<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D.C. 20549

                                  FORM 10-QSB

(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended September 30, 1996

( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the transition period from___________to______________.

                          Commission File No. 0-15501

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


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

                 1420 Village Way, Santa Ana, California
                    (Address of principal executive offices)
                                      92705
                                   (Zip Code)

                                 (714) 835-8464
              (Registrant's telephone number, including area code)


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

As of September 30, 1996, there were 8,350,031 shares of the Registrant's common
stock outstanding.

Transitional Small Business Disclosure Format
Yes           No     X
      -----        -----
<PAGE>   2
                         PART I - FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

                      BIKERS DREAM, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                          September  30, 1996 And 1995
<TABLE>
<CAPTION>
                                                                                 (Unaudited)    (Unaudited)
                                                                                    1996           1995
                                                                                   ----           ----
                                                  A S S E T S:
<S>                                                                              <C>                <C>        
Current assets:
Cash and cash equivalents                                                        $ 1,228,208        $   195,323
Accounts receivable, net                                                             445,874            245,944
Inventories                                                                        1,527,338          1,761,355
Prepaid expenses and other current assets                                            109,293            129,352
                                                                                 -----------        -----------
             Total current assets                                                  3,310,713          2,331,974

Property, equipment and capitalized leases, net                                      844,636            565,144
Investments - Joint Venture                                                        1,000,000
Deposits and other assets                                                             37,754             58,484
                                                                                 -----------        -----------
             Total assets                                                        $ 5,193,103        $ 2,955,602
                                                                                 ===========        ===========

                                     LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable                                                                 $   525,332        $   359,283
Other accrued expenses                                                               873,191            361,377
Current portion of long-term debt                                                    109,633             11,739
Current portion of notes payable                                                     104,621            250,000
Notes payable to shareholders                                                         96,000            104,000
                                                                                 -----------        -----------
             Total current liabilities                                             1,708,777          1,086,399

Deferred rent                                                                         70,655             76,412
Notes payable, less current portion                                                   91,422
Deferred tax liability                                                                                    3,425
Long-term debt, less current portion                                                 393,150             70,191
                                                                                 -----------        -----------
             Total liabilities                                                     2,264,004          1,236,427
                                                                                 -----------        -----------
Commitments and contingencies (Note 5)

Shareholders' equity:
10% convertible preferred stock, no par value, 10,000,000 shares
  authorized at September 30, 1996: 7 shares
  issued and outstanding at September 1996                                         1,102,500
Common stock, no par value; 25,000,000 shares
  authorized at September 30, 1996; 8,350,031 and 5,535,920
  issued and outstanding at September 30, 1996 and                                 6,870,624          3,260,179
  September 30, 1995 
Accumulated deficit                                                               (5,044,025)        (1,541,004)
                                                                                 -----------        -----------
             Total shareholders' equity                                            2,929,099          1,719,175
                                                                                 -----------        -----------
             Total liabilities and shareholders' equity                          $ 5,193,103        $ 2,955,602
                                                                                 ===========        ===========
</TABLE>


See the accompanying notes to these consolidated financial statements.
<PAGE>   3
                       BIKERS DREAM, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                           For The Three Months               For The Nine Months
                                                           --------------------                ------------------
                                                            Ended September 30,                Ended September 30,
                                                      (Unaudited)       (Unaudited)      (Unaudited)      (Unaudited)
                                                         1996              1995             1996             1995
                                                         ----              ----             ----             ----
<S>                                                <C>                <C>                <C>                <C>        
Revenues:
Product sales                                      $ 1,775,912        $ 2,121,538        $ 7,328,601        $ 5,367,804
Financing contracts                                     42,281             97,062            201,990             47,062
                                                   -----------        -----------        -----------        -----------
             Total revenues                          1,818,193          2,218,600          7,530,591          5,464,866

Cost of goods sold                                   1,431,584          1,560,090          5,895,661          4,064,959
                                                   -----------        -----------        -----------        -----------
             Gross profit                              386,609            658,510          1,634,930          1,399,907
                                                   -----------        -----------        -----------        -----------
Expenses:
Selling, general and administrative expenses         1,091,166          1,187,005          3,653,353          2,740,634
Depreciation and amortization                           47,355             25,225            143,675             58,864
Interest expense                                        57,681             18,820            139,081             18,667
Franchise income                                        (7,987)           (63,774)           (40,289)           (72,274)
Other expense                                          144,290                340            300,323             (3,250)
                                                   -----------        -----------        -----------        -----------
             Total expenses                          1,332,505          1,167,616          4,196,143          2,742,641
                                                   -----------        -----------        -----------        -----------
             Loss before (provision) for
               income taxes                           (945,896)          (509,106)        (2,561,213)        (1,345,734)
(Provision) for income taxes                                 0                  0                  0            (63,151)
                                                   -----------        -----------        -----------        -----------
             Net loss                              $  (945,896)       $  (509,106)       $(2,561,213)       $(1,405,885)
                                                   ===========        ===========        ===========        ===========
Net loss per share                                 $     (0.14)       $     (0.10)       $     (0.41)       $     (0.32)
                                                   ===========        ===========        ===========        ===========
Weighted average shares outstanding                  6,786,749          5,535,920          6,173,695          4,459,591
                                                   ===========        ===========        ===========        ===========
</TABLE>


See the accompanying notes to these consolidated financial statements.

                                       2
<PAGE>   4
                       BIKERS DREAM, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CASH FLOWS For Nine Months Ended
                          September 30, 1996, And 1995

<TABLE>
<CAPTION>
                                                                (Unaudited)        (Unaudited)
                                                                    1996               1995
                                                                 ----------        -----------
<S>                                                             <C>                <C>         
Cash flows from operating activities:
Net loss                                                        $(2,561,213)       $(1,405,885)
                                                                -----------        -----------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Deferred income taxes                                                    --             62,351
Loss from disposal of fixed assets                                   26,046                 --
Store closure costs                                                 135,000
Depreciation and amortization                                       153,323             58,864
Past services compensated by Company common stock                   151,800
Changes in assets and liabilities:
(Increase) in accounts receivable                                  (159,482)          (147,930)
(Increase) in inventories                                          (336,351)        (1,060,054)
Decrease (increase) in prepaid expenses and other
current assets                                                       21,802            (61,496)
Increase in accounts payable                                        226,134            354,167
Increase in other accrued expenses                                  138,525            235,632
                                                                -----------        -----------
             Total adjustments                                      356,797           (558,466)
                                                                -----------        -----------
             Net cash used in operating activities               (2,204,416)        (1,964,351)
                                                                -----------        -----------
Cash flows from investing activities:
Decrease in deposits                                                143,397            (12,711)
Payments for purchases of fixed assets                             (423,791)          (509,726)
Increase in deferred rent                                            15,725              2,908
Investment - Joint Venture                                       (1,000,000)
                                                                -----------        -----------
             Net cash used in investing activities               (1,264,669)          (519,529)
                                                                -----------        -----------
</TABLE>
See the accompanying notes to these consolidated financial statements.


