offering, the Company issued
warrants to the holders of the Series D Preferred Stock enabling them to
purchase a total of 23,333 shares of the Company's Common Stock. The warrants
may be exercised at any time until September 30, 2004 at an exercise price of
$1.82 per share. These investors were previously granted a total of 60,000
warrants at an exercise price of $4.125 per share, expiring February 5, 2004, in
connection with the Series D Preferred Stock offering which took place in
February 1999.
The investors in the October 1999 Series D Preferred Stock offering
have committed to purchase an additional $1 million in Series D Preferred Stock
and another 25,000 warrants following the effectiveness of a registration
statement with respect to the shares of Common Stock issuable upon conversion of
the Series D Preferred Stock issued in October 1999.
In October 1999, the Company issued 21,112 shares of Common Stock to
a holder of Series D Preferred Stock upon the election of such holder to convert
30 shares of Series D Preferred Stock into Common Stock.
In November 1999, the Company issued to an outside consultant options
to purchase 100,000 shares of the Company's common stock at an exercise price of
$2.625 per share. Said options vest on January 8, 2000, subject to the terms and
conditions of the agreement pursuant to which said options were issued.
The issuance of the securities described in this Item 2 were not registered
under the Securities Act of 1933, as amended (the "Securities Act"). The Company
believes that such transactions were exempt from registration under the
Securities Act by virtue of Section 4(2) thereof as transactions not involving a
public offering.
Item 3 - Defaults Upon Senior Securities
Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on September
23, 1999 The stockholders took the following actions at the meeting:
1. Elected Herm Rosenman, Donald J. Duffy, Humbert Powell, III and
John Russell to the Company's Board of Directors by the votes in favor and
against and the number of votes abstaining as set forth below, with no broker
non-votes:
<TABLE>
<CAPTION>
NAME IN FAVOR AGAINST ABSTAINING
---- -------- ------- ----------
<S> <C> <C> <C>
Herm Rosenman 4,428,103 -- 45,182
Donald J. Duffy 4,430,758 -- 42,428
Humbert Powell, III 4,430,458 -- 42,728
John Russell 4,430,558 -- 42,628
</TABLE>
2. Approved, by the vote of 2,366,571 in favor and 108,812 against,
with 11,483 abstaining and 1,986,020 broker non-votes, the authorization and
ratification of: (i) the issuance and sale in private placements of up to 3,090
shares of the Company's Series D 5% Cumulative Convertible Preferred Stock, par
value $0.01 per share (the "Series D Preferred Stock") and Common Stock Purchase
Warrants to purchase up to 125,000 shares of Common Stock ("Warrants"), (ii) the
issuance of that number of shares of the Company's Common Stock, no par value
("Common Stock"), issuable upon conversion of the Series D Preferred Stock being
approved for issuance, based on the conversion formula set forth in the
<PAGE> 21
Certificate of Determination governing the Series D Preferred Stock, (iii) the
issuance of the maximum number of shares of Common Stock issuable upon exercise
of the Warrants in accordance with their terms; and (iv) the issuance of Series
D Preferred Stock, in accordance with the terms of the Certificate of
Determination governing the Series D Preferred Stock, as a dividend upon all
shares of Series D Preferred Stock being approved for issuance.
3. Ratified the selection by the Company's Board of Directors of
Singer, Lewak, Greenbaum, and Goldstein as the Company's Independent auditors
for the fiscal year 1999 by the vote of 3,905,138 in favor and 447,477 against,
with 18,376 abstaining and no broker non-votes.
