BIKERS DREAM INC
10QSB/A, 1999-08-17
MOTORCYCLES, BICYCLES & PARTS
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<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549
                                 FORM 10-QSB/A

[X]     QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
        ACT OF 1934. For the quarterly period ended June 30, 1998


[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
        ACT OF 1934. For the transition period from ___________ to ____________.

                           Commission File No. 0-15501

                               BIKERS DREAM, INC.
              Exact name of Registrant as specified in its charter)


          California                                     33-0140149
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of incorporation or organization)

 3810 Wacker Drive, Mira Loma, California                           91752
  (Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code:       (909) 360-2500

Indicate by check mark whether Registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.        Yes [X] No [ ]

As of June 30, 1998, there were 2,814,108 shares of the Registrant's common
stock outstanding, 3 shares of the Registrant's Series A Preferred Stock
outstanding, 3,987,331 shares of the Registrant's Series B Preferred Stock
outstanding, and 155 shares of the Registrant's Series C Preferred Stock
outstanding.

Transitional Small Business Disclosure Format   Yes  [  ]     No  [X]

Bikers Dream, Inc. hereby amends and restates in its entirety the Form 10-QSB
for the quarter ended June 30, 1998. This amendment and restatement is the
result of a review by the Securities and Exchange Commission. The purpose of
the amendment is to make corrections as described in footnote 7 (entitled
"Restatement of certain transactions for the six months ended June 30, 1998")
to the financial statements appearing in this report.

<PAGE>   2


     Bikers Dream, Inc. hereby amends and restates in its entirety the Form
10-QSB for the fiscal quarter ended June 30, 1998. This amendment and
restatement is the result of a review by the Securities and Exchange
Commission. The purpose of the amendment is to make corrections as described in
footnote 9 (entitled "Restatement of Certain Transactions as of June 30,
1998") to the financial statements appearing in this report.
<PAGE>   3

                         PART I - FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS

                       BIKERS DREAM, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            (Unaudited)        (Unaudited)
                                                             June 30,          December 31,
                                                               1998               1997
                                                           (As Restated)      (As Restated)
                                                               ----               ----
<S>                                                        <C>                 <C>
                   A S S E T S:

Current Assets:
Cash and cash equivalents                                  $  2,761,596        $    667,258
Accounts receivable, net                                      2,077,143             961,270
Inventories                                                   6,047,430           4,454,091
Notes receivable                                                     --              16,999
Prepaid expenses and other current assets                       239,251             400,069
                                                           ------------        ------------
               Total current assets                          11,125,420           6,499,687

Property, equipment and capitalized leases, net               1,012,330           1,052,195
Goodwill - net of amortization                                2,694,728           2,800,054
Deposits and other assets                                       250,528             203,892
Notes receivable, net of current portion                             --              13,039
                                                           ------------        ------------
               Total assets                                $ 15,083,006        $ 10,568,867
                                                           ============        ============

   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                                           $    173,453        $    670,796
Other accrued expenses                                          738,982           1,169,047
Current portion of long-term debt                               103,411              89,670
Current portion of notes payable                                  8,962               8,709
Notes payable to shareholders                                    12,000              36,000
                                                           ------------        ------------
               Total current liabilities                      1,036,808           1,974,222

Deferred rent                                                    61,892              64,910
Notes payable, less current portion                           4,826,522           2,581,280
Long-term debt, less current portion                                 --             276,766
                                                           ------------        ------------
               Total liabilities                              5,925,222           4,897,178

Shareholders' equity:
        Convertible preferred stock, Series A, no par
        value, aggregate liquidation preference of $525,000,
        30 shares authorized, 3 shares issued and
        outstanding at June 30, 1998 and December
        31, 1997.                                               472,500             472,500

        Convertible preferred stock, Series B, no
        par value, cumulative dividends, aggregate
        liquidation preference of  $3,987,331
        8,000,000 shares authorized, 3,987,331 and
        5,751,385 shares issued and outstanding at
        June 30, 1998 and December 31, 1997.                  3,987,331           5,751,385