                                        3
<PAGE>   5
                      BIKERS DREAM, INC. AND SUBSIDIARIES

        CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued For Nine Months
                       Ended September 30, 1996, And 1995

<TABLE>
<CAPTION>
                                                                  1996         1995
                                                               ----------    ----------
<S>                                                          <C>                 <C>         
Cash flows from financing activities:
Proceeds from short-term notes                               $   569,905                 --
Proceeds from long-term debt                                     308,350             85,348
Principal payments made on long-term debt and
  capitalized leases                                             (45,857)           (76,972)
Proceeds from issuance of common stock                         2,567,450          2,811,189
Costs associated with issuance of common stock                  (160,793)
Proceeds from issuance of preferred stock                      1,225,000
Costs associated with issuance of preferred stock               (122,500)
Proceeds from issuance of convertible notes payable              450,500
Principal payments made on notes payable                        (129,451)          (167,000)
Payments on notes payable to shareholders                       (101,047)
Advances received on employee note receivable                                       (16,114)
Payments received on note receivable from stockholder                                24,616
                                                             -----------        -----------
             Net cash provided by financing activities         4,561,557          2,661,067
                                                             -----------        -----------
             Net increase in cash and cash equivalents         1,092,472            177,187
Cash and cash equivalents, beginning of period                   135,736             18,136
                                                             -----------        -----------
Cash and cash equivalents, end of period                     $ 1,228,208        $   195,323
                                                             ===========        ===========
</TABLE>

          In March 1995, the Company converted a $500,000 promissory note into
500,000 shares of common stock of the Company in connection with the acquisition
of HDL Communications by Bikers Dream, Inc.

          In March 1996, the Company converted promissory notes in the amount of
$629,000 into 369,992 shares of common stock of the Company.

          In April 1996, the Company converted promissory notes in the amount of
$450,500 into 264,999 shares of common stock of the Company.

          In September 1996 the Company converted promissory notes in the amount
of $500,000 into 476,100 shares of common stock of the company, liabilities in
the aggregate amount of $135,267 were converted into a total of 98,019 shares of
common stock of the company, and 110,000 shares of common stock of the company
were issued at a price of $1.38 per share as compensation for past services.

          In September 1996, the Company issued 1,222,596 Units (each Unit
consisting of two shares of common stock, one Series A warrant to purchase, at a
price of $2.10 per share, one share of common stock, and one Series B Warrant to
purchase, at a price of $3.10 per share, one share of common stock) for total
gross proceeds of $2,567,450.

          In September 1996, the Company sold its Clearwater, Florida Superstore
to its former President, Dennis Campbell, in exchange for consideration which
included the cancellation of 950,000 shares of the Company's common stock owned
by Mr. Campbell.

See the accompanying notes to these consolidated financial statements.


                                        4
<PAGE>   6
                      BIKERS DREAM, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          September 30, 1996, And 1995

1.       In the opinion of management, the accompanying consolidated financial
         statements contain all adjustments necessary (consisting only of normal
         recurring accruals) to present fairly the financial information
         contained therein. These statements do not include all disclosures
         required by generally accepted accounting principles and should be read
         in conjunction with the audited financial statements of the Company for
         the year ended December 31, 1995. The results of operations for the
         nine months ended September 30, 1996 are not necessarily indicative of
         the results to be expected for the year ending December 31, 1996. Net
         loss per share was computed by dividing net loss by the weighted
         average number of common shares outstanding during the respective
         quarters.

2.       Company Operations And Liquidity:

         Bikers Dream, Inc. (the "Company") was originally incorporated in 1991.
         As of March 13, 1995, the Company acquired a publicly-traded dormant
         entity formerly known as HDL Communications ("HDL") which was
         originally incorporated in 1985. After the acquisition, the Company was
         merged into HDL and HDL changed its name to Bikers Dream, Inc. At the
         time of acquisition, there was no active trading market for the
         Company's stock and management of the Company and HDL determined in
         arm's length negotiation that the market value of the combined entities
         was approximately $4.0 million (or approximately $1.00 per share) which
         was evidenced by the number of shares issued (4,100,000) in connection
         with the acquisition as follows:

           3.3 million shares to former Company shareholders 
            .3 million shares to former HDL shareholders 
            .5 million shares to holders of $500,000 of convertible notes of
               HDL who converted them into shares of the Company at a price of
               $1.00 per share immediately prior to the closing of the
               acquisition

         At the time of the merger, HDL's assets and liabilities consisted of a
         note receivable of $500,000 from the Company and notes payable in the
         amount of $500,000. As the notes were converted into shares concurrent
         with the acquisition, the .3 million shares issued to former HDL
         shareholders were issued in consideration for the public entity HDL.

         The substance of the transaction was a recapitalization of the
         Company's shares for those of HDL's shares. Shareholders' equity has
         been restated to give retroactive recognition to the recapitalization
         and has been treated as a stock split for all periods presented. In
         addition, all references in the financial statements to number of
         shares and per share amounts of the Company's common stock have been
         restated.

         The surviving company is in the business of selling previously owned
         Harley Davidson motorcycles, custom manufactured motorcycles, parts,
         accessories, apparel and service through Company-owned retail stores in
         California and Texas.