Item 5 - Other Information
Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) Exhibits. The following exhibits are filed or incorporated by
reference as part of this report:
3.1 Articles of Incorporation, as amended, of Bikers Dream,
Inc. (formerly known as HDL Communications)(1)
3.1.1 Certificate of Amendment of Articles of Incorporation dated
June 21, 1996(2)
3.1.2 Certificate of Correction of Certificate of Amendment of
Articles of Incorporation dated July 25, 1997(3)
3.1.3 Certificate of Ownership of HDL Communications (now known
as Bikers Dream, Inc.)(1)
3.1.4 Certificate of Determination of Series B Convertible
Preferred Stock(3)
3.1.5 Certificate of Determination of Series C Convertible
Preferred Stock(4)
3.1.6 Certificate of Determination of Series D Convertible
Preferred Stock(5)
3.2 Bylaws, as amended, of Bikers Dream, Inc.(1)
4.1 Form of Certificate of Common Stock of Bikers Dream,
Inc.(6)
4.2 Articles of Incorporation of the Company, as amended
(included as Exhibits 3.1, 3.1.1, 3.1.2, 3.1.4, 3.1.5 and
3.1.6)
4.3 By-laws, as amended, of the Company (included as Exhibit
3.2).
10.1 Amended and Restated $300,000 18% unsecured Promissory Note
with MD Strategic L.P.
15 Letter of Singer Lewak Greenbaum & Goldstein LLP regarding
awareness of use of report dated August 20, 1999.
27 Financial Data Schedule
</TABLE>
(1) Previously filed as an exhibit to Bikers Dream's registration
statement on Form SB-2 (No. 33-92294) filed with the Commission on
May 31, 1995.
(2) Previously filed as an exhibit to Bikers Dream's Form 10-KSB report
for the fiscal year ended December 31, 1996 filed with the Commission
on April 15, 1997.
(3) Previously filed as an exhibit to Bikers Dream's Form 10-QSB report
for the fiscal quarter ended September 30, 1997 filed with the
Commission on November 14, 1997.
(4) Previously filed as an exhibit to Bikers Dream's Form 10-QSB report
for fiscal quarter ended March 30, 1998 filed with the Commission on
May 15, 1998.
<PAGE> 22
(5) Previously filed as an exhibit to this registration statement on Form
S-3 (No. 333-72167) as originally filed with the Commission on
February 11, 1999.
(6) Previously filed as an exhibit to Bikers Dream's Form 10-KSB report
for the fiscal year ended December 31, 1998 filed with the Commission
on April 15, 1999.
(b) Reports on Form 8-K
No reports were filed by the Company during the quarter ended
September 30, 1999.
<PAGE> 23
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 22, 1999 Bikers Dream, Inc.
By: /s/ Herm Rosenman
------------------------------
Herm Rosenman,
(Chief Executive Officer
Principal Executive Officer)
By: /s/ Michael J. Fisher
------------------------------
Michael J. Fisher
(Chief Financial Officer)
<PAGE> 24
Exhibits Index
The following exhibits are filed or incorporated by reference as part of this
report:
<TABLE>
<S> <C>
3.1 Articles of Incorporation, as amended, of Bikers Dream,
Inc. (formerly known as HDL Communications)(1)
3.1.1 Certificate of Amendment of Articles of Incorporation
dated June 21, 1996(2)
3.1.2 Certificate of Correction of Certificate of Amendment of
Articles of Incorporation dated July 25, 1997(3)
3.1.3 Certificate of Ownership of HDL Communications (now known
as Bikers Dream, Inc.)(1)
3.1.4 Certificate of Determination of Series B Convertible
Preferred Stock(3)
3.1.5 Certificate of Determination of Series C Convertible
Preferred Stock(4)
3.1.6 Certificate of Determination of Series D Convertible
Preferred Stock(5)
3.2 Bylaws, as amended, of Bikers Dream, Inc.(1)
4.1 Form of Certificate of Common Stock of Bikers Dream,
Inc.(6)
4.2 Articles of Incorporation of the Company, as amended
(included as Exhibits 3.1, 3.1.1, 3.1.2, 3.1.4, 3.1.5 and
3.1.6)
4.3 By-laws, as amended, of the Company (included as Exhibit
3.2).
