As filed with the Securities and Exchange Commission on August 31, 1999
Registration Statement No. 333-74211
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT No.5
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICAN QUANTUM CYCLES, INC.
(Name of Small Business Issuer in Its Charter)
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Florida 3751 59-2651232
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<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S.Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
Richard Hagen, President and Chief Executive Officer
American Quantum Cycles Incorporated
731 Washburn Road
Melbourne, Florida 32934
(407) 752-0008
(Name, Address and Telephone Number of Agent For Service)
731 Washburn Road
Melbourne, Florida 32934
(407) 752-0008
(Address and Telephone Number of Principal Executive Offices)
Copies of all communications to:
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<S> <C>
James M. Schneider, Esq. Bert L. Gusrae, Esq.
Robert J. Burnett, Esq. David A. Carter, P.A.
Atlas, Pearlman, Trop & Borkson, P.A. 2300 Glades Road
200 East Las Olas Boulevard, Suite 1900 Suite 210, West Tower
Fort Lauderdale, FL 33301 Boca Raton, FL 33431
Telephone: (954) 763-1200 Telephone: (561) 750-6999
Facsimile No. (954) 766-7800 Facsimile No. (561) 367-0960
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
<PAGE>
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number of the earlier effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
-------------------------------
Title of Each Shares Proposed Maximum Proposed Maximum Amount Of
Class of Securities To Be Offering Price Aggregate Offering Registration
To Be Registered Registered Per Share Price Fee
- ---------------- ---------- --------- ----- ---
<S> <C> <C> <C> <C>
Common stock,
$.001 par value 2,794,500(1) $3.50(2) $9,780,750(2) $2,719.50
Representative's Warrants
each to purchase one share
of Common Stock, $.001
par value 243,000 $.001 $243 (3)
Common stock,
$.001 par value 243,000(4) $5.78(2) $1,404,540(2) $390.50
Common stock,
$.001 par value (8) 929,449(5) $3.56(6) $3,308,839 $919.86
Common stock,
$.001 par value (8) 62,500(7) $16.00(8) $1,000,000 $278.00
- ------------------- --------- --------- ---------- -------
Amount Due $4,307.86
</TABLE>
<PAGE>
(1) Assumes the underwriter's over-allotment option to purchase 364,500
additional shares of common stock is exercised in full.
(2) Estimated solely for purposes of calculating the registration fee.
(3) No registration fee required pursuant to Rule 457(g).
(4) Issuable upon the exercise of the underwriter's warrants together with an
indeterminate number of shares of common stock that may be issuable by reason of
the anti-dilution provisions contained therein.
(5) Includes 929,449 shares of American Quantum Cycles common stock being
offered by selling security holders pursuant to the alternate prospectus.
(6) Calculated pursuant to rule 457(c) (see 8).
(7) Includes 62,500 shares of the American Quantum Cycles common stock issuable
upon the exercise of options exercisable at $16.00 per share being offered by
the selling security holders pursuant to the alternate prospectus.
(8) Adjusted to give effect for a one for four reverse stock split effective on
June 3, 1999
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
This registration statement covers the primary offering of shares of our common
stock by American Quantum Cycles, Inc. and the offering of shares of our common
stock by certain selling security holders. American Quantum Cycles is
registering, under the primary prospectus, 2,430,000 shares of common stock not
including shares of our common stock issuable upon exercise of the underwriter's
over-allotment option. American Quantum Cycles is registering, on behalf of the
selling securityholders, under an alternate prospectus, 991,949 shares of common
stock including 62,500 shares of common stock issuable upon exercise of warrants
and options. The alternate prospectus pages, which follow the primary
prospectus, contain certain sections which are to be combined with all of the
sections contained in the primary prospectus, with the following exceptions: the
front and back cover pages, and the sections entitled "The Offering" and
"Selling Securityholders". In addition, the sections entitled "Concurrent
Offering" and "Plan of Distribution" will be added to the alternate prospectus.
Furthermore, all references contained in the alternate prospectus to the
"offering" shall refer to American Quantum Cycles offering under the primary
prospectus.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE>
SUBJECT TO COMPLETION DATED ______________
Prospectus
American Quantum Cycles, Inc.
2,430,000 shares of common stock
$________ per share
We are offering 2,430,000 shares of our common stock through Barron Chase
Securities, Inc., our underwriter. The chart below shows the basic terms of the
offering. The offering price may be more than the market price of our common
stock after the offering.
Per Share Total
Offering Price $_______ $_______
Underwriting discounts $_______ $_______
Proceeds to American
Quantum Cycles, Inc. $_______ $_______
We granted the underwriter an option to purchase a maximum of 364,500 additional
shares of common stock to cover over-allotments of shares.
Prior to the date of this prospectus, our common stock traded on the OTC
Bulletin Board under the Trading Symbol "AMQC"
On August 16, 1999, the closing bid price for our common stock on the OTC
Bulletin Board was $3.56.
Beginning on the date of this prospectus our common stock will trade on the
American Stock Exchange under the symbol AFV.
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "High Risk Factors" beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Barron Chase Securities, Inc.
______, 1999
<PAGE>
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TABLE OF CONTENTS
Page
----
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Prospectus Summary................................................................................. 3
High Risk Factors.................................................................................. 5
Use of Proceeds.................................................................................... 11
Dividend Policy.................................................................................... 12
Capitalization..................................................................................... 12
Selected Financial Information..................................................................... 13
Management's Discussion and Analysis
and Plan of Operation.............................................................................. 14
Business........................................................................................... 18
Management......................................................................................... 27
Principal Shareholders............................................................................. 32
Certain Relationships and Related Transactions..................................................... 33
Concurrent Offering................................................................................ 33
Description of Securities.......................................................................... 33
Shares Eligible for Future Sale.................................................................... 35
Underwriting....................................................................................... 35
Legal Matters...................................................................................... 37
Experts............................................................................................ 37
Additional Information............................................................................. 37
Index to Financial Statements...................................................................... F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
American Quantum Cycles, Inc.
We are beginning to manufacture and mass market American-made, high performance,
custom made, V-twin engine cruisers and touring style motorcycles. We believe
that ordering the parts we require to make our motorcycles on an as-needed
basis, instead of carrying a large inventory, will allow us to minimize our
production costs and enable us to mass-produce high quality motorcycles. Our
executive offices are located at 731 Washburn Road, Melbourne, Florida 32934.
Our telephone number is (407) 752-0008 our facsimile number is (407) 752-0550
and our website is http://www.quantumcycle.com.
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THE OFFERING
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Common stock outstanding prior to the offering................................. 2,842,798 shares
Common stock offered........................................................... 2,430,000 shares
Common stock outstanding after the offering.................................... 5,272,798 shares
</TABLE>
The information in this prospectus relating to our common
stock gives effect to a one for four reverse stock split of our outstanding
common stock effective on June 3, 1999. We are assuming in calculating the
number of shares of common stock that the underwriter's over-allotment option is
not exercised. The share information does include an aggregate of 929,449 shares
of common stock being offered by the selling security holders under the
alternative prospectus.
The share numbers do not include:
o 243,000 shares of common stock issuable upon the exercise
of the representatives warrants; and
o a total of 556,250 shares of common stock issuable upon
the exercise of outstanding options, of which 62,500 are being registered
pursuant to the alternative prospectus.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
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For the years ended April 30,
-----------------------------
1999 1998
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OPERATIONS DATA:
Revenues $975,780 $192,856
Total costs and expenses 7,762,571 2,824,567
Net loss $(6,786,791) $(2,631,711)
Weighted average
shares outstanding (2) 1,212,503 501,961
Net loss per common
share outstanding (2) $(5.597) $(5.243)
</TABLE>
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As of As of
April 30, 1998 April 30, 1999 Adjusted (1)
-------------- -------------- -----------
BALANCE SHEET DATA:
<S> <C> <C> <C>
Current assets $886,836 $936,654 $6,214,063
Working capital $(2,162,614) $(4,580,827) $3,225,852
Total assets $1,864,216 $2,642,758 $8,020,167
Total liabilities $3,167,426 $6,985,240 $3,092,470
Shareholders' equity (deficit) $(1,303,210) $(4,342,482) $4,927,697
</TABLE>
(1) Adjusted to show the effect of the sale of 2,430,000 shares of common stock
we are offering to you at a price of $3.50 per share.
(2) Adjusted to give effect to a one for four reverse stock split of the issued
and outstanding shares of our common stock effective on June 3, 1999.
4
<PAGE>
HIGH RISK FACTORS
An investment in the securities offered by this prospectus is speculative in
nature and involves a high degree of risk. This prospectus contains, in addition
to historical information, forward-looking statements that involve risks and
uncertainties. American Quantum Cycles actual results may differ materially from
the results discussed in the forward-looking statements. Factors that might
cause or contribute to such difference include, but are not limited to, those
discussed below, as well as those discussed elsewhere in this prospectus.
We have only limited operating history, we have experienced losses since
inception, we expect future losses and we may not ever become profitable.
Although we were incorporated in 1986, we did not begin manufacturing
motorcycles until May 1997. To date, we have only manufactured 36 motorcycles of
which 22 were sold. Due to our short operating history and limited number of
motorcycle sales, we do not have any significant revenues. Investors in this
offering therefore will have little, if any, meaningful information about us
which may help you evaluate whether we will ever be able to successfully
manufacture and market our motorcycles or whether an investment in us will be
profitable or unprofitable.
Because we have such a short operating history and such limited sales, we will
face all the risks and problems associated with a new developmental stage
business including the existence of operating losses. For example, between the
time of our incorporation through April 30, 1999, we incurred cumulative losses
of $9,421,138 and an accumulated deficit of $4,342,482. We anticipate our losses
will continue in the future unless we are able to produce revenue from sales of
our motorcycles.
If we are unable to continue our operations, your entire investment in us will
be lost.
Our auditors report, included as part of our financial statements for the year
ended April 30, 1999, contains a qualification raising substantial doubt about
our ability to continue as a going concern because of our recurring losses from
operations and our net capital deficiency. Although we believe that the proceeds
from the sale of the shares of our common stock in this offering will enable us
to continue as a going concern, we cannot assure you that we will be able to
continue our operations in the future.
Our proprietary technology may not be sufficiently protected.
Our success depends upon our motorcycle-related proprietary technology. We rely
on a combination of contractual rights, patents, trade secrets, know-how,
trademarks, non-disclosure agreements and technical measures to establish and
protect our rights, most of which we license from third parties pursuant to an
exclusive licensing agreement. We cannot assure you that we can protect our
rights to prevent third parties from using or copying our technology.
We may also be subject to claims from third parties for unauthorized use of
their propriety technology.