Continued

                                       5
<PAGE>   7
                       BIKERS DREAM, INC. AND SUBSIDIARIES

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                          September 30, 1996, And 1995

2.       Company Operations And Liquidity, Continued:

         The Company's consolidated financial statements for the nine months
         ended September 30, 1996 have been prepared on a going-concern basis
         which contemplates the realization of assets and the settlement of
         liabilities and commitments in the normal course of business. The
         Company incurred a net loss of $2,347,693 for the year ended December
         31, 1995 and a net loss of $2,561,213 for the nine months ended
         September 30, 1996. As of September 30, 1996 the Company had an
         accumulated deficit of $5,044,025. The Company's working capital at
         September 30, 1996 was $1,601,936. The Company experienced an increase
         in its selling and administrative expenses of $948,719 over the same
         nine month period last year. This increase was primarily the result of
         1) costs of operating new Company owned superstores, 2) the launch of
         the Dream Wheels mobile Superstore in March 1996, 3) legal and
         accounting fees related to registering and issuing stock as an SEC
         company and 4) offset by the goodwill writeoff of $238,266 in the third
         quarter of 1995.

         On September 9, 1996, the Company's Board of Directors accepted the
         resignation Of Dennis Campbell as President, Chief Executive Officer
         and Director. The Company transferred its Clearwater, Florida store
         location to Mr. Campbell in exchange for cancellation of 950,000 shares
         of the Company's common stock owned by Mr. Campbell.

         On September 10, 1996, the Company's Board of Directors appointed
         Donald J. Duffy and Rowland W. Day II as co-chairmen and co-chief
         executive officers. Messrs. Duffy and Day are also directors of the
         Company. Also on September 10, 1996, Richard King, Jr. resigned as a
         director and as secretary of the Company.

         On September 13, 1996, the Company accepted the resignation of William
         Gresher, Chief Financial Officer. Donald J. Duffy, co-chairman and
         co-chief executive Officer, agreed to assume the duties of Chief
         Financial Officer.

         On September 16, 1996, the Company announced that it signed an
         agreement to form a joint venture with Mull Acres Investments,
         Inc.("MAI"), whose Ultra Kustom Cycles division of Riverside,
         California, is a manufacturer of custom V-twinmotorcycles and
         show-bikes. The joint venture will act as the exclusive distributor of
         Ultra Kustom Cycles. Additionally, all direct retail sales of Ultra
         Kustom Cycles in Southern California, Sacramento, California, and
         Dallas, Texas will now be sold through the Company's retail stores.
         Ultra Kustom Cycles will close its Riverside, California, showroom and
         transfer key sales personnel to the Registrant's store locations to
         provide expertise in motorcycle sales, product knowledge and store
         management. The joint venture is in the form of a limited liability
         company known as Ultra Bikers, LLC. In order to increase the production
         of Ultra Kustom Cycles to one hundred bikes per month, the Company has
         agreed in the Operating Agreement to loan the joint venture $2,000,000
         over the next ninety days of which $1,000,000 had been loaned as of
         September 30, 1996. The Company received $2,567,450 from the sale of
         common stock in September 1996 and $420,000 in October 1996 to meet
         this funding obligation. Additionally, the Company has announced that
         it has acquired an option to purchase Ultra Kustom Cycle and Ultra
         Kustom Parts for a total Consideration of $4,000,000 and options to
         purchase 2,500,000 shares of the Company's common stock at a purchase
         price of $1.65 per share. The Company must exercise its Option after
         August 31, 1997 or earlier subject to the consent of Ultra Kustom
         Cycle.

         Ultra Kustom Cycle has been producing custom motorcycles for over two
         years. The motorcycles retail for approximately $15,900 to $24,900
         depending on the model. Currently, Ultra Kustom Cycle manufactures 6
         models. The Ultra Kustom Parts division of MAI, which has also been
         operational for approximately two years, produces approximately 126
         parts including both original equipment parts and custom high
         performance parts for the cruiser segment of the motorcycle industry.
         Under a separate distribution Agreement, Ultra Kustom Parts will also
         provide the Company with components manufactured by third parties.

Continued

                                       6
<PAGE>   8
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                           September 30, 1996 And 1995


         Principles Of Consolidation:

         The consolidated financial statements include the accounts of Bikers
         Dream, Inc. and all of its wholly-owned subsidiaries, including the
         accounts of Bikers Dream International, Inc., Bikers Dream
         Distribution, Inc., Bikers Dream Management Services, Inc. and Bikers
         Dream Eagle Enterprises, Inc.  All significant intercompany accounts
         and transactions are eliminated in consolidation


3.       Summary Of Significant Accounting Policies:

         Revenue Recognition:

                 Product Sales - Revenue from the sale of products is recognized
                 at the time of sale to a retail customer.

                 Financing Income - Financing income is the Company's commission
                 revenue resulting from certain motorcycle sales. Such revenue
                 is recognized at the time financing arrangements are
                 contractually completed between a retail customer and a
                 third-party lender. The Company recognizes as financing income
                 80% of the total commission revenue expected to be received
                 over the life of the finance contract. This estimate is based
                 on experience with similar contracts owned by the third party
                 finance company.

                 Franchise Income - Income from the sale of franchises is
                 recognized at the time the franchise commences retail
                 operations and the Company has performed substantially all of
                 the services which it is required to perform under the
                 Company's franchise agreement. These services provided to
                 franchises include, but are not limited to, assistance in site
                 selection and in-house and on-site training with instruction
                 using the Company's franchise operations manual.

         Superstore Pre-Opening Costs:

         All costs associated with opening a Company-owned and operated
         Superstore, with the exception of capitalized furniture, fixtures and
         equipment, are expensed when incurred.

         Advertising Costs:

         Those costs associated with placement of advertisements in various
         periodicals are expensed when the advertisement is run.  Internal
         development costs are expensed as incurred.

         Catalog Costs:

         Internal costs associated with the development of mail order catalogs
         are expensed as incurred. External costs, excluding printing, relating
         to the development of the catalog are capitalized and amortized over 12
         months from the first publication. Costs associated with printing
         catalogs are inventoried when purchased and expensed as catalogs are
         sold or distributed.


Continued

                                        7
<PAGE>   9
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                          September 30, 1996 And 1995


3.       Summary Of Significant Accounting Policies, Continued:

         Income Taxes:

         The Company utilizes Statement of Financial Accounting Standards No.
         109, "Accounting for Income Taxes," which requires the recognition of
         deferred tax liabilities and assets for the expected future tax
         consequences of events that have been included in the financial
         statements or tax returns. Under this method, deferred income taxes are
         recognized for the tax consequences in future years of differences
         between the tax bases of assets and liabilities and their financial
         reporting amounts at each year-end based on enacted tax laws and
         statutory tax rates applicable to the periods in which the differences
         are expected to affect taxable income. Valuation allowances are
         established, when necessary, to reduce deferred tax assets to the
         amount expected to be realized.