        Convertible preferred stock, Series C, no
        par value, cumulative dividends, aggregate
        liquidation preference of $3,875,000, 300
        shares authorized, 155 and 0 shares issued
        and outstanding at June 30, 1998 and
        December 31, 1997.                                    3,875,000                  --

        Common stock, no par value 25,000,000 shares
        authorized at June 30, 1998; 2,814,108 and
        2,544,926* issued and outstanding at June
        30, 1998 and December 31, 1997                       14,397,083          11,199,995

Accumulated deficit                                         (13,574,131)        (11,752,191)
                                                           ------------        ------------
               Total shareholders equity                      9,157,783           5,671,689
                                                           ------------        ------------
               Total liabilities and shareholders'
               equity                                      $ 15,083,006        $ 10,568,867
                                                           ============        ============
</TABLE>

See the accompanying notes to these financial statements

* Adjusted for the Company's 1 for 5 reverse stock split of February 1998

                                       2

<PAGE>   4

                       BIKERS DREAM, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 For The Quarters Ended June 30, 1998, and 1997
<TABLE>
<CAPTION>
                                          (Unaudited)       (Unaudited)
                                             1998              1997
                                         (As Restated)     (As Restated)
                                         -------------      ------------
<S>                                       <C>               <C>
REVENUES                                  $ 8,121,021       $ 4,469,249

COST OF GOODS SOLD                          6,593,827         4,089,219
                                          -----------       -----------
GROSS PROFIT                                1,527,194           380,030

OPERATING EXPENSES
Selling, general and administrative
  expenses                                  1,090,832         1,709,332
Depreciation and amortization                 124,416           124,158
                                          -----------       -----------
               Total expenses               1,215,248         1,833,490
                                          -----------       -----------
OPERATING INCOME (LOSS)                       311,946        (1,453,460)
                                          -----------       -----------
OTHER EXPENSE
Interest Expense                              104,506           162,222
Other expense, net                                 --            14,436
                                          -----------       -----------
               Total other expense            104,506           176,658
                                          -----------       -----------
INCOME (LOSS) BEFORE PROVISION FOR
  INCOME TAXES                                207,440        (1,630,118)

PROVISION FOR INCOME TAX                           --                --
                                          -----------       -----------
NET INCOME (LOSS)
  before preferred stock dividends,
  and beneficial conversion feature       $   207,440       $(1,630,118)

PREFERRED STOCK DIVIDENDS,
  net of forfeited dividends                  (17,149)          (30,625)

BENEFICIAL CONVERSION
  feature granted to Series C
  Preferred shareholders                   (1,335,534)               --
                                          -----------       -----------
NET LOSS AVAILABLE TO
  COMMON SHAREHOLDERS                     $(1,145,243)      $(1,660,743)
                                          ===========       ===========
EARNINGS (LOSS) PER COMMON SHARE:
  Basic                                   $     (0.42)      $     (0.94)
                                          ===========       ===========
  Diluted                                 $     (0.42)      $     (0.94)
                                          ===========       ===========
WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING:
  Basic                                     2,734,169         1,760,936(*)
                                          ===========       ===========
  Diluted                                   2,734,169         1,760,936(*)
                                          ===========       ===========

</TABLE>

See the accompanying notes to these financial statements

*Adjusted for the Company's 1 for 5 reverse stock split of February 1998


                                       3

<PAGE>   5

                       BIKERS DREAM, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                For The Six Months Ended June 30, 1998, and 1997

<TABLE>
<CAPTION>
                                               (Unaudited)        (Unaudited)
                                                  1998                1997
                                              (As Restated)      (As Restated)
                                              -------------      -------------
<S>                                           <C>                 <C>
REVENUES                                      $ 13,113,809        $  7,648,917

COST OF GOODS SOLD                              10,866,251           6,578,646
                                              ------------        ------------
GROSS PROFIT                                     2,247,558           1,070,271