We believe that we independently developed our technology and that it does not
infringe on the proprietary rights or trade secrets of others. However, we
cannot assure you that we have not infringed on the technologies of third
parties or those third parties will not make infringement violation claims
against us. Any infringement claims may have a negative effect on our ability to
manufacture motorcycles.
We are subject to federal, state and local government regulations affecting
motorcycle production that is very costly and can affect our operations.
We are subject to direct regulation by the Department of Transportation,
Environmental Protection Agency and Federal Trade Commission as well as other
local, state and federal agencies. Compliance with the regulations established
by these agencies is very costly and affects our manufacturing process. Any
changes in the laws or regulations imposed on us by these agencies could
significantly increase our motorcycle production costs and could have a very
negative effect on our business.
5
<PAGE>
In particular, our business operations and facilities are subject to a number of
federal, state and local environmental laws and regulations. These laws,
regulations or the nature of our operations may require us to make significant
additional capital expenditures to ensure compliance in the future. Our failure
to comply with environmental laws could result in the termination of our
operations, impositions of fines, or liabilities in excess of our capital
resources. We do not maintain environmental liability insurance, and if we are
required to pay the expenses related to any environmental liabilities, these
expenses could have a material adverse effect on our operations.
We will also be required to obtain approvals and make certifications regarding
compliance with federal, state and local regulations regarding the noise,
emissions and safety characteristics of our motorcycles. The potential delays
and costs that could result from obtaining these regulatory approvals and
complying with, or failing to comply with, such regulations could result in
delays in motorcycle production and adversely affect operating results.
Consumer discretionary spending may affect motorcycle purchases and is affected
by various economic conditions and changes.
Purchases of motorcycles, such as the premium heavyweight motorcycles that we
are attempting to mass-produce, are considered discretionary for consumers. Our
success will therefore be influenced by a number of economic factors affecting
discretionary consumer spending, such as employment levels, business conditions,
interest rates and taxation rates, all of which are not under our control.
Adverse economic changes affecting these factors may restrict consumer spending
and thereby adversely affect our growth and profitability.
Motorcycle defects could cause product recalls that can be expensive and
damaging to our reputation.
Our motorcycles may have unanticipated defects which could require us to recall
them. A product recall could delay or even halt production until we are able to
correct any such defects. Recalls may also have a materially negative effect on
the brand image and public perception of our motorcycles and any other products
we develop and thereby adversely effect our future sales. Such recalls or other
defects would also require substantial expenditures to correct.
Product liability claims could severely damage our business and we may have
insufficient insurance coverage.
Given the nature of our products, we expect that we will be subject to potential
product liability claims that could, in the absence of sufficient insurance
coverage, have a material adverse impact on our business. Although we intend to
obtain adequate insurance coverage prior to commencing mass production, there
can be no assurance that we will be able to secure or maintain adequate
liability insurance to cover all product liability claims. As a new market
entrant, any large product liability suits occurring early in our mass marketing
operations may significantly adversely affect our ability to market our
motorcycles.
We may not have the ability to compete with larger motorcycle companies that
could force us to terminate operations.
The market for the type of motorcycles we manufacture is extremely competitive
and we expect that competition will increase in the future. Our competitors
include many large companies that have substantially greater market presence and
financial resources than we do. For example, we will compete with Harley
Davidson, Honda, Kawasaki, Yamaha, Excelsior Henderson and other national,
regional and local companies.
6
<PAGE>
We believe that our ability to compete successfully depends on a number of
factors including:
o design of high performance and quality motorcycles;
o market presence;
o timely delivery of our motorcycles;
o competitive pricing policies;
o the timing and introduction of our products and services into
the market; and
o our ability to keep up with existing and emerging industry trends.
Current or increased competition may either prevent us from entering or
maintaining a place in the motorcycle manufacturing market. We cannot assure you
that we will be able to successfully identify new opportunities and develop and
bring new products to market in a timely manner, nor can we guarantee you that
products developed by our competitors will not make our products noncompetitive
or obsolete. We cannot guarantee that we will have the financial resources or
marketing and manufacturing capabilities to compete successfully. If we cannot
successfully compete, we probably will be forced to terminate our operations.
A reduction or delay in sales by our dealers will have a material adverse effect
on our business.
We expect to derive substantially all of our revenue from sales through
independent dealers. As of August 1999, we executed agreements with 28 dealers.
Either party may terminate the agreements at any time. We do not yet know how
successful these dealers will be in selling our motorcycles. Furthermore, we do
not have any history or experience in establishing or maintaining such dealer
support, and there can be no assurance that we will be able to successfully
support our dealer network. If we are unable to provide such support, we may
lose dealers and, consequently, distribution of our products would be adversely
affected. In addition, most of our dealers will offer competitive products
manufactured by third parties. There can be no assurance that our dealers will
give priority to our products as compared to competitors' products. Finally, we
will need to attract additional or replacement dealers to sell our products.
There can be no assurance that we will be able to convince a sufficient number
of additional or replacement dealers that our products will be a successful and
profitable line or that such additional or replacement dealers will be
successful in selling our products. Any reduction or delay in sales of our
products by our dealers would have a material adverse effect on our business,
operating results or financial condition.
If we are unable to expand our motorcycle production and distribution capacities
we may have to terminate operations.
We must increase our motorcycle manufacturing capacity and expand our dealer
network, which will sell our motorcycles, before we will have even a chance to
compete in the marketplace. Increasing our manufacturing and marketing capacity
will involve hiring additional personnel, purchasing additional manufacturing
equipment and spending significant funds on advertising. This will require
significant capital expenditures, which will most likely increase our operating
losses for an indefinite period of time. Our expansion plans will also place a
great deal of strain on our management team most of whom have not had experience
managing large complex business operations. We cannot guarantee that we will be
able to expand our motorcycle manufacturing and marketing capabilities as
planned. If any of these obstacles prevent us from expanding our motorcycle
manufacturing and marketing business, we may be forced to terminate our
operations.
Proceeds from this offering may not be sufficient and we may not be able to
generate sufficient revenues or other additional capital to continue operations.
Manufacturing and marketing motorcycles and our plans for expansion, as
mentioned above, will require significant amounts of capital. Since we have no
significant internal revenues to finance our continuing operations and plans for
expansion, we depend on proceeds from sales of our securities to satisfy our
capital requirements. We believe that the proceeds we receive from this offering
will satisfy our capital requirements until February 2000. At that time, we will
have to arrange for additional financing unless we are receiving revenues from
sales of our motorcycles to finance our manufacturing and marketing operations
at a sufficient level. Financing options could include, but not be limited to
additional sales of our securities or an operating line of credit. If we are
unable to obtain additional financing on satisfactory terms when needed, we may
have to suspend our operations or terminate our operations altogether.
A significant portion of proceeds from this offering will be used to pay our
existing debt and may not provide us with sufficient capital to conduct our
operations.
Approximately 24% of the proceeds of this offering will be used to pay our debt.
Because such a large percentage of the proceeds from this offering will be used
to pay down our debt objectives, there is a risk that the remaining proceeds
from the offering will be insufficient to allow us to further our business plan
and conduct our operations.
7
<PAGE>
We depend on motorcycle parts and material suppliers and if we cannot obtain
these supplies as needed, our operation will be severely damaged.
We rely on third party suppliers to produce the parts and materials we use to
manufacture our motorcycles. If our suppliers are unable or unwilling to provide
us with the parts and supplies, we will be unable to produce our motorcycles. We
cannot guarantee that we will be able to purchase the parts we need at
reasonable prices or in a timely fashion. If we are unable to purchase the
supplies and parts we need to manufacture our motorcycles, we will experience
severe production problems, which may possibly result in the termination of our
operations.
Our operations may suffer from computer problems relating to the year 2000.
Our future success will depend, in part, on our computer network infrastructure
that will be used by our dealers to place sales orders and for general and
administrative purposes. We must continue to expand and improve our computer
infrastructure as the number of dealers and motorcycles ordered increase. We
cannot assure you that we will be able to develop our network infrastructure to
meet additional demand or our dealers' changing requirements on a timely basis
and at a reasonable cost. If we cannot develop our computer infrastructure on a
timely basis, we may not be able to efficiently manufacture and market our bikes
and other products which could have a negative effect on our business and
financial condition.
Our computer infrastructure is also vulnerable to computer viruses or similar
disruptive problems. Computer viruses or problems caused by third parties could
lead to interruptions, delays or termination in production and delivery of our
motorcycles to our dealers, which could also negatively affect our business.
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the year 2000. Some older computer systems
store dates with only a two-digit year with an assumed prefix of "19" which
limits those older systems to dates between 1900 and 1999. If not corrected,
many computer systems and applications could fail or create erroneous results by
or at the year 2000.
Because we will rely heavily on computers to conduct our business we are subject
to all the risks associated with the Year 2000. We have assessed the scope of
our risks related to problems these computer systems may have related to the
year 2000, and we believe such risks are not significant. In addition, we are in
the process of questioning our vendors and business partners about their
progress in identifying and addressing problems related to the year 2000.
However, no assurance can be given that all of these third party systems or our
computer systems will be year 2000 compliant. Since we started the business
using a paper based workflow process, we will revert to the paper form process
to run American Quantum Cycles on a contingency basis should we experience Year
2000 problems.
We may not be able to attract and retain key personnel.
Our success depends on the efforts of our management team, including Richard
Hagen, our Chairman and Chief Executive Officer, Gary Irving, our Chief
Operating Officer, Michael Smith, our Vice President of Sales, Frank Aliano, our
Vice President of Production and Jeff Starke, our Vice President of Research and
Development. We cannot guarantee that these persons will continue their
employment with us. The loss of services of one or more of these key people
would have a negative effect on our ability to conduct our operations. Currently
we do not have key man life insurance on any of the members of our management
team. Our success also depends on our ability to hire and retain additional
qualified executive, computer programming, engineering, production, investor
management and marketing personnel. We cannot assure that we will be able to
hire or retain necessary personnel.
8
<PAGE>
Your investment in American Quantum Cycles will be diluted.
Dilution is the difference between the amount you pay for a share of common
stock in this offering and the net tangible book value per share of such common
stock immediately after the offering. If you invest in this offering, you will
incur an immediate and substantial dilution of your investment. In addition, we
may issue a substantial number of shares of common stock or preferred stock
without your approval. Any such issuance of our securities in the future could
reduce your ownership percentage and voting rights in us and further dilute the
value of your investment.
There is only a limited market for American Quantum Cycles common stock and we
can not assure you that a more significant market will ever develop.
There is currently only a limited trading market for our common stock.
Simultaneously with the close of this offering, our common stock will trade on
the American Stock Exchange, however, we cannot assure you that more than a
limited market will ever develop for our common stock. If a more significant
trading market for our common stock does not develop, it may be difficult for
you to sell shares of our common stock.
