<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 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 Identification No.)
incorporation or organization)
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 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 May 19, 1999, 5,157,590 shares
of the issuer's common stock were outstanding.
Transitional Small Business Disclosure Format (check one): 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 March
31, 1999, and for the three-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 three-month
period ended March 31, 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, 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, we expressed an unqualified opinion on those consolidated
financial statements.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 13, 1999
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
A S S E T S
Current Assets:
Cash and cash equivalents $ 1,066,797 $ 689,679
Marketable securities 204,047 200,634
Accounts receivable, net 3,975,674 2,633,649
Other receivables 43,098 43,098
Notes receivable 1,800 6,143
Inventories 7,767,534 7,644,793
Prepaid expenses and other current assets 226,388 221,096
------------ ------------
Total current assets 13,285,338 11,439,092
Property and equipment, net 1,216,066 1,011,371
Excess cost over fair value of net assets acquired, net 3,207,382 3,270,271
Debt issuance costs, net 189,831 169,533
Deposits and other assets 365,064 488,516
------------ ------------
Total assets $ 18,263,681 $ 16,378,783
============ ============
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
Current liabilities:
Accounts payable $ 2,329,799 $ 2,083,338
Accrued expenses 1,137,207 1,179,540
Advances on financing agreements - related party 1,300,021 1,486,174
Current portion of notes payable 163,839 160,991
Current portion of capital lease obligations 38,748 36,833
Notes payable to related parties 300,000 300,000
------------ ------------
Total current liabilities 5,269,614 5,246,876
Deferred rent 43,792 55,586
Notes payable, less current portion 4,708,867 4,731,749
Capital lease obligations, less current portion 41,701 54,735
------------ ------------
Total liabilities 10,063,974 10,088,946
Shareholders' equity:
Convertible preferred stock, Series A, no par value, liquidation
preference of $175,000 per share, 30 shares authorized, 1 share
issued and outstanding at March 31, 1999 and December 31, 1998 157,500 157,500
Convertible preferred stock, Series B, no par value
cumulative dividends, liquidation preference of $1 per share
8,000,000 shares authorized, 702,194 shares issued and 702,194 702,194
outstanding at March 31, 1999 and December 31, 1998
Convertible preferred stock, Series C, no par value -- --
cumulative dividends, liquidation preference of $1 per share
300 shares authorized, 0 shares issued and outstanding at
March 31, 1999 and December 31, 1998
Convertible preferred stock, Series D, $.01 par value, $1,000
stated value, liquidation preference of $1,000 per share
3,500 shares authorized, 1,545 shares and 0 shares issued and
outstanding at March 31, 1999 and December 31, 1998 1,367,000 --
Common stock, no par value
25,000,000 shares authorized at March 31, 1999; 5,157,590 and 21,641,830 21,306,671
5,112,926 issued and outstanding at March 31, 1999 and
December 31, 1998
Subscriptions receivable -- (90,000)
Accumulated deficit (15,668,817) (15,786,528)
------------ ------------
Total shareholders equity 8,199,707 6,289,837
------------ ------------
Total liabilities and shareholders' equity $ 18,263,681 $ 16,378,783
============ ============
</TABLE>
See the accompanying notes to these financial statements
<PAGE> 4
BIKERS DREAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Quarters Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1999 1998
----------- -----------
<S> <C> <C>
REVENUES $ 8,762,728 $ 4,992,789
COST OF GOODS SOLD 6,567,061 4,272,424
----------- -----------
GROSS PROFIT 2,195,667 720,365
OPERATING EXPENSES
Selling, general and administrative expenses 1,687,766 1,118,646
Depreciation and amortization 168,482 130,633
----------- -----------
Total expenses 1,856,248 1,249,279
----------- -----------
OPERATING INCOME (LOSS) 339,419 (528,914)
----------- -----------
OTHER EXPENSE
Interest Expense 221,708 101,926
----------- -----------
Total other expense 221,708 101,926
----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 117,711 (630,840)
PROVISION FOR INCOME TAX -- --
----------- -----------
NET INCOME (LOSS) $ 117,711 $ (630,840)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ 0.02 $ (0.25)
=========== ===========
Diluted $ 0.02 $ (0.25)
=========== ===========
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING:
Basic 5,152,737 2,538,844*
=========== ===========
Diluted 5,891,080 2,538,844*
=========== ===========
</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
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended March 31, 1999, and 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 117,711 $ (630,840)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 168,482 130,633
Issuance of common stock for services rendered 60,000 --
(Increase) decrease in:
Accounts receivable (1,342,025) (72,495)
Inventories (122,741) (583,376)
Prepaid expenses and other current assets (5,292) 2,937
Deposits and other assets 123,452 --
Increase (decrease) in:
Accounts payable 246,461 (38,687)
Accrued expenses (42,333) (71,007)
----------- -----------
Net cash used in operating activities (796,285) (1,262,835)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments on subscription receivables 90,000 --
(Increase) decrease in marketable securities (3,413) --
(Increase) decrease in furniture and equipment (310,288) (15,693)
Increase (decrease) in deferred rent (11,794) (2,011)
Other 4,343 30,960
----------- -----------
Net cash provided by (used in)