OPERATING EXPENSES
Selling, general and administrative expenses     2,273,932           2,891,063
Depreciation and amortization                      244,850             224,061
                                              ------------        ------------
               Total expenses                    2,518,782           3,115,124
                                              ------------        ------------
OPERATING LOSS                                    (271,224)         (2,044,853)
                                              ------------        ------------
OTHER EXPENSE
Interest Expense                                   206,432             271,667
Other expense, net                                      --              23,410
                                              ------------        ------------
               Total other expense                 206,432             295,077
                                              ------------        ------------
LOSS BEFORE PROVISION FOR INCOME TAXES            (477,656)         (2,339,930)

PROVISION FOR INCOME TAX                                --                  --
                                              ------------        ------------
NET LOSS
  before preferred stock dividends
  and beneficial conversion feature           $   (477,656)       $ (2,339,930)

PREFERRED STOCK DIVIDENDS,
  net of forfeited dividends                      (161,714)            (61,500)

BENEFICIAL CONVERSION FEATURE
  granted to Series C preferred
  shareholders                                  (1,335,534)                 --
                                              ------------        ------------
NET LOSS AVAILABLE
  to common shareholders                      $ (1,974,904)       $ (2,401,430)
                                              ============        ============
LOSS PER COMMON SHARE:
  Basic                                       $      (0.75)       $      (1.36)
                                              ============        ============
  Diluted                                     $      (0.75)       $      (1.36)
                                              ============        ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
  Basic                                          2,636,656           1,760,936(*)
                                              ============        ============
  Diluted                                        2,636,656           1,760,936(*)
                                              ============        ============
</TABLE>

See the accompanying notes to these financial statements

*Adjusted for the Company's 1 for 5 reverse stock split of February 1998


                                       4

<PAGE>   6

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                For The Six Months Ended June 30, 1998, and 1997

<TABLE>
<CAPTION>
                                                           (Unaudited)        (Unaudited)
                                                               1998               1997
                                                          (As Restated)      (As Restated)
                                                          -------------      -------------
<S>                                                        <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net Loss                                                   $  (477,656)       $(2,339,930)
Adjustments to reconcile net loss to net
  cash used in operating activities:
        Depreciation and amortization                          244,850            224,061
        Issuance of common stock for services rendered               0            145,250
(Increase) decrease in:
        Accounts receivable                                 (1,115,873)          (400,346)
        Inventories                                         (1,593,339)          (254,643)
        Prepaid expenses and other current assets              190,638           (335,884)
Increase (decrease) in:
        Accounts payable                                      (497,343)           933,149
        Other accrued expenses                                (438,815)          (189,898)
                                                           -----------        -----------
               Net cash used in operating activities        (3,687,538)        (2,218,241)
                                                           -----------        -----------
CASH FLOWS FROM INVESTING ACTIVITIES

(Increase) decrease in property, plant and equipment          (133,734)          (178,576)
Increase (decrease) in deferred rent                            (3,018)               560
Purchase of Ultra Kustom Cycles assets                              --         (1,100,000)
Other                                                           30,038                 --
                                                           -----------        -----------
               Net cash used in investing activities          (106,714)        (1,278,016)
                                                           -----------        -----------
CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of long-term debt                     4,500,000          3,590,000
Principal payments made on long-term debt and
  capitalized leases                                        (2,559,910)          (151,302)
Proceeds from issuance of preferred stock                    3,875,000                 --
Redemption of outstanding warrants                              97,500                 --
Costs associated with issuance of common stock                      --            113,004
Proceeds from issuance of convertible notes
  payable                                                      800,000                 --
Principal payments made on notes payable                      (800,000)                --
Payments made on notes payable to shareholders                 (24,000)           (24,000)
                                                           -----------        -----------
               Net cash provided by financing
                 activities                                  5,888,590          3,527,702
                                                           -----------        -----------
               Net increase in cash and cash
               equivalents                                   2,094,338             31,445

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                 667,258            247,891
                                                           -----------        -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                   $ 2,761,596        $   279,336
                                                           ===========        ===========
</TABLE>

See the accompanying notes to these financial statements

                                       5

<PAGE>   7

                       BIKERS DREAM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             June 30, 1998, and 1997



1.   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 audited financial statements of the Company for the year ended
     December 31, 1997. The results of operations for the six months ended June
     30, 1998 are not necessarily indicative of the results to be expected for
     the year ending December 31, 1998. 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 at the time of shipment. 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

        Financing Income - Financing income is the Company's commission revenue
        resulting from certain motorcycle sales. Such revenue is recognized at
        the time the finance company or a third-party lender remits payment to
        the Company.