         Net Loss Per Common Share:

         The computation of fully diluted net loss per share was antidilutive in
         each of the periods presented; therefore, the amounts reported for
         primary and fully diluted are the same. Net loss per common share was
         determined by dividing net loss by the weighted average shares
         outstanding in each period.

         Cash And Cash Equivalents:

         For purposes of the balance sheet and the statement of cash flows, the
         Company considers all highly liquid debt instruments purchased with an
         original maturity at date of purchase of three months or less to be
         cash equivalents.

         Accounts Receivable:

         At September 30, 1996, the allowance for doubtful accounts was $33,251.
         The balance was $14,911 as of September 30, 1995.

         Inventories:

         Inventories are valued using a cost method which approximates the
         first-in, first-out (FIFO) method at the lower of cost or market. The
         entire inventory consists of purchased items which are categorized as
         finished goods. September 1996 inventory was reduced approximately
         $450,000 as a result of the Clearwater, Florida Superstore sale. At
         September 30, 1996, the reserve for obsolescence was $55,281.The
         reserve at September 30, 1995 was $29,077.


Continued

                                        8
<PAGE>   10
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                          September 30, 1996 And 1995


3.       Summary Of Significant Accounting Policies, Continued:

         Property, Equipment And Capitalized Leases:

         Property, equipment and capitalized leases are recorded at cost with
         depreciation and amortization provided using the straight-line method
         over the estimated useful lives of the assets which range from three to
         ten years or the term of the lease, whichever is the lesser. Repairs
         and maintenance are expensed as incurred. When property and equipment
         are retired or disposed of, the related costs and accumulated
         depreciation and amortization are eliminated from the accounts and any
         gain or loss on such disposition is reflected in operations. Property,
         equipment and capitalized leases were reduced $146,000 as a result of
         the sale of the Clearwater, Florida Superstore.

         Deferred Rent:

         Deferred rent arises from rent abatements which are negotiated at the
         beginning of certain property leases. The total amount of the base rent
         payments is being charged to expense on the straight-line method over
         the term of the lease. The Company has recorded deferred rent to
         reflect the excess of rent expense over the cash payments since the
         inception of the lease. Deferred rent was reduced $43,000 as a result
         of the sale of the Clearwater, Florida Superstore.

         Concentration Of Risk:

         The Company is operating in a growing market due to the current
         nationwide popularity of Harley Davidson motorcycles. Its future
         success is dependent on the continuation of interest in the
         recreational motorcycle industry.

         Concentration Of Credit Risk:

         The Company's cash and cash equivalents are placed with high credit
         quality financial institutions. The Company had demand deposits in
         excess of Federal Deposit Insurance Corporation ("FDIC") insurance
         limits at September 30, 1996.

         Other financial instruments which potentially subject the Company to
         concentrations of credit risk consist principally of trade receivables.
         These concentrations are limited due to the large number of customers
         comprising the Company's customer base and their dispersion across
         different geographic regions. The Company performs ongoing credit
         evaluations of customers and generally does not require collateral.
         Allowances are maintained for potential credit losses, and such losses
         have been within management's expectations. As of September 30, 1996
         and 1995, the Company has no significant concentrations of credit risk.


Continued

                                        9
<PAGE>   11
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                             September 30, 1996 And 1995

3.       Summary Of Significant Accounting Policies, Continued:

         Use Of Estimates In The Preparation Of Financial Statements:

         The preparation of financial statements, in conformity with generally
         accepted accounting principles, requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities, and disclosure of contingent assets and liabilities at the
         date of the financial statements, and the reported amounts of revenue
         and expenses during the reported period. Actual results could differ
         from those estimates.


4.       Property, Equipment And Capitalized Leases:

         Property and equipment consists of the following:


<TABLE>
<CAPTION>
                                                              Estimated                  September 30,
                                                                                         -------------
                                                             Useful Lives           1996               1995
                                                             ------------           ----               ----
<S>                                                            <C>              <C>                <C>        
         Furniture and fixtures                                7 years          $   147,859        $   104,462
         Leasehold improvements                                7 years              128,746            253,592
         Equipment                                             5-7 years             87,425             92,452
         Computers                                             5 years              242,944            201,584
         Autos and trucks                                      3-10 years           441,053                  O
                                                                                -----------        -----------
                                                                                  1,048,027            652,090
         Less, Accumulated depreciation and amortization                           (203,391)           (86,946)
                                                                                -----------        -----------
                                                                                $   844,636        $   565,144
                                                                                ===========        ===========
</TABLE>
   

         Assessments of whether there has been a permanent impairment in the
         value of long-lived assets are periodically performed by considering
         factors such as expected future operating results, trends and
         prospects, as well as the effects of demand, competition and other
         economic factors. The method used is to determine if an impairment has
         occurred based upon a change in circumstances regarding the long lived
         assets, followed by an analysis of cash flows regarding the assets in
         question. If an impairment is determined to have occurred as a result
         of the analysis, then the Company recognizes and measures that
         impairment using discounted cash flow as provided by FAS 121. Since the
         Company has just started many of its retail operations in the last 12
         months, historical information is limited in evaluating future effects.
         During the Second Quarter of 1996 the Company closed one of its former
         franchises which was acquired in late 1995 resulting in a writeoff of
         $32,000 in leasehold improvements plus $125,000 of other costs. Fixed
         assets were also reduced by $146,000 as a result of the sale of the
         Clearwater, Florida Superstore. Management believes no further
         permanent impairment has occurred based upon the information currently
         available.


Continued

                                       10
<PAGE>   12
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                          September 30, 1996 And 1995


4.       Property, Equipment And Capitalized Leases, Continued:

         The Company leases certain computer equipment under agreements which
         are classified as capital leases. These leases have original terms of
         two to five years. These leases have bargain purchase options at the
         end of the original term. Leased capitalized assets included in
         property, equipment and capitalized leases at September 30, 1996 and
         1995 are as follows:

<TABLE>
<CAPTION>
                                                     1996             1995
                                                     ----             ----
<S>                                                <C>               <C>    
         Computers                                 $132,723          $80,803
           Less, Accumulated amortization           (24,403)           3,418
                                                   --------          -------
                                                   $108,320          $81,930
                                                   ========          =======
</TABLE>

5.       Commitments And Contingencies:

         The Company leases all of its operating facilities. The Santa Ana,
         California operating facility, which serves as a retail Superstore and
         executive offices, is leased under a noncancelable tenant operating
         lease subject to annual CPI increases starting the third year of the
         lease. The lease term is 120 months commencing November 1, 1993 with
         two successive five-year options to renew.