9
<PAGE>
USE OF PROCEEDS
The net proceeds we receive from the sale of the common stock we are offering to
you based on a public offering price of $3.50 per share, after deducting
underwriting discounts and commissions and estimated offering expenses, will be
approximately $7,230,000 (not including an additional $1,275,750 if the
over-allotment option granted to the underwriter is exercised in full). We
intend to use the net proceeds of the offering approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Amount Percentage of
Application of Net Proceeds of Net Proceeds
----------- --------------- ---------------
<S> <C> <C>
Repayment of notes (1) .................................. $1,735,989 24.0%
Equipment Purchase (2)................................... $100,000 1.4%
Working Capital (3) ..................................... $5,394,011 74.6%
---------- -----
Total.............................................. $7,230,000 100%
========== =====
</TABLE>
(1) The proceeds from the notes being repaid were used to fund $958,918
for product development, $394,467 for factory build-out, $223,011 for
information systems, and $159,593 for e-commerce. The repayment of
the notes. Includes the repayment of:
o an aggregate of $661,780 principal and accrued interest to the
holders of American Quantum Cycles 8% notes; and
o an aggregate of $163,650 principal and accrued interest to the
holders of American Quantum Cycles 7% notes;
o an aggregate of $910,559 to the holders of American Quantum Cycles
senior promissory notes issued between November 1998 and January
1999.
(2) Includes the purchase of ERP Software (which will manage all internal
operating facets of American Quantum Cycles including financial
information), computer hardware and materials handling equipment.
(3) Includes the costs of goods required for motorcycle manufacturing,
research and development, product development, marketing and
administrative expenses.
Our success will be substantially dependent on our management team
with respect to how the offering proceeds will be used. You will be
entrusting your funds to our management team with only limited
information concerning their specific intentions.
The foregoing is our best estimate of how we intend to use the net
proceeds of the offering during the next approximately 12 months. We
reserve the right to use the proceeds for different purposes if we
believe such a change is in our best interest.
If we receive additional proceeds because the underwriter exercises
their over-allotment option, we will use any additional proceeds for
working capital purposes. We may invest the net proceeds of the
offering in short-term, interest-bearing investments until we use
them for the purposes stated above.
MARKET PRICE AND DIVIDENDS OF THE REGISTRANT'S COMMON EQUITY AND OTHER
STOCKHOLDER MATTERS
As of August 16, 1999, there were approximately 221 shareholders of record of
our common stock. Our common stock is currently listed for trading on the
over-the-counter bulletin board under the symbol "AMQC". The following table
sets forth, the high and low bid prices for our common stock as reported by the
OTC Bulletin Board since August 12, 1997. The following table also gives effect
to our 1 to 4 reverse stock split effective June 3, 1999.
<TABLE>
<CAPTION>
Common Stock
------------
High Low
---- ---
<S> <C> <C>
August 12, 1997 - October 31, 1997 $40.00 $22.00
November 1, 1997 - January 31, 1998 42.50 24.00
February 1, 1998 - April 30, 1998 32.00 13.50
May 1, 1998 - July 30, 1998 26.00 14.00
August 1, 1998 - October 31, 1998 10.36 6.32
November 1, 1998 - January 31, 1999 9.00 2.32
February 1, 1999 - April 30, 1999 4.88 3.40
May 1, 1999 - July 30, 1999 5.52 2.48
August 1, 1999 - August 16, 1999 4.00 3.19
The stock markets are subject to significant price fluctuations, which may be
unrelated to the operating performance of particular companies; and therefore,
the market price of our common stock may frequently change. In addition, if our
competitors or we publicly announce new products or developments, such
announcements may have a significant impact on the market price of our common
stock.
10
<PAGE>
DIVIDEND POLICY
Our Board of Directors has complete control over whether or not we pay dividends
to our shareholders. We have not paid, and do not believe we will pay, any
dividends on our common stock in the near future. We intend to invest future
earnings, if any, in developing and expanding our business.
CAPITALIZATION
The following table describes our actual capitalization as of April 30, 1999,
our capitalization as adjusted to show the sale of our common stock offered at a
public offering price of $3.50 per share and the receipt of the estimated net
proceeds from the offering.
April 30, 1999
Actual(1) As Adjusted
--------- -----------
Short term debt:
Notes payable $2,188,753 $ --
Current maturities of long-term debt 15,558 15,558
Current capital lease obligations 147,560 147,560
Lines of credit 1,093,893 1,093,893
$3,445,764 $ 1,257,011
Long term debt:
Installment note for vehicle purchase at 8.75% $13,001 $ 13,001
Installment notes for intellectual
property rights from 8% to 10% 9,917 9,917
Short-term obligations to be converted 1,363,500 --
-------------- -------------
1,386,418 22,918
Capital lease obligations 81,341 81,341
-------------- -------------
1,467,759 104,259
Shareholders' equity:
Preferred Stock, $.001 par value; 2,500,000
shares authorized; no shares outstanding -- --
Common stock, $.001 par value; 50,000,000
shares authorized; 2,300,586 shares issued
(actual); 5,519,208 shares (as adjusted) (2) 2,031 5,519
Additional paid-in capital (2) 5,076,353 14,343,314
Accumulated deficit (9,421,136) (9,421,136)
-------------- -------------
(4,342,482) 4,927,697
-------------- -------------
Total capitalization $(2,874,723) $4,215,981
============== =============
</TABLE>
(1) As of August 16, 1999, there were 2,842,798 shares of our common stock
outstanding.
(2) Adjusted to give effect to a one for four reverse stock split of the issued
and outstanding shares of common stock effective on June 3, 1999.
11
<PAGE>
<TABLE>
<CAPTION>
SUMMARY FINANCIAL INFORMATION
For the years ended April 30,
-----------------------------
1999 1998
---- ----
STATEMENT OF
OPERATIONS DATA:
<S> <C> <C>
Revenues $975,780 $192,856
Total costs and expenses 7,762,571 2,824,567
Net loss $(6,786,791) $(2,631,711)
Weighted average
shares outstanding (2) 1,212,503 501,961
Net loss per common
share outstanding (2) $(5.597) $(5.243)
</TABLE>
<TABLE>
<CAPTION>
As of As of
April 30, 1998 April 30, 1999 Adjusted (1)
-------------- -------------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets $886,836 $936,654 $6,214,063
Working capital $(2,162,614) $(4,580,827) $3,225,852
Total assets $1,864,216 $2,642,758 $8,020,167
Total liabilities $3,167,426 $6,985,240 $3,092,470
Shareholders' equity (deficit) $(1,303,210) $(4,342,482) $4,927,697
</TABLE>
(1) Adjusted to show the effect of the sale of 2,430,000 shares of common stock
we are offering to you at a price of $3.50 per share.
(2) Adjusted to give effect to a one for four reverse stock split of the issued
and outstanding shares of our common stock effective on June 3, 1999.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the securities act of 1933, as amended, and section 21e of the
securities exchange act of 1934, as amended. All statements, other than
statements of historical fact, included in or incorporated by reference into
this prospectus, are forward-looking statements. In addition, when used in this
document, the words "anticipate," "estimate," "project" and similar expressions
are intended to identify forward-looking statements. These forward-looking
statements are subject to certain risks, uncertainties and assumptions including
those risks described in our annual report on form 10-KSB, as well as in this
report on prospectus. Should underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, estimated or projected.
Although american quantum cycles believes that the expectations we include in
such forward-looking statements are reasonable, we cannot assure you that these
expectations will prove to be correct.
Among the key risks that could cause actual results to differ materially from
expectations are estimates of costs, projected results or anticipated results.
The following discussion and analysis should be read in conjunction with the
financial statements of American Quantum Cycles and the notes thereto appearing
at the end of this prospectus.
PLAN OF OPERATION
American Quantum Cycles has made, and projects significant investments in its
manufacturing plant and people which will support an aggressive increase in
monthly production of motorcycles and engines during the next six months.
Investment in the plant includes manufacturing equipment, material-handling
equipment along with computer hardware and software (enterprise resource
planning software including integration with our dealer oriented intranet).
During this same period, our headcount (number of full time employees) is
projected to increase from 38 to over 70. Most of the increase in headcount will
be in production and key support functions such as quality control, procurement
and inventory management.
Production increase will be implemented through refinement of the assembly
process and investment in jigs, fixtures and material handling equipment such as
pneumatic hoists, lifts and conveyor belts. The total monthly production is
projected to increase from 20 motorcycles in March to 80 motorcycles per month
by September 1999 with the addition of a second assembly line.
American Quantum Cycles also plans to invest in the research and development of
two new product lines during the next six months: a touring motorcycle and a 96
cubic inch engine. The touring motorcycle will be a second product line to the
cruiser model currently manufactured by American Quantum Cycles and will include
saddlebags and windshields/fairing. The touring motorcycle is targeted at one of
the fastest growing market segments. A prototype of the touring product was
featured at the Sturgis Motorcycle Rally in August of 1998. Management of
American Quantum Cycles believes that the dealer and consumer response was very
favorable due to the number of orders for the touring motorcycle that were
placed at the rally. The 96 cubic inch engine will use the same 4-Valve
technology as our present 88 cubic inch engine. We put the 96 cubic inch engine
through extensive testing, including over 4,000 miles of road testing and
numerous dynamometer tests. The dynamometer tests established a 10% improvement
in peak foot-pounds of torque than the 88 cubic inch engine.
Management believes that 4-Valve engine design is one of the industry leaders in
high torque at low and mid-range speeds. This torque gives riders excellent
acceleration for increasing speed to merge into highway traffic from on-ramps
and passing trucks safely. The touring motorcycle and the 96 cubic inch engine
are planned to be introduced in the next twelve months.
13
<PAGE>
RESULTS OF OPERATIONS
American Quantum Cycles has transitioned from a development stage company into
an early production company. American Quantum Cycles was originally incorporated
on March 20, 1986 as "Norbern, Inc." and was inactive until March 1997 when it
began developing and implementing its business and financing plans. On May 8,
1997, Norbern, Inc. changed its name to American Quantum Cycles, Inc. and its
fiscal year end to April 30.
As American Quantum Cycles was inactive prior to March 1997, there was no income
and only incidental supply costs and the accrued interest expense from seven
promissory notes totaling $250,000. For the fiscal year ended April 30, 1997, we
had a deficit carry forward of $2,634. During the fiscal year ended April 30,
1998, our efforts were principally devoted to research, development and design
of products, marketing activities and raising capital, which resulted in
cumulative losses of $2,634,345. These losses resulted primarily from
expenditures for general and administrative activities, including salaries and
professional fees for outside services in the amount of $1,164,291, travel and
marketing expenses of $457,590, and accrued interest expense of $187,232 from
the bridge loan and convertible debentures issued.