     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 computation of diluted net earnings or loss per share was
        anti-dilutive in each of the periods presented; therefore, the amounts
        reported for basic and diluted are the same. Net income or loss per
        common share was determined by dividing net income or loss by the
        weighted average shares outstanding in each period. Effective February
        5, 1998, the Company effected a 1-for-5 reverse

                                       6

<PAGE>   8

        stock split of its common stock. All shares and per share data in the
        current fiscal year 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.

     Inventories:

        Inventories are valued at the lower of cost or market using a cost
        method which approximates average cost. The entire inventory consists of
        purchased items together with labor that has been applied thereto.

     Property, Equipment and Capitalized Leases:

        Property, equipment and capitalized leases are recorded at cost with
        depreciation and amortization provided using the straight-line method
        over the estimated useful lives of the assets, which range from three to
        ten years or the term of the lease, whichever is the lesser. Repairs and
        maintenance are expensed as incurred. When property and equipment are
        retired or disposed of, the related costs and accumulated depreciation
        and amortization are eliminated from the accounts and any gain or loss
        on such disposition is reflected in operations.

     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.


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. Upon the issuance of the Series C
Preferred Stock, the Company calculated the beneficial conversion feature of
the Preferred Stock as if the conversion occurred upon issuance. Since the
preferred stock is immediately Convertible, the Company recorded the total
beneficial conversion feature of $1,335,534 upon issuance.

                                       7

<PAGE>   9

4.   Commitments and Contingencies:

        Leases

The Company leases all of its operating facilities located in Santa Ana,
Sacramento, San Diego, and Riverside, California, as well as Dallas, Texas.

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, (Note 3), this bridge loan was converted into Series C
Preferred Stock 25,000 stock options. 150,000 warrants to purchase the Company's
common stock were also issued to Meyer Duffy and other investors party to the
bridge loan.

Note 6 -- Earnings Per Share

<TABLE>
<CAPTION>
                                                    Quarters Ended June 30,       Six Months Ended June 30,
                                                   --------------------------      -------------------------
                                                        1998        1997              1998          1997
                                                   --------------------------      -------------------------
<S>                                                <C>            <C>              <C>           <C>
Net income (loss)                                  $   207,440    $(1,630,118)     $  (477,656)  $(2,339,930)
Dividends on preferred shares, net of
  forfeited dividends                                  (17,149)       (30,625)        (161,714)      (61,500)
Beneficial conversion feature granted
  on Series C preferred shares                     $(1,335,534)           --        (1,335,534)          --
                                                   --------------------------      -------------------------

Loss available to common shareholders              $(1,145,243)   $(1,660,743)     $(1,974,904)  $(2,401,430)
                                                   ==========================      =========================

Basic loss per common shareholder                  $     (0.42)   $     (0.94)     $     (0.75)  $     (1.36)
                                                   ==========================      =========================

Diluted loss per common shareholder                $     (0.42)   $     (0.94)     $     (0.75)  $     (1.36)
                                                   ==========================      =========================

Weighted-average shares outstanding:
  Basic                                              2,734,169      1,760,936        2,636,656     1,760,936
                                                   ==========================      =========================

Diluted                                              2,734,169      1,760,936        2,636,656     1,760,936
                                                   ==========================      =========================

</TABLE>

Note 7 -- Restatement of Certain Transactions for the six months ended
          June 30, 1998

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 Notes 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 B convertible preferred stock were
retained by the Company in escrow.

During the year ended December 31, 1998, the 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.

Originally the Company reduced the excess of cost over fair value during the
year ended December 31, 1998. It was later determined once the shares are
placed in escrow, they are no longer outstanding. Accordingly, the Company
restated the financial statements upon the Mutual and 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 $757,775, decreases the number of Series B preferred shares
issued and outstanding by 730,000 shares, decreases the amount of Series B
preferred stock outstanding by $730,000, increases selling, general and
administrative expense by $64,454, decreases depreciation and amortization
expense by $26,853 and increases net loss before preferred stock dividends and
beneficial conversion feature by $37,601.