         The Company negotiated a lease at a second Company-owned Superstore in
         Dallas, Texas. The lease term is sixty months commencing January 1,
         1995 with two successive five-year options to renew and is subject to
         annual CPI increases.

         On March 1, 1995, the Company negotiated a lease to open its third
         Company-owned Superstore in Clearwater, Florida. This lease was
         subsequently transferred to Dennis Campbell in connection with the sale
         of such superstore to Mr. Campbell.


Continued

                                       11
<PAGE>   13
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                          September 1996 And 1995


5.       Commitments And Contingencies, Continued:

         On September 22, 1995, the Company purchased one of its franchise
         stores. The Company assumed the store's lease as part of the
         transaction. The lease term is 60 months commencing January 1, 1994
         with monthly lease payments starting at $3,500 and increasing up to
         $4,410 per month through the term of the lease. As of April 29,1996
         this store was closed by the Company with the intention of opening a
         larger Superstore in the greater Los Angeles area later in 1996. The
         Company is in negotiations with the landlord regarding the termination
         of this lease.

         On November 21, 1995, the Company purchased another of its franchise
         stores. The Company did not assume this lease, but instead issued a
         guarantee to the former franchisee to continue its lease payment. The
         lease term is 63 months commencing on April 1, 1995 with monthly lease
         payments of $3,039 per month. The monthly lease payments increase to
         $3,555 per month over the term of the lease.

         The Company is involved in litigation arising from the sale of one
         franchise and in the ordinary course of business. Although the final
         outcome of these legal matters cannot be determined, management has
         estimated the Company's loss and accrued for such amount in the
         December 31, 1995 financial statements. The final resolution of these
         matters could have a material adverse effect on the financial position
         and results of operations of the Company.


Continued

                                       12
<PAGE>   14
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                          September 30, 1996 And 1995


6.       Long-Term Debt:

         Long-term debt at September 30, 1996 and 1995 consists of the
         following:
<TABLE>
<CAPTION>
                                                                                              1996               1995
                                                                                              ----               ----
<S>                                                                                       <C>                <C>    
         Capitalized lease obligation payable to a finance company,
         collateralized by certain computer equipment, requiring principal and
         interest payments of $2,272 per month, with
         interest at 20% per annum through May 2000                                          $70,191            $81,930

         Capitalized lease obligation payable to a finance company,
         collateralized by certain computer equipment, requiring principal and
         interest payments of $232 per month with
         interest at 16% per annum through January 1998                                        3,351

         Long Term Note Payable to a finance company, collateralized by a
         trailer requiring principal and interest payments of $5,739 per month,
         with interest at 11% per annum through February 2002                                281,867

         Capitalized lease obligation payable to a finance company,
         collateralized by certain computer equipment, requiring principal and
         interest payments of $937 per month, with interest
         at 16% per annum through December 2000 plus a $4,258 payment in                      38,129
         January, 2001

         Long-term note payable to a finance company, collateralized by a diesel
         tractor, requiring principal and interest payments of
         $1,870 per month, with interest at 10% per annum through January                     78,245
         2001                                                                               --------            -------
                                                                                             471,783             81,930
         Less, Current portion                                                               (78,633)           (11,739)
                                                                                            --------            -------
         Long-term debt, net of current portion                                             $393,150            $70,191
                                                                                            ========            =======
</TABLE>

Continued

                                       13
<PAGE>   15
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                         September 30, 1996 And 1995

7.       Notes Payable:

         The notes payable at September 30, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
                                                                                                1996           1995
                                                                                              --------       ---------
<S>                                                                                          <C>             <C>
         Note payable to former employee in conjunction with release and
         Settlement agreement entered into September 9, 1996. The note is
         payable in monthly installments through February 1996.                              $  70,000

         Note payable to former franchisee in conjunction with acquisition
         of former franchise operation.  The note is due October 1996.                       $  13,021

         Note payable to bank which was assumed in conjunction with the
         acquisition of a former franchise operation. The note is guaranteed by
         the SBA and is collateralized by all the assets of the Sacramento
         store. The note accrues interest at the rate of prime plus 2-1/2% per
         annum on the unpaid balance and is payable
         in monthly installments through April, 2005.                                           95,936

         Note payable to former franchisee in conjunction with acquisition of
         former franchise operation. Note is uncollateralized,
         non-interest-bearing and is payable in 24 equal installments of
         $1,221 through November 1997.                                                          17,086

         Note payable to unrelated party is in conjunction with acquisition Of
         former franchise operation. $100,000 due in October, 1995, and balance
         accruing interest at 9% and payable in equal monthly installments to
         September 1996 collateralized by all the assets of
         the Company.                                                                                          250,000
                                                                                             ---------       ---------
         Sub Total                                                                             196,043         250,000

         Less, Current portion                                                                (104,621)       (250,000)
                                                                                             ---------       ---------
         Notes payable, long-term portion                                                    $  91,422       $       0
                                                                                             =========       =========
</TABLE>

Continued

                                       14
<PAGE>   16
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                          September 1996 And 1995


8.       Preferred Stock

         In June, 1996, the Company's articles of incorporation were amended to
         authorize a new class of Preferred Stock. At that time, the Board of
         Directors were given authority, from time to time, to issue such shares
         and determine the terms and conditions thereof via a Board Resolution
         when the need arose for them to be issued.

         The Board of Directors subsequently resolved to issue up to 30 shares
         of 10% Convertible Preferred Stock at the price of $175,000 per unit.
         Each share of Preferred Stock may be converted into 50,000 shares of
         common stock at the rate of $3.50 per common share, at the option of
         the holder, at any time following the effective approval date of the
         registration of the shares. The Company may call for conversion at any
         time after the registration statement becomes effective if (a) the
         average closing price of the common shares is $7.50 per share or more
         for ten (10) consecutive trading days, or (b) after the third
         anniversary of the closing of the private placement of Preferred Stock,
         whichever occurs first.