American Quantum Cycles sustained continuing losses during the fiscal year ended
April 30, 1999 in the amount of $6,786,791. These losses include $5,706,840 in
general and administrative activities, representing training and development of
personnel and process necessary in a development stage operation, and $1,079,951
in accrued interest expense.
Revenues in the fiscal year ended April 30, 1998 of $192,856 resulted from the
sale of the initial ten motorcycles produced plus some after-market 4-Valve
engine parts. An additional eight motorcycles were produced, of which two were
used for engineering and regulatory testing, and the remaining six are used for
marketing purposes. Fifty-four (54) motorcycles have been produced during the
fiscal year ended April 30, 1999 for revenues of $959,210 plus $16,570 in
aftermarket parts.
Two hundred eighty (280) motorcycles have been booked into production slots
based on orders from 28 dealers. Eighty-six of these bikes were scheduled for
delivery during the January-March time frame of 1999. Of the 86 motorcycles that
were ordered for delivery between January and March 1999, 4 were delivered
between January and March, 4 were delivered in April. These eight motorcycles
are included in the 54 motorcycles produced this past fiscal year. Seven
additional motorcycles were delivered in May 1999 and eight in June 1999 as part
of the new fiscal year production.
American Quantum Cycles expects after-market 4-Valve engine and part sales to
increase significantly during the fiscal year 1999/2000. In order to
successfully deliver the 280 motorcycles, which have been ordered by the
dealers, American Quantum Cycles will have to increase monthly production from 5
per month to 85 per month. To accomplish this production increase, we will need
to improve the facilities, refine production processes, add to production staff,
and insure continued and smooth flow of proper parts and implement effective
quality. There is no guarantee that the management team will be able to
implement this required production increase in the 3-6 month time frame
necessary for timely delivery of motorcycles against outstanding orders. Risks
which could prevent successful delivery of 280 motorcycles include:
o Not recruiting adequate production staff,
o Insufficient training of production staff,
o Not ordering part on time,
o Not ordering correct parts,
o Suppliers delivering parts of unacceptable quality,
o Suppliers not delivering parts on a timely basis,
o Not being able to devise efficient assembly procedures, jigs, fixtures and
tools and
o To manage production staff to operate at an acceptable level of energy,
efficiency and productivity Consequently, there is no guarantee that we will
be successful in producing the motorcycles that have been ordered.
14
<PAGE>
American Quantum Cycles anticipates that the current fiscal year ending April
30, 2000 will have significant reductions in the loss incurred during the first
two quarters. American Quantum Cycles expects their first profitable quarter to
occur third quarter of fiscal year 2000. Results of operations in the future
will be influenced by numerous factors including technological developments,
competition, regulation, increases in expenses associated with sales growth,
market acceptance of the products of American Quantum Cycles, the capacity of
American Quantum Cycles to expand and maintain the quality of its motorcycles
and related services, continued development of the dealer organization,
favorable source of supplies, recruitment of highly skilled employees and
integration of such persons into a cohesive organization, and the ability to
raise funds and control costs.
LIQUIDITY AND CAPITAL RESOURCES
Since American Quantum Cycles only recently emerged from its development stage,
it has not received any material income from operations. As such, American
Quantum Cycles relies on private sources of financing to support its operations.
As part of its funding and financing, American Quantum Cycles issued three
separate series of convertible notes to investors:
o Beginning in October 1997, American Quantum Cycles issued an
aggregate of forty (40) 8% subordinated notes to 32 investors, in
the aggregate principal amount of $1,407,000. The notes matured one
year from date of issue. Eighteen of the 8% note holders,
representing an aggregate of $756,500 of the aggregate outstanding
principal amount of the 8% notes agreed to convert the principle
balance plus accrued interest of their respective notes into
common stock of American Quantum Cycles at the a price per share
equal to $3.50 and warrants to purchase an equal number of
shares of American Quantum Cycles common stock at an exercise price
of $3.50 per share. American Quantum Cycles redeemed two of the 8%
notes with a principal balance of $80,000. The total amount of the
proceeds of this offering that American Quantum Cycles has
designated for repayment of the 8% notes is $570,500 principal plus
$91,280 interest.
Nine of the 8% note holders, representing an aggregate of $247,500
of the outstanding principal balance of the 8% Notes, agreed to
extend the maturity date of their 8% notes until the close of this
offering. American Quantum Cycles intends to repay these notes from
the proceeds of this offering.
The remaining three 8% note holders, representing an aggregate of
$323,000 of the outstanding principal balance of the 8% notes, have
not agreed to either extend the terms of, or convert, their 8%
notes. American Quantum received notice of default from one 8% note
holder and agreed to settlement terms with such note holder..
o Beginning in April 1998, American Quantum Cycles issued an
aggregate of twenty-seven (27) 7% subordinated notes to
25 investors, in return for which American Quantum Cycles received
proceeds of $549,500. The 7% notes matured one year from the date of
issuance and are convertible into shares of common stock of American
Quantum Cycles at $8.00 per share. Interest is payable in cash or
shares of common stock of American Quantum Cycles, at the discretion
of American Quantum Cycles. Seventeen of the 7% note holders,
representing an aggregate of $367,000 of the aggregate outstanding
principal amount of the 7% notes agreed to convert the principle
balance plus accrued interest of their respective notes into
common stock of American Quantum Cycles at the a price per share
equal to $3.50 and warrants to purchase an equal number of
shares of American Quantum Cycles common stock at an exercise price
of $3.50 per share. American Quantum Cycles redeemed two of the 7%
notes that had an aggregate principal balance of $32,500.
Six of the 7% note holders, representing an aggregate of $150,000 of
the outstanding principal balance of the 7% notes, agreed to extend
the maturity date of their 7% notes until the close of this
offering. American Quantum Cycles intends to repay these notes from
the proceeds of this offering. The total amount of the proceeds that
American Quantum Cycles has designated for repayment of the 7% notes
is $150,000 principal plus $13,650 interest.
15
<PAGE>
o In March 1998, American Quantum Cycles received aggregate of
$700,000 in connection with the issuance of nine (9) promissory
notes to nine investors, which bear interest annually at a rate of
10%. The 10% notes matured one year from the date of issuance and
are convertible into shares of common stock of American Quantum
Cycles at $8.00 per share. Interest is payable in cash or shares of
common stock of American Quantum Cycles, at the discretion of
American Quantum Cycles. All of the 10% note holders agreed to
convert the principle balance plus accrued interest of their
respective notes into common stock of American Quantum Cycles at
the a price per share equal to $3.50 and two warrants to
purchase a number of shares of American Quantum Cycles common stock
equal to the 10% note shares at an exercise price of $3.50 per
share.
Under the terms of the notes, American Quantum Cycles has 30 days after receipt
of written notice of default from a note holder to cure the default. If American
Quantum is unable to cure the default or reach satisfactory arrangements with
the note holder who sent such written default, the note holder is entitled to
proceed to protect and enforce his or her rights under this note.
There is a risk that the proceeds from this offering would be insufficient for
American Quantum Cycles to satisfy the payment of these notes. American Quantum
Cycles would attempt to establish a long-term payment plan out of cash flow from
the sale of motorcycles. There are risks that cash flow will be insufficient,
the note holders would not accept a payment plan and that legal action could be
taken against American Quantum Cycles by the holders of the notes in default.
Between November 1998 and January 1999, American Quantum Cycles completed a
private offering of approximately 35 units of its securities to 11 investors
from which American Quantum Cycles received gross proceeds of $870,000. Each
unit consisted of a senior promissory note in the principal amount of
$25,000 and the right to receive a number of shares of common stock of
American Quantum Cycles determined by dividing $12,500 by the subsequent public
offering price per share of American Quantum Cycles common stock in an
underwritten public offering from which American Quantum Cycles receives at
least $5,000,000 gross proceeds. American Quantum will use these funds for
costs of goods required for motorcycle manufacturing, research and development,
product development, marketing and administrative expenses through to the time
of the completion of this offering.
As of June 14, 1999, American Quantum Cycles issued an aggregate of five (5) 8%
subordinated notes in the aggregate principal amount of $284,181. The notes
mature October 1, 1999 with interest and principal payable in cash.
In December 1998, American Quantum Cycles contracted for a secured line of
credit with Skippack Capital Corp. in the amount of $755,000 to use for research
and development, product development, marketing and administrative expenses. The
line of credit accrues interest at a rate of 10% per annum. The line of credit
is evidenced by a secured promissory note. Principal and interest on the line of
credit must be repaid to the line of credit provider upon demand. The entire
amount of the line of credit has been drawn down as of April 30, 1999. This is
not a revolving line of credit and is secured by all of American Quantum Cycles'
assets. If Skippack calls the line of credit, American Quantum Cycles will
attempt to establish a long-term payment plan out of revenue from the sale of
motorcycles.
In February 1999, American Quantum Cycles contracted with seven individuals for
an unsecured line of credit in the aggregate amount of $650,000 use for research
and development, product development, marketing and administrative expenses. The
entire amount of the line of credit was drawn down as of April 30, 1999.The line
of credit accrues interest at a rate of 8% per annum plus an aggregate of
112,500 incentive shares of stock. Principal and interest are to be paid back
after completion of this offering. This is not a revolving line of credit.
In March 1999, American Quantum Cycles contracted with Anchor Capital
Corporation for a $750,000 revolving line of credit to use for inventory and
production expenses. Draw on the line of credit is based per purchase order for
motorcycles from our dealers. Interest accrues at a rate of 10% per annum.
Principal and interest are paid from funds received from the purchase of the
motorcycles.
In addition to the bridge funding and short-term notes, these lines of credit
will cover expenses of American Quantum Cycles through to the completion of this
offering.
16
<PAGE>
The proceeds from American Quantum Cycles notes and lines of credit have been
used for research and development in the amount of $489,302 and investment in
inventory, equipment, licenses and intellectual rights in the amount of $978,182
during the fiscal year ended April 30, 1998. American Quantum Cycles expended
$608,722 for research and development and $807,885 in equipment, facility
improvements and fixtures during the fiscal year ended April 30, 1999. The
remaining funds raised were used to supply working capital for American Quantum
Cycles operations to date.
Year 2000 Disclosure
American Quantum Cycles has investigated what, if any, impact the year 2000
could have on its internal software and operating systems. It is believed by the
management team that American Quantum's operating system, Windows NT 4.0, is
year 2000 compliant. DealerNet, a proprietary software for designing and
ordering motorcycles at the dealership level, was developed for American Quantum
Cycles in 1998, and is to our knowledge year 2000 compliant. Additionally,
integral software that is currently being purchased and/or developed for
American Quantum Cycles (MRP/ERP, TechNet, & e-commerce), is believed to also be
year 2000 compliant. American Quantum Cycles has made efforts to ascertain its
vulnerability should any of its vendors experience year 2000 difficulties.