Accrued Preferred Dividends

The Series A, B and C preferred stock accrues dividends at certain stated
rates. Since the series B and C preferred shareholders were not entitled to
accrued dividends unless the shares were outstanding for a specific time, the
Company did not declare the dividends therefore certain amounts were not
accrued. 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 June 30, 1998 and 1997 cumulative undeclared
dividends on Series A, B and C totaled $422,341 and $122,500, respectively.

The above restatement increased net loss available to common shareholders for
the quarter ended June 30, 1998 by $17,149 for the increase in cumulative
dividends from December 31, 1997 to June 30, 1998.

The above restatement increased net loss available to common shareholders for
the quarter ended June 30, 1997 by $30,625 for the increase in cumulative
dividends from December 31, 1996 to June 30, 1997.

The above restatement increased net loss available to common shareholders for
the six months ended June 30, 1998 by $161,714 for the increase in cumulative
dividends from December 31, 1997 to June 30, 1998.

The above restatement increased net loss available to common shareholders for
the six months ended June 30, 1997 by $61,500 for the increase in cumulative
dividends from December 31, 1996 to June 30, 1997.

Series C Preferred Share 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.

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

Certain matters discussed in this Quarterly Report on Form 10-QSB/A 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 are described in close proximity to such
statements and which could cause actual results to differ materially from those
anticipated as of the date of this report. 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.


COMPARISON OF THE QUARTERS ENDED JUNE 30, 1998 AND 1997:

Net sales for the three months ended June 30, 1998, were $8,121,021 an increase
of $3,651,772, or 82 %, from the same period in 1997. The increase in net sales
was primarily attributable to Motorcycle Manufacturing, as units sold during
this period increased 79% when compared to the same period in 1997. The dealer
network has increased to 58 dealers at June 30, 1998 compared to approximately
20 dealers as of June 30, 1997. Additionally, the Company experienced improved
sales from its Retail Stores Division. There are currently four Company owned
Bikers Dream Superstores in operation which is the same number of Company owned
Superstores in operation during the same period in 1997.

Gross profit for the three months ended June 30, 1998, was $1,527,194, or 19%,
as compared to gross profit of $380,030, or 8.5%, during the same three month
period in 1997. This increase of $1,147,164 in gross profit is attributable to
increased motorcycle unit shipments as well as improved manufacturing
efficiencies. In addition, four Bikers Dream Superstores were in operation
throughout this period and they contributed approximately $514,782 to gross
margin.


                                       8
<PAGE>   10

COMPARISON OF THE QUARTERS ENDED JUNE 30, 1998 AND 1997:
(Continued)


Selling, general and administrative expenses were $1,090,832 for the quarter
ended June 30, 1998 compared to $1,709,332 for the three months ended June 30,
1997. The decrease of $618,500 or 36%, is primarily attributable to reduced
corporate overhead, as well as operating efficiencies at the corporate level and
in the retail stores.

Interest expense declined by $57,716 to $104,506 for the three month period
ended June 30, 1998, when compared to the same period in 1997. This is primarily
attributable to the debt restructuring which took place in November 1997.

There is no provision for income taxes in 1998. 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 June 30, 1998 the Company reported a net profit
of $207,440, compared to a net loss of $1,630,118, and during the three month
period ended June 30, 1997. The improved profitability of $1,837,558, is the
result of the aforementioned increases in manufacturing and sales as well as
improved operating efficiencies. The Company has increased its production and
sales to over 150 motorcycles per month which directly contributes to this
improved profitability. Additionally, the Company has had four Bikers Dream
Superstores in operation throughout this entire period.