         If the holders of the Preferred Stock exercises their conversion
         privilege, the adjusted conversion price will be 75% of the greater of
         (a) the average of the closing bid price for the common stock for the
         ten (10) trading days immediately prior to receipt of notice by the
         Company of the holder's election to convert, or (b) the closing bid
         price on the day immediately preceding receipt of notification by the
         Company. If the adjusted conversion price is lower than $3.50 per
         share, then the holders would convert into a greater number of shares
         based upon the adjusted conversion price, but in no event shall the
         conversion price be less than $1.50 per share.

         Each share of Preferred Stock is entitled to an annual common stock
         dividend equal to ten (10) percent of the face value of the Preferred
         Stock ($17,500) at the closing bid price of the common shares on the
         date of declaration. The dividend will be paid each year on the
         anniversary date of issuance of the Preferred Stock.

         Holders of Preferred Stock will be entitled to receive 50,000 warrants
         for each share of Preferred Stock held. The warrants will be issued six
         (6) months following the issuance of the Preferred Stock, or at such
         earlier date as the Board may approve. Investors who have converted
         their Preferred Stock prior to issuance of the warrants shall not be
         entitled to such warrants.

Continued

                                       15
<PAGE>   17
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                          September 30, 1996 And 1995

         The warrants have an exercise price of $5.00 per share or such lower
         price as the Board of Directors may approve. The warrants will expire
         three (3) years following the date of their issuance. The warrants are
         callable by the Company after the common stock closes for at least
         $7.50 per common share for ten (10) consecutive trading days, after
         which the Company must notify the holders of warrants of such
         redemption within ten (10) business days. The call price for each
         warrant will be $5.00.


9.       Related Party Transactions:


         In August 1994, Rowland W. Day, II loaned $300,000 to HDL. HDL used the
         proceeds of the loan from Mr. Day, along with the proceeds of other
         loans from nonaffiliates in the aggregate additional amount of
         $200,000, to make a $500,000 collateralized loan to the Company upon
         the signing of the Acquisition Agreement. The loan was evidenced by the
         Company's noninterest-bearing convertible promissory note which was
         converted into shares of the Company's common stock upon consummation
         of the acquisition on March 13, 1995 at the conversion price of $1.00
         per share. The Company also agreed to issue warrants to such
         nonaffiliates to purchase 200,000 shares of the Company's common stock
         at a price of $1.50 per share. The warrants were converted to 200,000
         shares of common stock on September 8, 1995.

         In February 1995, Rowland W. Day, II loaned $50,000 to the Company, the
         proceeds of which were used to purchase four used Harley-Davidson
         motorcycles. The Company repaid the loan and interest thereon in the
         amount of $2,000 to Mr. Day in March 1995.

         The Company agreed to grant to Rowland W. Day, II and/or his assigns,
         upon consummation of the Bikers Dream Acquisition, an irrevocable
         three-year option to purchase, at a price of $1.00 per share, 550,000
         shares of common stock . Mr. Day has assigned his right to receive
         options to purchase 170,000 of such shares to other persons.

         The Company has granted options to Bill Gresher, a former Company
         officer, in connection with an employment agreement, to purchase
         300,000 shares of common stock at a per share exercise price of $2.50.
         As of the date of his resignation, 87,000 of such options were vested.

Continued

                                       16
<PAGE>   18
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                         September 30, 1996 And 1995

9.       Related Party Transactions, Continued:

         In April 1995, the Company granted options to each of its then current
         directors to purchase, at an exercise price of $1.50 per share, 50,000
         shares of common stock, which options vest in increments over a
         five-year period.

         In April 1995, Dennis Campbell, President, Chief Executive Officer and
         a director of the Company, loaned $75,000 to the Company, the proceeds
         of which were used for working capital. The Company agreed to repay the
         loan and interest thereon of $5,000 within 60 days after the date of
         the loan. This loan was subsequently paid in full with interest.

         On April 6, 1995, the Company entered into a consulting agreement with
         Meyer Duffy & Associates, Inc. ("Meyer Duffy") for management
         consulting, financial advisory and investment banking services to be
         rendered to the Company for six months in consideration of a monthly
         fee of 2,500 shares of the Company's common stock, plus travel
         expenses, if incurred. This agreement was effective through September
         1995, and the 15,000 shares were issued in December 1995 at $2 per
         share. Donald Duffy, a member of the Board of Directors of the Company,
         is a principal of Meyer Duffy.

         The Company has granted nonqualified options to Meyer Duffy to purchase
         30,000 shares of common stock at $2.50 per share. The options vested at
         the time of grant for services rendered, and are exercisable within two
         years following the date of grant in April 1995.

         On August 31, 1995, Dennis Campbell loaned the Company $24,000 on a
         demand note at an interest rate of 16% per annum. This note was repaid
         in September 1996.

         On December 31, 1995, Dennis Campbell loaned the Company $14,547 on
         demand at 10% interest. This note was paid in full during January 1996.

         On October 1, 1995, the Company entered into a consulting agreement
         with Meyer Duffy, which was amended on November 1, 1995, whereby Meyer
         Duffy & Associates was retained to provide consulting, financial
         advisory and investment banking services for a ten-month term
         commencing October 1, 1995. The agreement provides for the payment of
         $5,000 per month to Meyer Duffy.


Continued

                                       17
<PAGE>   19
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                         September 30, 1996 And 1995

9.       Related Party Transactions, Continued:

         Under the terms of the agreement, Meyer Duffy is to use its best
         efforts to obtain a commitment from an investment banking firm to raise
         up to $20 million in capital for the Company. The agreement provides
         that upon the successful closing of an offering through an investment
         banker introduced by Meyer Duffy, the Company will issue an option to
         Meyer Duffy to purchase 10,000 shares of the Company's common stock for
         each $1 million of capital received by the Company in such an offering,
         up to a maximum of 100,000 shares for $20 million in capital received,
         and that the option is granted in pro rata increments, exercisable at a
         price of $1.70 per share at any time within two years after the date of
         completion of a successful financing pursuant thereto.

         In addition, Meyer Duffy is to be compensated by means of an option to
         purchase 50,000 shares of the Company's common stock at a price of
         $1.70 per share within two years of a grant in consideration of
         arranging for bridge financing to the Company in the amount of $1.1
         million in convertible debt, and a fee of 5% of all proceeds received
         from the bridge financing in excess of $100,000. This agreement was
         terminated September 9, 1996.