Should certain vendors become unable to meet American Quantum's material needs,
production could be interrupted, which would in turn adversely affect
operations. In 1999, American Quantum Cycles will attempt to identify, if
possible, multiple vendor sources for product to limit our exposure to vendor's
year 2000 problems. The anticipated costs of American Quantum's year 2000
initiative is not considered material. The internal year 2000 team's mission is
to attempt to ensure that there is no adverse effect on us. While we believe
that every effort is being taken to address all year 2000 concerns, we can not
guarantee that the systems of other companies will be compliant and will not
have a material adverse affect on American Quantum Cycles.
BUSINESS
INTRODUCTION
American Quantum Cycles, Inc. designs, manufactures and distributes
American-made, high performance V-twin engine cruiser and touring style
motorcycles. These motorcycle products include stock models and motorcycles
built to customer specifications. We make use of a "just in time" approach which
means we will order parts on an as-needed basis in manufacturing, and we believe
we can manufacture a high quality product using mass production methods.
American Quantum Cycles further believes that this made-to-order approach helps
produce greater customer satisfaction and reduces the need for added cash flow.
We expects that its motorcycles will be lower in price compared to the other
major sources of high performance, customer-specified motorcycles, which are
primarily small customization shops and small manufacturers.
We are initially focusing on manufacturing and selling heavyweight motorcycles
and have begun small-scale production of our initial heavyweight cruiser, the
Liberty. We unveiled this model at the Sturgis Motorcycle Rally in Sturgis,
South Dakota, in August 1997. American Quantum Cycles has produced 55
motorcycles since that time, 41 of which have been sold to dealers and/or
consumers. The remaining 14 motorcycles are being used for regulatory compliance
testing, marketing and long term testing. We will also take bikes to rallies and
conferences including the Indianapolis Dealers Conference, Daytona Beach Bike
Week, Laconia Bike Week and many others. We have signed letters of intent with
28 prospective dealers and have received orders for 280 motorcycles including 86
for immediate delivery.
We intend to make investments in plant and people to support a increase in
monthly production of motorcycles and engines during the next twelve months.
Investment in plant will include manufacturing equipment, materials handling
equipment and computer hardware and software. During this same period, our
number of full time employees will need to increase. Most of the increase in
headcount will be in production and key support functions such as quality
control, procurement and inventory management.
17
<PAGE>
American Quantum Cycles was originally incorporated as a Florida corporation on
March 20, 1986 as "Norbern, Inc." On May 8, 1997, Norbern, Inc. changed its name
to "American Quantum Cycles, Inc." American Quantum Cycles had no operations
prior to May 9, 1997, when it issued shares of its common stock in exchange for
management, equipment and other assets. This enabled us to manufacture,
distribute and sell American-made motorcycles, motorcycle parts and related
products. American Quantum Cycles fiscal year end is April 30. Our executive
offices are at 731 Washburn Road, Melbourne, Florida 32934; Telephone (407)
752-0008, our fax is (407) 752-0550 and our website is
http://www.quantumcycle.com.
THE INDUSTRY AND MARKET
Our management believes that the motorcycle market has been extremely robust,
the healthiest segment being the cruiser market. Data from the Motorcycle
Industry Council shows the cruiser market segment has enjoyed eight years of
unbroken market growth averaging roughly 12% per year over this period. Industry
experts are highly confident in the continuation of this growth pattern well
into 2005 due to favorable demographics. The prime buyer for the heavyweight
cruiser is middle-aged and middle class which means that the baby boomer segment
of the population which is now reaching their peak earning years with growing
discretionary income will be motorcycle prospects for the next 7-10 years.
Five different companies currently have about 95% of the market share and
therefore dominate the motorcycle industry in the United States. Those companies
are Harley Davidson, Honda Motorcycle, Yamaha, Suzuki and Kawasaki. In spite of
this array of able competitors, the market for cruiser motorcycles is
unfulfilled due to a strong demand for American made product and a shortage of
production capacity on the part of Harley Davidson, which has existed for the
last five years. Our management believes that this product shortage has caused
unusual market distortions to exist for a number of years, which include:
o Harley Davidson buyers having to wait from 3-12 months for product delivery
o Harley Davidson Dealers adding a large number of accessories on their product
to raise prices and margins
o Many Harley Davidson buyers being required to add $5-10k of aftermarket parts
to new motorcycles to get a high performance product
o High demand and high prices for used Harley Davidson motorcycles
o Harley Davidson dealers taking on second product line in order to fulfill
demand
Because there is little or no competition between Harley Davidson dealers, the
dealers have been taking advantage of the excess demand market condition by
adding a large number of accessories on their product to arbitrarily raise the
price and margin of their motorcycles. The consumer has been tolerating this
because they have no competition between Harley Davidson dealers to use to drive
prices back down.
Harley Davidson has taken advantage of the excess market demand situation and
extreme customer loyalty by being slow to make improvements to their product
line, particular slow to improve engine performance. This has created large
after-market industry consisting of providers of kits with which to upgrade the
performance of Harley Davidson engines. Consequently, many Harley Davidson
buyers end up adding $5-$10 thousand dollars of aftermarket parts to new
motorcycles in order to get a high performance product with the Harley Davidson
name on it. When the market leader does not satisfy neither the quantity nor the
option preferences (e.g. high performance) of the market place, this creates a
market vacuum which can be filled by newer, smaller competitors with less
capital resources. This is the market condition today in the heavy cruiser
motorcycle segment in North America.
Currently, there are over 100 Harley Davidson dealerships, which have already
picked up the Kawasaki, Honda or Suzuki lines in order to fulfill the
unsatisfied demand of bikers who do not want to wait for their motorcycles. We
believe the demographic audience that most dealerships are attempting to reach
would prefer buying an American-made bike. However, the individual buyer has
been limited to the above choices, or an expensive custom motorcycle selling in
excess of $30,000. Now, however, the customer will have an alternative choice -
American Quantum Cycle.
An estimated 346,966 new motorcycles were sold in 1997 with 67% of these being
in the on-highway classification. New motorcycle sales equaled a retail value of
$2.7 billion in 1997. The overall motorcycle industry in the U.S. generated an
estimated $8.7 billion consumer sales and services, state taxes and licenses.
Included in this overall industry value are retail sales of motorcycles (new and
used), parts and accessories, dealer servicing, product advertising, vehicle
financing charges, insurance premium, dealer personnel salaries, state tax and
licensing fees. There were 12,113 retail outlets, which sold motorcycles and
related products in the U.S. in 1997. Roughly one-third (34%) of these were
authorized to sell new motorcycles while the remainder specialized in related
parts, accessories, riding apparel, used vehicles or service.
18
<PAGE>
In 1996, there were $5.6 billion in retails sales generated by all franchised
(authorized by a major brand manufacturer to sell new motorcycles, parts,
accessories or clothing) and non-franchised motorcycle retail outlets according
to the 1996 retail outlet profit survey from the Motorcycle Industry Council.
Sales by franchised outlets accounted for $4.4 billion of the total retail sales
volume, compared to $1.2 billion for non-franchised outlets. The estimated
average motorcycle related sales and service for a franchised motorcycle outlet
was $1.606 million compared to $159,000 for a non-franchised outlet. These sales
for the franchised outlets were broken down, on average, at 57% for new
motorcycles, 14.7% for used motorcycles, 22% for parts, accessories and riding
apparel, 5.7% for service labor and 0.6% for miscellaneous.
The 3.16 million motorcycles in use in 1996 were owned by 2.77 million owners
according to the 1997 Motorcycle Statistical Annual from the Motorcycle Industry
Council. Motorcycle owners have grown steadily in age and income over the past
two decades (see Table below):
<TABLE>
<CAPTION>
Year Median Age Median Income
---- ---------- -------------
<S> <C> <C> <C>
1980 24 years $17,500
1985 27.1 years $25,600
1990 32 years $33,100
</TABLE>
The most rapidly growing income segment for motorcycle owners was the "over
$50,000 per year" bracket growing from 2.4% in 1980 to 6.1% in 1985 to 19.9% in
1990. The fastest growing education segment for motorcycle owners was "some
college education" which grew from 17% in 1980 to 25.2% in 1990. The percentage
of motorcycle owners who are married has grown steadily from 44.3% in 1980 to
56.6% in 1990.
In 1996, U.S. registrations of new heavyweight motorcycles increased by
approximately 9.6% over 1995 registrations, and U.S. registrations of new
heavyweight motorcycles have increased 59% from 1992 through 1996. American
Quantum Cycles has carried out detailed demographic surveys through motorcycle
registration databases, telephone surveys and face-to-face surveys to determine
those demographic groups, which are owners of heavyweight cruisers. As a result
of this market research, American Quantum Cycles has determined the
characteristics of their target market groups and correspondingly, where they
live by ZIP code, census block and trade zone.
The international market for heavyweight motorcycles has seen strong growth in
the last few years. The European market grew at a 7.2% rate during 1997
according to, Ferrex International, Inc. with Germany being the largest
purchaser of American manufactured heavyweight motorcycles with $76.6 million in
sales for 1996, followed by Canada ($67.9 million), Japan ($46.8 million),
Australia ($31.1 million), and the Netherlands ($21.8 million).
Motorcycle buyers today have three choices in buying a high performance cruiser
or touring motorcycle:
(1) to buy new American made products from small manufacturers
(e.g.: Titan, Big Dog, CMC, etc.);
(2) to buy a foreign made product; or
(3) to buy a new Harley Davidson product and pay a large premium in
order to upgrade the performance characteristics of Harley Davidson
motorcycles.
American Quantum Cycles intends to fill this market gap by providing an
American-made and styled motorcycle with advanced engineering and high
performance technology. Since its initial promotional event at the Sturgis
Motorcycle Rally in Sturgis, South Dakota, we have received more than 443 dealer
inquiries to sell our motorcycles and motorcycle parts.
19
<PAGE>
STRATEGY
Our goal is to continue to produce what we believe is a superior U.S.-made
V-twin motorcycle using quality materials and workmanship. We will seek market
share, both domestically and internationally, by offering high performance
custom-built motorcycles and motorcycle products and through the development of
a proprietary Intranet/Extranet system which is designed to continually track
and control inventory and production for use by dealers, customers and American
Quantum Cycles.
To increase our motorcycle production capacity, we recently completed a
modification to our production facility, which we believe has increased our
production floor space by 200%. This provided space for a second motorcycle
production line which we believe will more than double our motorcycle production
capabilities.