investing activities (231,152) 13,256
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments made on capitalized leases (11,119) (21,567)
Proceeds from issuance of preferred stock 1,500,000 3,100,000
Deferred offering costs (133,000) --
Redemption of outstanding warrants 167,500 --
Proceeds from issuance of convertible notes payable -- 800,000
Principal payments made on notes payable (20,034) (802,035)
Payments made on financing agreements with related parties (186,153) --
Payments made on notes payable to shareholders -- (12,000)
Additional paid in capital received from related parties 107,657 --
Debt issuance costs (20,298) --
----------- -----------
Net cash provided by financing activities 1,404,555 3,064,398
----------- -----------
Net increase in cash and cash equivalents 377,118 1,814,819
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 689,679 667,258
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,066,797 $ 2,482,077
=========== ===========
</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 for the
year ended December 31, 1998. The results of operations for the three
months ended March 31, 1999, are not necessarily indicative of the
results to be expected for the year ending December 31, 1999. Net
earnings or loss per share was computed by dividing net income or loss
by the weighted average number of common shares outstanding during the
respective periods.
2. Summary Of Significant Accounting Policies:
Revenue Recognition:
Product Sales - Motorcycle manufacturing revenue from the sale of
product is recognized upon completion of the sale agreement. Retail
revenue from the sale of products is recognized at the time of sale to
a retail customer. Motorcycle manufacturing sales made to one of 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.
<PAGE> 7
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.
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.
Property and Equipment:
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.
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 effective 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 of 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 fiscal 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 operations.
SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections," is effective for financial statements with fiscal 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 stock at a
purchase price of $5.00 per share. All shares of Series C Preferred
Stock have been converted into common stock.
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.
<PAGE> 8
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.
However, prior to the receipt of shareholder approval, the maximum
number of shares issuable upon conversion will not exceed 1,027,996.
This number represents 19.9% of the Company's outstanding Common Stock
as of the date the Series D Preferred Stock was issued. 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. The investors in the Series D
Preferred Stock offering have committed to purchase an additional
$500,000 of Series D Preferred Stock and a total of 15,000 additional
warrants upon approval by the Company's shareholders of the issuance of
such additional Series D Preferred Stock. The same investors have also
committed to purchase an additional $1 million in Series D Preferred
Stock and another 25,000 warrants following the later to occur of
shareholder approval or the effectiveness of a registration statement
with respect to the shares of common stock underlying all of the
previously issued shares of Series D Preferred Stock.
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, Dallas, Texas, and Conover,
North Carolina.
5. 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, a director
of the 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
<PAGE> 9
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
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 is
relying on a $1.5 million inventory flooring line of credit which it
obtained in May 1998 from Cana Capital Corporation ("Cana Capital"), a
company owned by Bruce Scott, a director of the Company, and a $300,000
loan which it obtained in October 1998 from MD Strategic. Advances
under the Cana Capital line of credit bear interest at a rate of 2% or
5% over the prime rate, depending on the type of advance. 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 May 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 terminate the line of credit with Cana Capital
Corporation and repay the MD Strategic loan upon obtaining such
financing.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed in this Quarterly Report 10-Q 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. 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
<PAGE> 10
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 six 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 revenues will be derived from the
Motorcycle division.
The Company's operations are expected to be impacted by general seasonal trends
that it believes are characteristic of the motorcycle industry. The Company
historically has not been affected by seasonal trends because it began
manufacturing operations in February 1997, and by the fall and winter months of
1997 and early 1998, had sufficient dealer demand to absorb all of the
production the Company was able to achieve at that time. In 1998, however,
production was substantially increased to a point that the Company experienced
reduced sales activity due to seasonal trends. The Company therefore expects
higher revenues to occur in the second and third quarters of 1999 and future
years.
COMPARISON OF THE QUARTERS ENDED March 31, 1999 AND 1998:
Total revenues for the three months ended March 31, 1999, were $8,763,000 as
compared to $4,993,000 for the same quarter in 1998, representing an increase of
$3,770,000, or 76%.