         On October 17, 1995, William R. Gresher, Senior Vice President, Chief
         Financial Officer and a director of the Company, loaned $50,000 to the
         Company, pursuant to a note bearing interest at 11% per annum, on
         demand, and on October 24, 1995, Mr. Gresher loaned an additional
         $10,000 to the Company on the same terms. These notes were paid in
         September, 1996.

         On November 3, 1995, M.D. Strategic L.P., a partnership of which Donald
         Duffy, a director of the Company, is a principal, loaned $100,003 to
         the Company for 90 days at 8% interest per annum, receiving notes which
         are convertible into shares of common stock of the Company at $1.70 per
         share on certain conditions related to proposed asset-based financing
         of the Company. On December 3, 1995, M.D. Strategic made an additional
         loan of $49,997 to the Company, and on December 5, 1995, a similar loan
         was consummated in the sum of $50,000, for convertible notes bearing
         the same terms and due 90 days from the funding thereof. These notes
         were converted on March 14, 1996 into common stock of the Company.

         On April 10, 1996 the Company obtained a ninety day unsecured loan in
         the amount of $300,000 from M.D. Strategic L.P. The loan bears interest
         at an annual rate of 14.0% and was extended until September 10, 1996
         when it was converted into common stock of the Company at @1.05 a
         share.

Continued

                                       18
<PAGE>   20
                       BIKERS DREAM, INC. & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
                          September 30, 1996 And 1995

9.       Related Party Transactions, Continued:

          In September 1996, 90% of outstanding fees owed to Day Campbell &
          McGill and Meyer Duffy & Associates were converted into common stock
          of the Company at $1.38 per share or 59,557 and 38,463 shares
          respectively.

         In September 1996, for past services, 50,000 shares of common stock of
         the company were issued to Day Campbell & McGill, 50,000 shares to
         Meyer Duffy & Associates and 10,000 shares to Richard King Jr. at $1.38
         per share.


10.      Fair Value Of Financial Instruments:

         The fair value of the Company's long-term debt and notes payable
         approximates the carrying value at September 30, 1996. This estimate is
         based on the fact that the majority of the long-term debt and notes
         payable were negotiated transactions, and the negotiated interest rates
         approximate a market rate at that time.

11.      Recently Issued Accounting Standard:

         The Financial Accounting Standards Board has issued a Statement of
         Financial Accounting Standards No. 123 (FAS 123) entitled "Accounting
         for Stock-Based Compensation." Upon adoption of FAS 123 in fiscal 1996,
         the Company will continue to account for stock- based compensation in
         accordance with Accounting Principles Board Opinion No. 25 and provide
         disclosure with respect to the fair value of the Company's options. The
         Company has not yet determined the impact of this disclosure on its
         financial statements.


Continued

                                       19
<PAGE>   21
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
financial statements and the notes thereto appearing elsewhere in this report.


RESULTS OF OPERATIONS

The following table sets forth for the period indicated the unaudited income and
expense items.

<TABLE>
<CAPTION>
                                                    For the Three Months          For the Nine Months
                                                      Ended September 30            Ended September 30
                                                      ------------------            ------------------
                                                    1996            1995           1996            1995
                                                    ----            ----           ----            ----
<S>                                             <C>            <C>            <C>             <C>       
          Net Revenue                             $1,818,193     $2,218,600     $ 7,530,591     $5,464,866

          Cost of Goods Sold                       1,431,584      1,560,090       5,895,661      4,464,959

          Gross Profit                               386,609        658,510       1,634,930      1,399,907

          Other (Income) and Expenses
             Selling, general and
             administrative expenses               1,091,166      1,187,005       3,653,353      2,740,634
             Depreciation and Amortization            47,355         25,225         143,675         58,864
             Interest (income) expense                57,681         18,820         139,081         18,667
             Franchise income                         (7,987)       (63,774)        (40,289)       (72,274)
             Other expense (income)                  144,290            340         300,323         (3,250)
                                                  ----------     ----------     -----------     ----------
                         Total                     1,332,505      1,167,616       4,196,143      2,742,641

          Income (loss) Before
          provision For Income Taxes                (945,896)      (509,106)     (2,561,213)    (1,342,734)

          (Provision) For Taxes                            0              0               0        (63,151)
                                                  ----------     ----------     -----------    -----------
          Net Income (loss)                       $ (945,896)    $ (509,106)    $(2,561,213)   $(1,405,885)
                                                  ==========     ==========     ===========     ==========
</TABLE>

Continued

                                       20
<PAGE>   22
COMPARISON OF THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995:

Net revenues for the third quarter ended September 30, 1996 were $1,818,193, a
decrease of $400,407 or 18% from the same period in 1995. The decrease in net
revenue is mainly due to the sale of the Clearwater, Florida Superstore
effective September 5, 1996. The Dallas superstore accounted for the remaining
decrease resulting from a shortage of funds to purchase bike inventory and the
recent closing of the store on Sundays to comply with Texas state law.


Net revenue for the nine months ended September 30, 1996 was $7,530,591 which
was an increase of $2,065,725 or 37.8% over the same period ended September 30,
1995. The increase is due to the addition of new corporate stores and the
acquisition of two previous franchises.

Total gross profit for the quarter ended September 30, 1996 was $386,609, a
decrease of $271,901 or 41.3% over the same period ended September 30, 1995. The
decrease was mainly attributable to the sale of the Clearwater, Florida
Superstore, with the remaining decrease a result of the lower sales for the
quarter. The gross profit rate for the quarter was 21.3% compared to 25.6% for
the same period in 1995. The change in gross profit rate was due to higher sales
mix of consignment motorcycles versus Company owned motorcycles. Consignment
motorcycles typically carry a lower gross margin rate than motorcycles owned by
the Company.

Gross profit for the first nine months of 1996 was $1,634,930 an increase of
$235,023 or 16.8% over the same period in 1995. The increase in gross profit was
due to higher level of sales volume from the newly opened or acquired stores in
Dallas, Clearwater and Sacramento.

Selling, general and administrative expenses were $1,091,166 for the quarter
ended September 30, 1996, a decrease of $95,839 or 8% from the same period in
1995. This decrease is mainly a result of the writeoff of goodwill in the third
quarter of 1995.