PRODUCTS
American Quantum Cycles first model the Liberty, a heavyweight cruiser
motorcycle, has been designed to achieve major product goals including:
(1) American styling;
(2) handling;
(3) durability; and
(4) performance.
o American Styling -- American Quantum Cycles believes the
dimensions, angles, components and selection of materials including the use of
polished aluminum as opposed to chrome used in the Liberty embodies the
heritage of American styled motorcycles from the 1950's and, at the same time,
integrates technologies of the late 1990's. For example, the painting process
used by us on its motorcycle frames prevents paint from chipping, since the
paint is electrically charged and baked at extremely high temperatures for a
glossy, durable finish. We also believe this makes the motorcycle frame more
durable. Additionally, there is a variety of customized colors and designs
available through this powder coating process.
o Handling -- A number of factors contribute to the ease of
handling of the Liberty. The Liberty is designed to be completely balanced so
that the center of gravity is in line with its rider. The inverted front forks
of the Liberty model, typical on racing motorcycles, absorb shock and provide
steady contact with the road. This delivers ease of handling under high
performance conditions. The engine and transmission are rubber mounted to
minimize vibration for smooth and easy handling. Many of the materials in the
Liberty are selected for high strength-to-weights ratios.
o Durability -- American Quantum Cycles believes that while
competitive products in the Liberty's price class require annual repairs and
continual upgrades, these repairs and upgrades are not necessary with the
Liberty model. We believe that the Liberty's frame wears well through all
environmental and use conditions. We polish the aluminum parts to a soft gleam
and we believe that they will resist corroding or peeling. The balanced
components and engine/transmission triple isolation mounts greatly reduce
vibration, which adds to durability and longevity. Additionally, we make a
number of components including the oil tanks, from stainless steel, which also
adds to corrosion resistance and durability. Aluminum parts dissipate heat
better than the low-grade steel used by competitors, further increasing
long-term durability.
o Performance -- The single most outstanding feature of the
American Quantum Cycles product line is its engine. The four stroke, four valve
V-twin promises to deliver the greatest acceleration at low and mid-range speeds
in its model heavyweight cruisers class on the road today. The engine,
designed by American Quantum Cycles, includes designs for heads under exclusive
license from Fueling Advanced Technologies. The two pistons are arranged
vertically at a 45 degree angle to each other. The bore of 3 and 5/8 inches
combined with a stroke of 4 and 1/4 inches provides 88 cubic inches or 1462 cc
of capacity - near the top of the range for this class of motorcycle and larger
than most of its competitors. Capacity, however, is only one factor in
delivering power. The 4-valve technology produces greater airflow through the
engine than the more common 2-valve. American Quantum Cycles has designed a
unique manifold which manages the flow of air more efficiently resulting in a
more complete burn cycle with less wasted fuel. The 4-value heads are equipped
with two 1.575" intake valves and two 1.275" exhaust valves for 3.150" and
2.550" intake and exhaust capacity respectively. The spark plug is located in
the middle of the head between the four valves in the combustion chamber, which
has a semi-hemispherical pent roof design. The cam is ground to Quantum's
specifications. The resulting engine design delivers greater torque, less
pollutants, cooler operating temperatures and greater mileage all at the same
time.
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The 4-valve engine is expected to be the industry leader in ft-lbs. of torque
per cubic inch of capacity. The American Quantum Cycles 4-Valve 88 cubic inch
passed 49 state Environment Protection Agency tests and certification has been
received. The power achieved by Quantum's 4-Value engine accomplishes what the
motorcycle industry heretofore has failed to deliver an engine with excellent
low-to-mid range rpm torque without sacrificing upper range power. In
conclusion, the design of the Liberty Cruiser motorcycle has accomplished all
four-product goals and has created a product, which will be extremely
competitive in the motorcycle industry.
We believe we have close and efficient relationships with all of our suppliers.
Approximately 50% of our motorcycle components are manufactured to our
specifications by manufacturers located throughout the United States but
predominantly in Florida. We purchase the remaining 50% of the components needed
to complete our motorcycle from parts manufacturers and catalog distributors
including tires, wheels, seats, lights, batteries, and other off-the-shelf
parts.
American Quantum Cycles has and will invest in the research and development of
two new product lines during the next twelve months: a touring motorcycle and a
96 cubic inch engine.
The touring motorcycle will be a second product line to the existing Cruiser
model and will include saddlebags and windshields/fairing. The 96 cubic inch
engine will use the same 4-valve technology as American Quantum Cycles present
88 cubic inch engine. With the larger displacement, American Quantum Cycles
projects an increase in peak torque in the 10-20% range.
MANUFACTURING
American Quantum Cycles focuses on final assembly of the engine and motorcycle
in its home plant in Melbourne, Florida. American Quantum Cycles outsources all
casting, machining, forging, powder coating, chrome plating and fiberglass
molded processes to subcontractors, minimizing the capital investment required
in heavy machinery and additional plant floor space and expenses associated with
recruiting, training and retaining highly skilled personnel.
American Quantum Cycles can implement this outsource focused production
philosophy cost-effectively because of its location on the "Space Coast" of
central Florida taking advantage of the large number of small machine shops
which have evolved to support NASA and Cape Canaveral.
American Quantum Cycles has designed and produced 55 motorcycles since May 1997.
Of these, 41 motorcycles have been sold, 11 are used for marketing purposes, and
3 for engineering and regulatory testing. During the remainder of fiscal 2000 we
expect to build and ship roughly 1000 Motorcycles this projection is based on a
plan to increase production through refinement of the assembly process. This
involves investing in jigs, fixtures and material handling equipment such as
pneumatic hoists, lifts, and conveyor belts.
We project total monthly production to increase from 20 motorcycles to 80
motorcycles in August 1999 with the addition of a second assembly line and
starting two shift operations. We project that we will increase production to
160 motorcycles per month from July 1999 through April 2000. Currently, American
Quantum Cycles existing manufacturing process consists of outsourcing all
manufacturing of parts to subcontractors. We carry out only research and
development, final assembly, testing and quality control at our facilities.
American Quantum Cycles has long-term contracts with major subcontractors,
vendors and backup suppliers to insure the flow of parts to our plant in
Melbourne, Florida.
American Quantum Cycles presently can produce five motorcycles per week or 20
motorcycles per month with a team of seven persons working one line of final
assembly stations. American Quantum Cycles has plant space and much of the
equipment in place for a second parallel line prior to receiving the proceeds of
this offering. American Quantum Cycles has been recruiting and training
additional production personnel and can increase production from 20 motorcycles
per month to 40 motorcycles per month by opening up the second production line.
No new additional plant space or equipment is needed to further increase monthly
production via adding a full or partial second shift 4PM to Midnight. By adding
a second shift on one line only, monthly production increases to 60 motorcycles
per month. Two shifts, two production lines will provide 80 motorcycles per
month. All of these increases are possible with no "learning curve" or increase
in productivity per line, per shift, per week. Over a six to twelve month
period, We will improve productivity by streamlining assembly processes,
improving jigs and fixtures, weeding out low performance personnel, etc. At the
end of twelve months of production refinement, We estimate that a 10-12 man team
working on one line, one shift can produce five motorcycles per day or 100
motorcycles per month.
American Quantum Cycles must also insure a corresponding increase in supply of
parts to support a month-by -month increase in production. American Quantum
Cycles works closely with all of its vendors, providing them with six month
production forecasts and anticipating any needs on the part of the vendors to
support our increasing parts supply needs. American Quantum Cycles gets its non-
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proprietary products primarily from large vendors with $50 million or larger in
annual revenues who can scale up to provide American Quantum Cycles its
increasing parts needs. Where American Quantum Cycles uses a smaller vendor for
any part, we have cultivated secondary and tertiary suppliers. This is
particularly critical in machining services where American Quantum Cycles has
provided proprietary drawings and multiple machining houses have developed their
numerical machine control code to support us. American Quantum Cycles has
invested considerable in time and money to insure that its vendors can provide
the increasing supply of parts required to support substantial increases in
monthly production of motorcycles. Since, we can not guarantee the performance
of its vendors and subcontractors, adequate and uninterrupted supply of parts
must be consider a risk factor for our success.
Having grown up from its garage shop origins, much of the motorcycle industry's
after market parts vendors practice an informal business philosophy. Most
contracts are verbal in nature. Consequently, American Quantum Cycles has no
written contracts at present with any of its parts suppliers save purchase
orders with written notes concerning reorder cycles and increasing volumes over
a forward looking 3-6 month period.
RESEARCH AND DEVELOPMENT
American Quantum Cycles' research and development efforts have been and will be
focused on the engine and associated drive train. In fiscal years 1997 and 1998,
the research focused on those refinements required for the 4-Valve engine design
to achieve the desired durability and to pass the 49 state environmental
protection agency emission tests. Different flywheel and connecting rod designs
were analyzed and tested for long life durability. These designs were first
tested in computer-based modeling and simulations. Three-dimensional models were
developed in American Quantum's PRO/E engineering workstation and dynamic stress
analysis was carried out using finite element analysis techniques. This process
supported the determination of the proper neck thickness and flange width for
the connecting rod. Flywheels and connecting rods were then built to these
dimensions and weights and tested in bench and road tests to confirm the
computer modeling results. The resulting design is a heavier flywheel and more
durable connecting rod than is commonly used in the heavyweight cruiser
industry. This allows American Quantum's engine to not only run more smoothly
(providing greater durability), but to take more complete advantage of the
additional torque produced by the 4-Valve design.
In addition to the flywheel/connecting rod research, a variety of combinations
of pushrods, swivel feet and rocker arms were evaluated. Adjustable pushrods and
a variety of fixed-length pushrods were evaluated for smooth running of the
rocker arm assembles and long life durability of the associated parts. A number
of third party swivel feet were tested and compared with an American Quantum
Cycles design. The smoothest running combination was identified after extensive
bench and road testing included fixed pushrod lengths of specific dimensions for
intake and exhaust pushrods and a selected third party swivel foot.
Engine research in fiscal years 1997 and 1998 also focused heavily on those
refinements necessary to pass 49 state Environmental Protection Agency emissions
tests. A variety of third party carburetors and custom designed cams were
evaluated via preliminary testing at an Environmental Protection Agency approved
test facility. Additionally, a number of sizes and shapes of airflow plenums
were tested. The test results specified a third party carburetor and associated
jet settings, a specific custom grind on a third party cam and the most
efficient plenum size and shape for airflow management which produced the best
mix of low emissions, excellent torque and horsepower performance along with
attractive gas mileage. This combination successfully passed 49 state
Environmental Protection Agency emissions requirements and American Quantum's
4-Valve engine received Environmental Protection Agency certification. These
activities resulted in research and development costs of approximately $489,302
for the fiscal year ended April 30, 1998 and $209,305 for the fiscal year ended
April 30, 1999.