After giving effect to the elimination of interdivisional charges of $1,157,000,
revenues attributable to the Company's Motorcycle and Retail divisions for the
three months ended March 31, 1999, were $5,897,000 and $2,866,000, respectively,
as compared to $2,181,000 and $2,812,000 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 466 from 220 for the comparable period a year
earlier. The increase in units sold was attributable to a larger dealer network,
which increased to approximately 100 dealers at March 31, 1999, as compared to
approximately 27 dealers as of March 31, 1998. All of the active dealers within
the Company's dealer network are located in the United States.
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
<PAGE> 11
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 increase in revenues in the Retail division was attributable to the opening
of two Superstores in Dallas, Texas and Conover, North Carolina, which were not
in operation during the comparable period in 1998. In August 1998, the Company
opened its second Superstore in the Dallas, Texas market. 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, bringing the total number of
Company owned Superstores to six. 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,
although plans may change if an exceptional opportunity arises.
Cost of goods sold for the three months ended March 31, 1999, was $6,567,000
(i.e. 75% of revenues) compared to $4,272,000 (i.e. 86% of revenues) for the
comparable period a year earlier, representing an increase of $2,295,000, or
54%. With revenues rising at a faster rate than cost of goods sold, the
Company's gross margin improved to 25% from 14%, and gross profit increased by
$1,476,000, to $2,196,000 for the three months ended March 31, 1999, from
$720,000 for the comparable period a year earlier.
The increase in gross margins is principally due to the increased production in
the Company's Motorcycle division, which permitted improved cost efficiencies.
Gross margins in the Motorcycle division were approximately 30% during the three
months ended March 31, 1999, as compared to approximately 11% 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, 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 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. Cost of goods sold
for the year ended December 31, 1998 also included certain adjustments made
during the fourth quarter of the year which may pertain, in part, to operations
of the Company during prior quarters of the year. These adjustments include
approximately $679,000 of inter-company profit elimination and approximately
$350,000 of warranty expense.
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
first quarter of 1998. If any of such charges or adjustments did in fact relate
back to the first 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 first quarters of 1998
and 1999, respectively, may be affected.
Selling, general and administrative expenses were $1,688,000 (i.e. 19% of total
revenues), for the three months ended March 31, 1999, compared to $1,119,000
(i.e. 22% of total revenues), for the three months ended March 31, 1998,
representing an increase of $569,000, or 51%. 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 less than the percentage increase in
total revenues, reflecting improved utilization of corporate and administrative
personnel and some reduction in the labor force, offset by the increased costs
associated with increased Company operations.
<PAGE> 12
Depreciation and amortization expense for the three months ended March 31, 1999,
totaled $168,000 compared to $131,000 for the same period in 1998. The increase
is primarily attributable to the additional depreciation recorded on the assets
of two new Company-owned Superstores.
As a result of the foregoing, the Company's operating income was $339,000 for
the three months ended March 31, 1999, as compared to an operating loss of
$529,000 for the comparable period a year earlier.
Interest expense increased by $120,000, from $102,000 for the three months ended
March 31, 1998, to $222,000 for the three months ended March 31, 1999. The
increase is attributable to additional outstanding debt as compared to the same
period in 1998.
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 March 31, 1999, the Company reported net income
of $118,000, compared to a net loss of $631,000, for the comparable period a
year earlier. The improved profitability of $749,000 is the result of the
aforementioned increases in production and sales as well as improved operating
efficiencies.
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.
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. These 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. The Company is also relying on a $1.5 million financing agreement secured
by certain inventory which it obtained in May 1998 from Cana Capital Corporation
("Cana Capital"), a company owned by Bruce Scott, a director of the Company and
a $300,000 bridge loan which it obtained in October 1998 from MD Strategic L.P.
("MD Strategic"), a partnership in which Don Duffy, a director of the Company,
is a principal.
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. The investors in the Series D Preferred Stock
offering have committed to purchase an additional $500,000 of Series D Preferred
Stock upon approval by the Company's shareholders of the issuance of such
additional
<PAGE> 13
Series D Preferred Stock. The same group of investors have also committed to
purchase an additional $1 million in Series D Preferred Stock following the
later to occur of shareholder approval or the effectiveness of a registration
statement with respect to the shares of common stock underlying all of the
previously issued shares of Series D Preferred Stock.
The Company will require additional outside sources of capital to continue to
expand its manufacturing operations. The Company is currently negotiating an
inventory- 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 and to expand its
manufacturing capabilities 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 $796,000 for the three months ended
March 31, 1999, as compared to cash used for operating activities of $1,263,000
for the same period in 1998. The decrease in cash used in operating activities
was primarily a result of increased profitability for the period ended March 31,
1999 as compared to the comparable period in 1998. Significant working capital
changes also included a decrease in inventories of $123,000 and an increase in
accounts payable of $246,000, offset, in part, by an increase in accounts
receivable of $1,342,000.