Selling, general and administrative expenses were $3,653,353 for the first nine
months of 1996, which represents an increase of $912,719 or 33.3% over the same
period last year. This increase was due to several factors, including 1)the
operating costs of new Company owned Superstores, 2) the launch of the new Dream
Wheels mobile Superstore in March 1996, 3) legal and accounting fees related to
registering and issuing stock of an SEC company, and (4) offset by the 1995
third quarter writeoff of $238,266 of goodwill.

Depreciation and amortization expense was $47,355 for the quarter, which was
$22,130 or 87.6% higher than the same period in the prior year. The increase was
due to the addition of two Company owned Superstores which were opened in the
last three quarters of 1995, the addition of computers necessary to bring the
advertising and financial functions in house, and the launch of the Dream Wheels
mobile store in March of 1996 offset by the transfer of fixed assets resulting
from the sale of the Clearwater, Florida Superstore.

Depreciation and amortization expense was $143,675 for the first nine months
ended September 30, 1996. This increase of $84,811 or 144.1% from the same
period last year was due to the same reasons outlined above for the third
quarter ended September 30, 1996.

Continued

                                       21
<PAGE>   23
Franchise income for the quarter ended September 30, 1996 was $7,987 which
represents a decrease of $55,787 or 87.5% over that of the preceding year. This
decrease is attributed to the acquisition of two franchises coupled with a lack
of sales of new franchises.

Franchise income for the first nine months of 1996 was $40,289 a decrease of
$31,985 or 44.4% from the preceding year. This decrease was attributed to the
same reasons outlined above for the third quarter 1996.

Other expense for the quarter ended September 30, 1996 includes a $70,000
payment in conjunction with an employee release and settlement agreement and
$31,000 preferred dividend accrual.

Other expense for the first nine months ended September 30, 1996 includes a
provision of $125,000 for store closing costs.

There was no provision for income taxes in 1996. The Company decided to fully
reserve for the Deferred Tax Asset primarily related to its net operating loss
carry forwards beginning in the second quarter of 1995. The Company's management
has concluded that, based upon its assessment of all available evidence, the
future benefit of this asset cannot be projected accurately at this time.

The net loss for the quarter ended September 30, 1996 was $945,896 as compared
to a loss of $509,106 in the same period in 1995. This increase of $436,790 was
due to continued investment by the Company to expand the business through 1) the
opening of new Superstores in various parts of the U.S. in 1995 and 1996, which
have not yet turned profitable 2) the costs associated with registering and
issuing stock as an SEC reporting company, 3) the provision for store closing
costs, 4) a provision for an employee release and settlement agreement and 5) a
preferred dividend accrual.

The net loss for the first nine months ended September 30, 1996 was $2,561,213
as compared to a loss of $1,405,885 for the same period in 1995. This increase
of $1,155,327 was due to the same reasons outlined above for the third quarter
ended September 1996.

While the Company does not expect inflation to have a material impact upon its
operating results, there can be no assurance that inflation will not affect the
Company's business in the future. The Company expects to mitigate inflationary
increases through securing additional purchase volume discounts as net sales
increase through the opening of future Superstores.

Continued

                                       22
<PAGE>   24
LIQUIDITY AND CAPITAL RESOURCES

The Company has relied substantially on equity capital to meet its operating and
growth needs until late 1995 when debt in the amount of $281,883 was used to
acquire two former franchises. In early 1996, third party debt was used to
acquire the Dream Wheels tractor/trailer in the amount of $391,053.

In December 1995 and January 1996 the Company raised $629,000 and $450,500
respectively through the issuance of Convertible Notes. These notes were
converted into shares of the Company's Common Stock in March and April of 1996
at a conversion rate of $1.70 per common share. These funds were used
principally to fund current operating losses and debt service.

In April 1996, the Company received a 90 day loan in the amount of $300,000 from
MD Strategic, of which one of the Company's directors is a principal, to meet
its additional cash needs for operating losses and debt service. This note was
extended and subsequently converted into shares of the Company's Common Stock in
September, 1996 at a price of $1.05 a share.

In addition, the Company retained an investment banking firm in April 1996 to
advise and assist in the sale of additional equity securities. The securities
offered, principally to institutional investors, were units consisting of
convertible preferred stock with warrants to purchase additional common shares
at a purchase price of $175,000 per unit. Through September 30, 1996, the
Company has sold 7 units and received $1,102,500 net of commissions.

In September 1996 the Company converted promissory notes in the amount of
$500,000 for 476,100 shares of common stock of the company, liabilities of
$136,267 were converted into a total of 98,109 shares of common stock of the
company, and 110,000 shares of common stock of the company were issued at a
price of $1.38 per share as compensation for past services.


In September 1996, the Company issued 1,222,596 Units (each Unit consisting of
two shares of common stock, one Series A warrant to purchase, at a price of
$2.10 per share, one share of common stock, and one Series B Warrant to
purchase, at a price of $3.10 per share, one share of common stock) for total
gross proceeds of $2,567,450.

In September 1996, the Company sold its Clearwater, Florida Superstore to its
former President, Dennis Campbell, in exchange for consideration which included
the cancellation of 950,000 shares of the company's common stock owned by Mr.
Campbell.

                                       23

<PAGE>   25
                                     Part II

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

          (b) The Company filed a Report on form 8-K dated October 1, 1996,
              reporting the following: 1) the resignation of Dennis Campbell as
              president, chief executive officer and director in conjunction
              with the transfer of the Registrant's Clearwater, Florida store to
              Mr. Campbell in exchange for 950,000 shares of the Registrant's
              stock, 2) the resignation of Willian Gresher, chief financial
              officer and director, 3) the resignation of Richard King, Jr.,
              secretary and director, 4) the appointment of director Donald J.
              Duffy as co-chairmen, co-chief executive officer and chief
              financial officer 5) the appointment of Rowland W. Day II as
              co-chairmen, co-chief executive officer and Secretary, and 6) the
              formation of the joint venture limited liability company Ultra
              Bikers, LLC.

                                       24
<PAGE>   26
                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated: October 25, 1996           BIKERS DREAM, INC.




                                  By: /s/ Donald J. Duffy
                                     -------------------------------------------
                                     Donald J. Duffy, Co-Chief Executive Officer
                                     and Chief Financial Officer