Engine research in fiscal years 1998 and 1999 focused on further refinements to
American Quantum's 88 cubic inch engine and the development of a 96 cubic inch
engine. Refinements to the 88 cubic inch engine design included research on
hardened valve stems, valve spring design and slight modifications to the rocker
arm assembly to minimize upper engine noise. A number of hardened valve stem
designs were put through bench and road testing to determine that design which
would provide the most durable valves and minimize shifting and settling of the
rocker arm assembly due to valve wear and compression. Double and single valve
springs were tested for that combination which minimized valve float and yet
provided ease of starting for a cold engine. Slight variations to the machining
of the rocker arm and pushrod/rocker arm geometry's were tested and evaluated
for minimizing upper engine noise while maintaining torque and horsepower
performance.
A major research and development effort was invested in the development and
testing of a 96 cubic inch 4-Valve engine. All the required changes to the
dimensions of various affected parts were determined and a 96 cubic inch engine
was built. This test engine was put through extensive bench and road testing
including exhaustive dynamometer testing to determine improvement in torque and
horsepower. Torque and horsepower improvements in the 10-15% range were
verified. The durability of the 96 cubic inch engine was also verified. Entering
fiscal year 1999and 2000, the 96 cubic inch engine is ready for Environmental
Protection Agency emission testing and subsequent market release.
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An embryonic research and development program was initiated in fiscal year 1998
and 1999 in the use of polymer coatings on selected engine parts to reduce
friction and improve durability. Preliminary tests were carried out with polymer
coatings on flywheels with inconclusive results to date. This program will be
continued in fiscal year 1999 and 2000 as American Quantum maintains an
aggressive research and development program to improve its product line. All of
these efforts resulted in research and development costs of approximately
$608,722 for the fiscal year.
The research and development program planned for fiscal year 1999 and 2000
includes Environmental Protection Agency testing of the 96 cubic inch engine,
evaluation of polymer coatings, evaluation of the use of exotic alloys (e.g.
titanium/aluminum) for rocker arm assemblies and the development of a dual
carburetor engine.
INTRANET/EXTRANET SYSTEM
One of our goals is to provide our customers with an efficient way of selecting
an exact product design as well as to provide a method to continually track the
progress of production of any specific product. We have developed a PC-based
kiosk Intranet/Extranet System we call Dealer Net for this purpose. The
DealerNet uses an interactive CD-ROM (or DVD) storing two and three-dimensional
images of our products. A prototype was reviewed by dealers and consumers for
ease-of-use and effectiveness at the Sturgis and Daytona Beach Motorcycle shows.
Management of American Quantum Cycles believes that both dealers and customers
have responded favorably to the Internet software. We sent a mailer of the
completed DealerNet library of bike selections on CD to 2,000 prospective
dealers during the week of July 24, 1998 as a promotional tool and as an
invitation to visit American Quantum Cycles booth at the Sturgis, South Dakota
Rally.
The DealerNet system displays alternate motorcycle choices on a computer screen
allowing, a customer to select a precise motorcycle design with options tailored
to the customer's requirements. The customer will also know the cost of each
option, and have a graphic image of the bike, which he can easily modify. Once a
customer agrees to purchase our motorcycle, we will assign a unique bar code to
each order. This serves as an order and tracking number for the dealer, the
customer and American Quantum Cycles production plant. This also allows everyone
to monitor the progress of the production of product. We have completed the
DealerNet system and intend to install it at our dealer locations beginning in
spring 1999.
MARKETING
Our marketing program will focus on two major objectives which are corporate and
product name identification and lead generation for the sales and distribution
channels.
o Corporate product name and product identification will use
advertising, promotions, public relations and participation in
major motorcycle events (such as the Sturgis Race and Rally in
Sturgis, SD and the Daytona Beach Bike Week). We also will sponsor
racing activities and special promotional events and participate
in most major motorcycle consumer shows and rallies. To establish
our brand name among the motorcycling public, we first unveiled
our prototype, the Q2 at the Sturgis Rally in August 1997. We also
intend to eventually license certain of our trademarks on a broad
range of consumer items to increase public exposure of our brand
name.
o Lead generation activities will support each product line
including motorcycles, engines/parts, and accessories. They also
will be matched to each sales channel, including dealers, the
Internet, third party distribution partners and others. Our
primary effort will be generating leads so dealers can sell
motorcycles and engines. We will enter and track all leads at a
local level by a corporate lead tracking and management system.
This will provide sales management support to dealers. The lead
management and tracking system also allows us to monitor sales
progress of our dealers. We will identify geographic regions of
unusually low sales productivity (with high densities) and target
them for special promotional efforts.
o American Quantum Cycles will use print media advertising and
direct marketing to generate leads to support our dealer sales
programs. Print media advertising will focus on national
motorcycle magazines (typically with full page, full color ads)
and local newspaper ads together with dealers' local promotional
activities. We will evaluate local radio and cable TV ads on a
location by location basis depending on reach, frequency, and
cost.
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o Our management team will evaluate the type and amount of
marketing to support each of our local dealers based on our market
research program. All direct marketing campaigns will feature a
local focus and will be timed to support the launch of new
dealers. We believe direct mail programs, including inexpensive
give-always (such as promotional CD's, high quality posters and
merchandise) can be cost-justified if focused on a local basis.
Our ad and promotional campaigns will be available on our website.
DISTRIBUTION AND SALES
American Quantum Cycles distribution channels will typically consist of
independently owned full-service dealerships that we will sell to directly. We
will also sell directly to consumers through various media, including the
Internet, but only in those geographic regions where we have no authorized
dealerships. All other Internet leads will be electronically referred to the
nearest American Quantum Cycles dealer. All of our dealers will carry American
Quantum Cycles replacement parts and aftermarket accessories and perform
servicing of our motorcycle products.
We have letters of intent signed by 24 dealers located in 13 states in the US.
Each dealer makes a minimum commitment to buy ten (10) motorcycles upon signing
the dealer agreement. As a result, the 24 dealers represent bookings of 240
motorcycles. Other dealers have expressed a strong interest and their
applications are being evaluated.
Dealership requirements include favorable building locations, display area size,
traffic surveys, local geo-demographics and financial condition. Each dealer
will be expected to provide adequate storefront and service areas. We anticipate
that a minimum of 2,000 square feet will be required and traffic exposure will
need to be at not less than 3,500 cars per day. Dealers will purchase product
and stock parts and engines via our dealer Intranet.
We also intend to enter into distribution agreements for the sale and delivery
of 4-VALVE(Registered) engine kits. These may include national catalog
distributors or major parts and subassembly suppliers. We will also have a
direct sales staff to promote and sell the 4-VALVE(Registered) engine to the
Harley Davidson customization aftermarket.
INTELLECTUAL PROPERTY RIGHTS
American Quantum Cycles believes that it has the exclusive right to use the
trademarks American Quantum Cycles, Q, Liberty, and QX, along with certain
related word and design trademarks in the United States and certain foreign
countries in connection with the manufacture and sale of motorcycles and related
parts. In addition, we believe that we have the right to use certain of these
marks on other merchandise and apparel. We believe that we have common law
trademark rights through use of these marks on our prototype motorcycles and
ancillary merchandise independent of U.S. Patent and Trademark Office "PTO"
registration process. In addition, we have filed for trademark protection for
the marks "American Quantum Cycles", the "Q", "Liberty" and "QX". In some
instances, these rights may depend upon pending applications to register the
marks in a foreign country. If we fail to get this, such registrations could
impair our rights to use a mark in a particular country.
We own no patents and we have not filed or been assigned any patent
applications. We believe, however, that a number of elements of the Liberty
series of motorcycle design have the potential to receive patents. At a future
date, we intend to file patent applications for certain of the patentable
elements. We will also actively license and/or purchase additional intellectual
property rights to improve the market competitiveness of our product line.
We are not aware of any claims of infringement against American Quantum Cycles
and we have not been involved in any court proceedings regarding our
intellectual property rights.
In August 1997, we entered into a license agreement with Feuling Advanced
Technology, Inc. As a licensee, we have a license to use certain proprietary
technologies, including patents, trade secrets, and techniques, tooling designs,
product designs, and trademarks. As part of this agreement, and in exchange for
a royalty payment of approximately $235,000, if we comply with certain other
provisions, including non-disclosure of the proprietary technology, we enjoy an
exclusive license for motorcycle applications in perpetuity for the 4-Valve
technology. This technology is being used in the manufacture of American Quantum
Cycles motorcycles.
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COMPETITION
As of December 31, 1996, Harley Davidson, Honda, Suzuki, Kawasaki, and Yamaha
had the largest market share of the U.S. heavyweight motorcycle market. Our
primary competitor in the U.S. heavyweight market is expected to be Harley
Davidson which, in 1996, had a market share of 48% of new U.S. and 7% of
European heavyweight motorcycle registrations according to Harley Davidson's
Annual Report. Harley Davidson is the only significant American heavyweight
cruiser and touring motorcycle manufacturer since 1953. Several of the major
foreign manufacturers compete against Harley Davidson in the domestic market by
selling motorcycles with a "nostalgic" American design.
Two new American made motorcycle competitors are scheduled to enter the
marketplace in 1998-1999. Polaris, a one billion-dollar manufacturer of
snowmobiles, jet skis and other recreational vehicles, has announced its
heavyweight cruiser, the Victory, for sale through some of its dealers.
Excelsior-Henderson, a publicly funded start-up, is expected to offer a
heavyweight cruiser in early 1999.
The market for new and customized motorcycles is extremely competitive. While
there are substantial barriers to entry, we believe that competition will
intensify in the future. We believe that our ability to compete successfully
depends on a number of factors:
o design and development of high performance and quality
motorcycles
o market presence;
o timely delivery of made-to-order motorcycles;
o the pricing policies of our competitors and suppliers;
o the timing and introduction of new products and services by
American Quantum Cycles and others;
o our ability to support existing and emerging industry
standards; and
o industry and general economic trends.
We cannot guarantee that American Quantum Cycles will be able to
successfully compete with others in the business of manufacturing
and marketing customized motorcycles or motorcycles in general.
GOVERNMENT REGULATIONS
Commercial sales of our motorcycles depend upon compliance with certain
government regulations and American Quantum Cycles is designing motorcycles to
comply with all such regulations. Both federal and state authorities have
various environmental control requirements relating to air, water and noise
pollution, which affect our business and operations. In particular, our
motorcycles are subject to the emissions and noise standards of the U.S.