10.1 Amended and Restated $300,000 18% unsecured Promissory
Note with MD Strategic L.P.
15 Letter of Singer Lewak Greenbaum & Goldstein LLP regarding
awareness of use of report dated May 13, 1999.
27 Financial Data Schedule
</TABLE>
(1) Previously filed as an exhibit to Bikers Dream's registration
statement on Form SB-2 (No. 33-92294) filed with the Commission on
May 31, 1995.
(2) Previously filed as an exhibit to Bikers Dream's Form 10-KSB report
for the fiscal year ended December 31, 1996 filed with the Commission
on April 15, 1997.
(3) Previously filed as an exhibit to Bikers Dream's Form 10-QSB report
for the fiscal quarter ended September 30, 1997 filed with the
Commission on November 14, 1997.
(4) Previously filed as an exhibit to Bikers Dream's Form 10-QSB report
for fiscal quarter ended March 30, 1998 filed with the Commission on
May 15, 1998.
(5) Previously filed as an exhibit to this registration statement on Form
S-3 (No. 333-72167) as originally filed with the Commission on
February 11, 1999.
(6) Previously filed as an exhibit to Bikers Dream's Form 10-KSB/A report
for the fiscal year ended December 31, 1998 filed with the Commission
on August 17, 1999.
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED PROMISSORY NOTE
$ 300,000 October 13, 1998
FOR VALUE RECEIVED, Bikers Dream, Inc. (the "Company") hereby
promises to pay MD Strategic, LP (the "Payee") at 237 Park Avenue, New York, New
York 10017 (or at such other address as the Payee may notify the Company from
time to time), the principal sum of Three Hundred Thousand DOLLARS ($300,000) or
the outstanding principal amount hereof, whichever is less, in lawful money of
the United States of America and in immediately available funds, without
set-off, counterclaim or deduction of any kind, on December 31, 1999 subject to
pre payment, or the earlier date described below, and to pay interest on the
unpaid principal amount of this Note for the period commencing on the date
hereof until this Note shall be paid in full at a rate equal to 18.0% per annum.
Principal and accrued interest on this Note shall be payable in full on or
before December 31, 1999 or in full or in part upon the earlier receipt of funds
by the Company from any third-party lender or investor (each, a "Prepayment
Date"), in an amount equal to the net proceeds of each financing up to the
outstanding principal and accrued interest herein.
This Note shall have the following terms and conditions:
1. This Note amends and restates that certain promissory note of the Company,
dated October 13, 1998, in the principal amount of $300,000, payable on or
before May 31, 1999 (the "Original Maturity Date"). In consideration for
extension of the Original Maturity Date to the Maturity Date, as provided
herein, the Company shall have paid to Payee a fee in the amount of
$12,000 (the "Extension Fee") on or before execution of this note.
2. This Note may be prepaid, in whole or in part, prior to December 31, 1999
(the "Maturity Date"), and shall be prepaid to the extent set forth above
on each Prepayment Date. The indebtedness evidenced by this Note shall be
pari passu with all other senior unsecured indebtedness of the Company.
3. The Maturity Date of this Note may be further extended at the option of
the Payee.