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.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997:

Net sales for the six months ended June 30, 1998, were $13,113,809 compared to
$7,648,917 during the same six month period in 1997. This is an increase of
$5,464,892, or 71 %, from the same period in 1997. The increase in net sales was
primarily attributable to Motorcycle Manufacturing as units sold during this
period increased 150% over the same period in 1997. The dealer network has
increased to 58 dealers at June 30, 1998 compared to approximately 20 dealers as
of June 30, 1997. Additionally, the Company experienced improved sales from the
Retail Stores Division. The Company did not have four corporate owned
Superstores fully operational until March 1997.

Gross profit for the six months ended June 30, 1998, was $2,247,558, or 17%, as
compared to gross profit of $1,070,271, or 14%, during the same six month
period in 1997. This increase of $1,177,287 in gross profit is attributable to
increased motorcycle unit shipments as well as improved manufacturing
efficiencies. In addition, four corporate owned Bikers Dream Superstores were in
operation throughout this period.

Selling, general and administrative expenses were $2,273,932 for the six months
ended June 30, 1998 compared to $2,891,063 for the six months ended June 30,
1997. The decrease in expenses of $617,131,


                                       9
<PAGE>   11

21%, is primarily attributable to reduced corporate overhead, as well as
operating efficiencies at the corporate level and in the retail stores.

Depreciation and amortization increased $20,789 during the first six months of
1998 primarily as a result of changing the amortization period of goodwill from
a forty year amortization period to a fifteen year amortization period.


                                       10
<PAGE>   12

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997:
(Continued)


Interest expense declined to $206,432, or by 24%, for the six month period ended
June 30, 1998, when compared to the same period in 1997. This is primarily
attributable to debt restructuring which took place in November 1997.

For the six month period ended June 30, 1998 the Company reported a cumulative
net loss of $477,656, compared to a cumulative net loss of $2,339,930, during
the six month period ended June 30, 1997. The improved profitability of
$1,862,274, $0.61 per share, is the result of the aforementioned operating
efficiencies as well as increased sales of manufactured motorcycles.
Additionally, the Company has had four corporate owned Bikers Dream Superstores
in operation throughout this entire period whereas in the first half of 1997
four stores operated for only four of the six months during this period in 1997.


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 has determined that it may be required
to modify or replace certain portions of its software 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 major software suppliers. The Company presently believes that with
modifications to its existing software and conversions to new software, each of
which can be readily and economically accomplished, the Year 2000 Issue can be
mitigated. However, if such modifications are not made, or are not completed
timely, the Year 2000 Issue could have a material adverse impact on the
operations of the Company.

The Company will initiate formal communications with all of it significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. The Company's total Year 2000 project cost and estimates to complete
include the estimated costs and time associated with the impact of a third
party's Year 2000 Issue, are based on presently available information. However,
there can be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted, or that a failure to convert by
another company, would not have a material adverse effect on the Company.

The Company plans to complete its Year 2000 review in early 1999. The expenses
related to the Year 2000 Issue are not expected to have a material effect on the
results of operations of the Company. The costs associated with the review and
any required modifications are based upon management's best estimates, which
were derived from utilizing numerous assumptions of future events including
third party modification plans and other factors. However, there can be no
assurance that these estimates will be achieved and actual results could vary
materially from current plans.



                                       10
<PAGE>   13

LIQUIDITY AND CAPITAL RESOURCES

The Company generated $2,094,338 of cash from all activities during the first
six months of 1998, compared to a generation of $31,445 in cash during the same
six month period in 1997. The Company utilized $3,687,538 of cash in operations
during the first six months of 1998 compared to a usage of $2,218,241 in 1997.
During this six month period, the Company sold Series C Convertible Preferred
Stock, which generated approximately $3.875 million in cash. The Company also
received the net cash amount of approximately $2.0 million in the form of a long
term loan from Tandem Capital during this period.

On June 24, 1998, the Company completed a three year senior secured loan with
Tandem Capital of Nashville, Tennessee. The amount of the loan is $4.5 million,
which bears interest at 12% per annum and stipulates quarterly payments. There
is not a prepayment penalty. The lender also received 370,000 warrants to
purchase the Company's common stock at an exercise price equal to $4 1/16
payable in cash by debt cancellation, or, by in-kind exercise. The purpose of
this loan was to repay existing long term debt, approximately $2.5 million, and
to expand motorcycle manufacturing in Riverside, California.