Cash used in investing activities totaled $231,000 for the three months ended
March 31, 1999, as compared to cash provided by investing activities of $13,000
during the prior year's period. The increase is primarily the result of the
initial phase of tenant improvements at the new manufacturing facility.
Cash provided by financing activities totaled $1,405,000 for the three months
ended March 31, 1999, as compared to cash provided by financing activities of
$3,064,000 during the prior year's period. Net proceeds from the issuance of
preferred stock totaled $1,367,000 for the period ended March 31, 1999, as
compared to $3,100,000 for the same period in 1998.
OUTLOOK
As the Company continues to pursue its growth strategy, additional financing
will be required principally for 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 such plans may change if an
exceptional opportunity arises.
<PAGE> 14
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 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, the
Company experiences delays establishing a new manufacturing facility, 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 second and
third quarters as motorcycle sales are greatest in the spring and summer months.
The Company's Retail Store division experiences seasonality in the second and
third quarters 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 manufacturing operations and administrative systems is Year
2000 compliant. However, the Company has not yet completed its review of the
software and hardware of its Retail division. The Company has determined that it
may be required to modify or replace certain portions of its software and
hardware so that its computer systems will properly utilize dates beyond
December 31, 1999. 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 intends, during the beginning of
the third quarter of 1999, to run test transactions on all of its systems to
confirm the Year 2000 operability of such systems. In the event that such
<PAGE> 15
testing reveals Year 2000 vulnerability, the Company believes that with
modifications to existing systems and conversions to new systems, the Year 2000
issue can be mitigated. The Company believes that such communication, testing,
and modifications and/or replacements can be accomplished at an estimated cost
of less than $20,000.
The Company has also initiated formal communications with all of its significant
vendors and large customers to determine to what extent the Company might be
vulnerable to those third parties' failure to remedy their own Year 2000 issue.
There can be no assurance that the systems of third parties will be timely
converted. The Company, however, has a relatively small number of significant
suppliers, and it believes that alternative suppliers will be available for all
required parts. The Company will continue to monitor the compliance activities
of its key suppliers up to the Year 2000, and if satisfactory assurances of
compliance cannot be received in a timely fashion, the Company expects to enter
into replacement arrangements with other vendors.
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 most reasonably likely 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, 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.
Pending completion of its review and testing process, the Company does not yet
have a contingency plan as such. It is expected that such a plan will be
prepared by mid-1999. The Company has determined, however, that to the extent
any key supplier, vendor or customer of the Company cannot demonstrate such
person's Year 2000 compliance to the Company's satisfaction, and if short-term
manual back-up systems cannot be implemented without adversely effecting the
Company's operations, then the Company will seek to establish relationships with
other suppliers, vendors, or customers who can provide assurance of Year 2000
compliance.
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is 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
for a complete discussion.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
In January 1999, the Company issued options to a single employee of the Company
to purchase 30,000 shares of the common stock of the Company at an exercise
price of $3.63 per share. The issuance of the options was not registered under
the Securities Act of 1933, as amended (the "Securities Act"). The Company
believes that such transaction was exempt from registration under the Securities
Act by virtue of Section 4(2) thereof as a transaction not involving a public
offering.
Other than the foregoing transaction, all securities issued by the Company
during the fiscal quarter ended March 31, 1999 without registration under the
Securities Act were previously reported by the Company in the Company's Form
10-KSB for the fiscal year ended December 31, 1999.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 - OTHER INFORMATION
Not Applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(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)
<PAGE> 17
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).
15 Letter of Singer Lewak Greenbaum & Goldstein LLP regarding
awareness of use of report dated May 13, 1999.
27 Financial Data Schedule
- -----------------
(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 report for
the fiscal year ended December 31, 1998 filed with the Commission on
April 15, 1999.
<PAGE> 18
(b) Reports on Form 8-K.
During the quarter ended March 31, 1999, the Company filed a report on Form 8-K
reporting under Item 5 thereof the completion of a private placement of $1.5
million of Series D Preferred Stock.
<PAGE> 19
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 24, 1999 Bikers Dream, Inc.
By: /s/ Herm Rosenman
-----------------------------
Herm Rosenman,
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Anne Todd
-----------------------------
Anne Todd, Controller
(Principal Financial
and Accounting Officer)
<PAGE> 20
EXHIBITS INDEX
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).
15 Letter of Singer Lewak Greenbaum & Goldstein LLP regarding
awareness of use of report dated May 13, 1999.
27 Financial Data Schedule
- --------------
(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 report for
the fiscal year ended December 31, 1998 filed with the Commission on
April 15, 1999.
<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 March 31, 1999, as indicated in our report dated May 13, 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 March 31, 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
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
May 24, 1999
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