4. An "Event of Default" shall occur if one or more of the following events
shall occur and be continuing: (A) the Company shall fail to pay the
principal and accrued interest on, the Note when due; (B) the Company
shall default in any material respect on any of its obligations under this
Note, including default by failure to pay the extension fee as provided
herein, or any representation or warranty by the Company in connection
herewith shall prove to have been untrue or in any respect on or as of the
date made, which default remains uncured 15 days after written notice
thereof from the holder hereof to the Company, (C) the Company shall (I)
apply for or consent to the appointment of, or taking possession by, a
receiver, custodian, trustee or liquidation of itself or of all or a
substantial part of its property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under any
relevant bankruptcy code or similar law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment of
debts, (iv) fail to convert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary
case under any relevant bankruptcy code or similar law (as now or
hereafter in effect), or (v) admit in writing its inability to pay its
debt generally as they become due, or (vi) take any action for the purpose
of effecting any of the foregoing: or (D) a proceeding or case shall be
commenced, without the application or consent of the Company, in any court
of competent jurisdiction, seeking (1) its liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of its
debts, (ii) the appointment of a trustee, receiver, custodian, liquidator
or the like of the Company or all or any substantial parts of its assets,
or (iii) similar relief in respect of the Company under any law relating
to bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of 30 days: or an order for relief against the Company shall be
entered in an involuntary case under any relevant bankruptcy code or
similar law (as now or hereafter in effect);
<PAGE> 2
5. THEREUPON: (1) in the case of an Event of Default other than one referred
to in clause (C) or (D) of the immediately preceding paragraph, the Payee,
by written notice to the Company, may declare the principal amount of this
note then outstanding and the accrued interest thereon and all other
amounts payable by the Company hereunder to be forthwith due and payable,
whereupon such amounts together with interest thereafter accruing at 25%
shall be immediately due and payable without presentment, demand, protest
or other formalities of any kind (other than the notice expressly provided
for above in the subclause (1), all of which are hereby expressly waived
by the Company); and (2) in the case of an Event of Default referred to in
clause (C) or (D) of the immediately preceding paragraph, the principal
amount then outstanding of, and the accrued interest on, this Note and all
other amounts payable by the Company hereunder shall become automatically
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Company.
6. The Company agrees to pay, upon demand, all costs of collection and
enforcement of this Note, together with the costs incurred by the Company
in connection with any extension, amendment or restatement of this Note(
including, without limitation, in connection with the preparation, review,
or other revision of this amended and restated promissory note and any
other document in connection herewith).
7. This Note may be negotiated, assigned or transferred without the consent
of the Company.
8. THIS AMENDED AND RESTATED PROMISSORY NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO INSTRUMENTS MADE AND DELIVERED THEREIN BY RESIDENTS THEREOF.
BIKERS DREAM, Inc.
By: /s/ Herm Rosenman
-------------------------------------
Name: Herm Rosenman
-----------------------------------
Title: Chief Executive Officer
----------------------------------
<PAGE> 1
EXHIBIT 15
Bikers Dream, Inc.
3810 Wacker Drive
Mira Loma, California 91752
We have reviewed, in accordance with standards established by the American
Institute of Certified Public Accountants, the unaudited interim financial
information of Bikers Dream, Inc. and consolidated subsidiaries for the period
ended September 30, 1999, as indicated in our report dated November 11, 1999;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999 is
incorporated by reference in the Registration Statements of Bikers Dream, Inc.
on Forms S-3/A (#333-72167, dated May 13, 1999), S-8 (#333-68971, dated December
15, 1998), S-8 (#333-32639, dated August 1, 1997), S-3/A (#333-17829, dated May
23, 1997) and S-8 (#333-26719, dated May 8, 1997).
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant within the meaning of Sections
7 and 11 of that Act.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
November 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 495,048
<SECURITIES> 213,679
<RECEIVABLES> 3,232,616
<ALLOWANCES> (240,532)
<INVENTORY> 9,433,148
<CURRENT-ASSETS> 13,499,358
<PP&E> 2,504,914
<DEPRECIATION> (1,121,451)
<TOTAL-ASSETS> 17,975,847
<CURRENT-LIABILITIES> 5,933,633
<BONDS> 0
0
2,069,194
<COMMON> 23,497,792
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,975,847
<SALES> 27,108,630
<TOTAL-REVENUES> 27,108,630
<CGS> 21,226,385
<TOTAL-COSTS> 5,620,562
<OTHER-EXPENSES> (8,375)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 594,308
<INCOME-PRETAX> (324,250)
<INCOME-TAX> 0
<INCOME-CONTINUING> (324,250)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (642,678)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