The following are forward looking statements: The Company is pursuing a
long-term strategy to significantly increase motorcycle production capacity with
a goal of having the capacity to manufacture approximately 200 units a month by
the end of 1998 and over 300 units a month by the end of 1999. The Company's
strategy includes moving to a new manufacturing facility with approximately
twice the manufacturing space it currently possesses. The Company estimates that
the move to this facility will cost between $250,000 and $350,000. The Company
anticipates funding its production increase with cash on hand, internally
generated funds and appropriate capital markets available to the Company. Based
upon its current estimates, the Company believes that its available cash and
cash resources and prospects are sufficient to fund current and future
activities.

The Company has relied substantially on equity capital and debt financing to
meet its operating and growth needs. The Company's ability to increase its
manufacturing capacity and establish a new manufacturing facility will depend
upon, among other factors, the Company's ability to raise additional equity
capital and/or debt financing, establish a new manufacturing facility, and work
with existing and new suppliers to expand their capacity. However, there can be
no assurance that the Company will be able to raise additional equity capital or
debt financing. In addition, the Company could experience delays in implementing
changes to the existing manufacturing facility and/or establishing a new
manufacturing facility. Additionally, there is no assurance that the Company
will have the ability to sell all the motorcycles it may have the capacity to
produce.


                                       11
<PAGE>   14

                          Part II -- Other Information



Item 1.  Legal Proceedings

            In April 1998, the Company finalized a settlement agreement with
            Harley-Davidson, Inc. ("Harley-Davidson") ending all disputes
            between them. Harley-Davidson had brought actions against the
            Company for trademark infringement and infringement of "trade dress"
            issues.

            Without admitting or denying any violations of Harley-Davidson's
            trademarks, or debating the subject of "trade dress", the Company
            agreed to make certain changes to some of the components it uses to
            manufacture motorcycles under the Company brand and to pay, together
            with its insurers, an amount approximating Harley-Davidson's legal
            expenses in the matter.

            The Company is involved in various litigation arising from the
            normal course of its business, none of which, in the opinion of
            management, will have a material adverse effect on the Company.


Item 6.  Exhibits and Reports on Form 8-K.

        (a) Exhibits

             4     Certificate of Determination of Bikers Dream, Inc.

            27     Financial Data Schedule


                                       12
<PAGE>   15

                                   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: August 17, 1999             BIKERS DREAM, INC.




                                   By:  /s/ Herm Rosenman
                                        --------------------------------
                                        Herm Rosenman, Chief Executive Officer


                                   By:  /s/ Anne Todd
                                        --------------------------------
                                        Anne Todd, Controller
                                        (Principal Financial and
                                        Accounting Officer)


                                       13
<PAGE>   16

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number         Description
- ------         -----------
<C>        <S>
 27        Financial Data Schedule
</TABLE>


<TABLE> <S> <C>

<ARTICLE> 5

<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-START>                             APR-01-1998
<PERIOD-END>                               JUN-30-1998
<CASH>                                       2,761,596
<SECURITIES>                                         0
<RECEIVABLES>                                2,077,143
<ALLOWANCES>                                         0
<INVENTORY>                                  6,047,430
<CURRENT-ASSETS>                            11,125,420
<PP&E>                                       1,284,033
<DEPRECIATION>                                 271,703
<TOTAL-ASSETS>                              15,083,006
<CURRENT-LIABILITIES>                        1,036,808
<BONDS>                                              0
                                0
                                  8,334,831
<COMMON>                                    14,397,083
<OTHER-SE>                                 (13,574,131)
<TOTAL-LIABILITY-AND-EQUITY>                15,083,006
<SALES>                                     13,113,809
<TOTAL-REVENUES>                            13,113,809
<CGS>                                       10,866,251
<TOTAL-COSTS>                               10,866,251
<OTHER-EXPENSES>                             2,518,782
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             206,432
<INCOME-PRETAX>                               (477,656)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                           (477,656)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                  (477,656)
<EPS-BASIC>                                    (0.75)
<EPS-DILUTED>                                    (0.75)


</TABLE>


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