Environmental Protection Agency and the more stringent emissions standards of
the State of California Air Resources Board "CARB". The 4-VALVE engine has
received Environmental Protection Agency certification in all 49 states (except
California). The proprietary exhaust system on the American Quantum Cycle was
designed to provide an attractive sound while complying with DOT noise
standards. In spring 1999, we intend to begin testing of our motorcycles to meet
the emission standards of the CARB for compliance with California Emissions
Standards. We cannot guarantee that our motorcycles will meet these emission
standards. Preliminary results show that the Liberty and its associated
4-VALVE(Registered) engine will pass all CARB requirements. American Quantum
Cycles motorcycles are also subject to the National Traffic and Motor Vehicle
Safety Act of the National Highway Traffic Safety Administration.
The State of Florida requires that we be licensed as a manufacturer of motor
vehicles. Each of our dealers must be licensed as a motor vehicle dealer in the
jurisdictions where the businesses are located.
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EMPLOYEES
We currently have 38 full-time employees. Of these, 6 are in management and
administration, 3 are in engineering and design, 18 are in production and
manufacturing, 6 are in procurement and inventory management, 5 are in marketing
and sales. We have a number of part and full-time consultants in the areas of
management, engineering drawing maintenance, advertising artwork and website
maintenance.
REAL PROPERTY
We currently lease approximately 17,030 square feet of warehouse and production
space and an additional 6,016 square feet of office space, for a total of
approximately 23,046 square feet which is adequately suited for the purpose of
assembling our motorcycles, at 711-731 Washburn Road, Melbourne, Florida 32934.
The current monthly rental amount is $6,189 including Florida sales tax. All
required insurance coverages are also maintained and periodically audited by our
insurance company, Davis Baldwin 4600 West Cypress Street, Suite 200 Tampa,
Florida 33607.
The lease on the property began on May 1, 1997 and continues through April 1999,
with two additional three-year options for renewal at our option. If we elect to
renew our lease after the first two years, the annual rental will be adjusted by
an additional 5% per year, with a four-year lease and an option to vacate after
two years with six months notice.
LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings in the
ordinary course of our business. We are not a party to any pending or to our
knowledge, threatened material legal proceedings.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table includes the names, positions with American Quantum Cycles
and ages of the Executive Officers and Directors of American Quantum Cycles.
Directors are elected at our annual meeting of shareholders and serve for one
year or until their successors are elected. The board elects Officers and their
terms of office are, unless governed by employment contract, at the discretion
of the Board.
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C>
Richard K. Hagen............................. 41 Chief Executive Officer, Chief Financial
Officer, President, and Chairman of the Board
and Director
Jim Cheal.................................... 53 Vice President and Director
Robert L. Guess.............................. 36 Vice President and Secretary
Michael Smith................................ 47 Vice President
Jeffrey Starke.............................. 42 Vice President and Director
Gary W. Irving............................... 55 Executive Vice President, Chief Operating
Officer and Director
Linda Condon................................. 50 Director of Finance and Treasurer
Frank Aliano................................. 38 Vice President
</TABLE>
Richard K. Hagen has served as our Chief Executive Officer, President and
Chairman of the Board and a Director since November 1, 1997 and our Chief
Financial Officer since September 22, 1998. From March 1994 to November 1997,
Mr. Hagen was the founder and principal of MARKTECH Group, Inc., an
Internet/Extranet consulting company. Between November 1990 and March 1994, Mr.
Hagen was the operating officer and general manager of Syscon Services, an
engineering services and systems integration subsidiary of Harnischfeger
Industries. Mr. Hagen is a 1981 graduate of the U.S. Naval Academy.
Jim Cheal has been employed by us since May 1997 and has served as Vice
President and Director since February 1998. From January 1995 to January 1996,
Mr. Cheal was a director and Vice President of American Motor Works, Inc., a
company, which designed and manufactured motorcycles. Mr. Cheal was a
professional photojournalist with Time-Life Publications from 1975 to 1987.
Between 1987 and 1995, Mr. Cheal operated a photography business which he
founded in 1978.
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Robert L. Guess has served as our Vice President since November 1, 1997, as our
President from May 1997 to November 1, 1997, a member of the Board of Directors
since July 1997 and Secretary since February 1999. From December 1996 to May
1997, Mr. Guess served as consultant to Messrs. Cheal and Starke each of whom
are Vice Presidents and Directors of American Quantum Cycles, in connection with
the development and implementation of the business plan of American Quantum
Cycles from whom American Quantum Cycles purchased substantially all of its
assets. From March 1996 to December 1996, Mr. Guess was the owner of Team
Enterprise Miami, Inc., a direct product marketing company. From July 1995 to
March 1996, Mr. Guess was the Southeast District Manager of marketing of Toast
of the Town, Inc. a direct product marketing company. From March 1980 through
September 1994, Mr. Guess served as an Officer in the United States Navy.
Michael Smith has served as our Vice President since February 22, 1998. From
March 1997 to February 1998, Mr. Smith was a consultant for Carl's Speed Shop in
Daytona Beach, Florida. Between March 1996 and March 1997, Mr. Smith was a
retail sales consultant with Arlen Ness Enterprises, Inc., a producer and
marketer of motorcycle accessories and apparel located in California. From
February 1995 to March 1996, Mr. Smith served as the Customer Relations Manager
for Stone Ridge Motors, an automobile dealership in San Francisco, CA. From
January 1993 to February 1995, Mr. Smith was a sales and leasing consultant with
the Ford Motor Company dealership in Dublin, California.
Jeff Starke has been a Director and Vice President of American Quantum Cycles
since February 1998. Between May 1997 and February 1998, Mr. Starke served as
Director of Engineering, Manufacturing and Design at American Quantum Cycles.
From January 1995 to January 1996, Mr. Starke was a Director and Vice President
of American Motor Works, Inc., which designed and manufactured motorcycles. From
March 1992 to January 1995, Mr. Starke was Vice President of Harley Motor Works,
Inc., which designed, built and sold Harley Davidson motorcycles and motorcycle
parts.
Gary W. Irving has served as our acting Chief Operating Officer since January 5,
1998 and became Chief Operating Officer and was appointed to the Board of
Directors on October 1, 1998. Between March 1997 and December 1997, Mr. Irving
was Vice President and General Manager for Strategic Product Management at
Litton-PRC, a $1 billion subsidiary of Litton Industries an aerospace design and
commercial electronics company where he was responsible for launching and
managing their electronic commerce group. Between May 1994 to February 1997, Mr.
Irving was Executive Vice President and Chief Operating Officer of the MARTECH
Group, Inc., an Internet/Extranet consulting company. From June 1993 to January
1994, Mr. Irving was Vice President and General Manager at Instant Video
Technologies, Inc. From December 1993 to June 1993, Mr. Irving was director for
imaging system sales at I-Net. From October 1989 to October 1992, Mr. Irving was
a Vice President at PRC. Mr. Irving has an M.S. Degree in systems engineering
and has been awarded a patent in computer systems using CD-ROM storage devices.
Mr. Irving has developed computer systems for dealer and factory floor
applications and his former clients include Chrysler, Mack Trucks, John Deere
and Boeing.
Frank Aliano has served as our Vice President of Production since May 1998. From
October 1993 until May 1998, he was Vice President of Engineering and Product
Development for Big Dog Motorcycles that he helped build as a co-founder. From
January 1992 to October 1993, he was the owner/operator of A&A Performance, in
Wichita, Kansas, which fabricated custom Harley Davidson Motorcycles. From
October 1980 to December 1991, he was the owner/ operator of Double Services,
Phoenix, Arizona which custom builds and services Harley Davidson and rebuilds
and repairs of trucks and heavy equipment. From 1975 to 1980, he was employed by
Cummins Southwest as a journeyman mechanic. From 1972 to 1975 he was employed by
R.B. Duncan trucking company as a mechanic. From 1971 to 1972, he was employed
by Hartford Harley Davidson as a mechanic, which included servicing and
rebuilding Harley Davidson Motorcycles. A native of Connecticut, he attended the
University of Hartford.
Linda Condon has served as our Director of Finance since October 1997 and
Treasurer since February 1999. Between April 1994 and July 1997, Ms. Condon
worked as an accountant for K.L. Smith and Associates, a Salt Lake City, Utah
based accounting firm. Between January 1993 and April 1994, Ms. Condon worked as
an accountant for Armstrong and Company, a Salt Lake City, Utah based accounting
firm.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act permits the indemnification of directors,
employees, officers and agents of Florida corporations. Our Articles of
Incorporation allow us to indemnify our Directors and Officers to the fullest
extent permitted by law. We may experience significant cash flow problems if we
are required to either reimburse, or advance money to, our Officers or Directors
for such purposes.
At present, there is no pending litigation or proceeding involving our
Directors, Officers, employees, or other agents. As far as indemnification for
liability arising under the Securities Act of 1933, as amended, may be permitted
to Directors, Officers, and controlling persons, we are aware that, in the
opinion of the Securities and Exchange Commission, indemnification is against
public policy as expressed in the Securities Act of 1933, as amended, and is
unenforceable.
27
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information relating to the compensation we paid
during the past two fiscal years to our President and Chief Executive Officer;
and each of our Executive Officers who earned more than $100,000 during the
fiscal year ended April 30, 1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long-Term Compensation
Awards Payouts
------ -------
Securities
Other Under-
Annual Restricted Lying All Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Year Salary Bonus sation Award(s) SARs Payouts sation
Position
-------- --- --- --- --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Hagen 1997 $-0- $-0- $-0- $-0- -0- $-0- $-0-
Chief Executive Officer
and Chairman of the Board
1998 $13,462 $-0- $78,577 $-0- -0- $-0- $-0-
---- ------- ---- ------- ---- --- ----
1999 $200,000 $-0- $-0- $423,000 -0- $-0- $-0-
---- -------- ---- ---- -------- --- ----
Gary Irving 1998 $-0- $-0- $134,539 $-0- -0- $-0- $-0-
Executive Vice President,
Director and Chief Operating
Officer
1999 $102,308 $-0- $142,014 $282,000 -0- $-0- $-0-
---- -------- ---- -------- ---------- ----
</TABLE>
Mr. Hagen was appointed Chief Financial Officer on September 22,
1998. Mr. Irving was appointed Chief Operating Officer and to the
Board of Directors on October 1, 1998.
Mr. Hagen's salary for 1999 includes $10,500 we provided to Mr. Hagen
as a relocation allowance and $68,077 we paid to Mr. Hagen under the
terms of a consulting agreement. Mr. Hagen's salary for 1999 does not
include 225,000 shares of common stock issued to Mr. Hagen in
November 1998, and options to purchase 12,500 shares of common stock
granted to Mr. Hagen in November 1998. Mr. Hagen's other annual
compensation for 1999 includes the value of 225,000 shares of stock
issued to Mr. Hagen.
Mr. Hagen's and Mr. Irving's restricted stock awards in 1999 include
compensation accrued but not paid in the amount of $75,961 for Mr.
Hagen and $53,846 for Mr. Irving.
Mr. Irving's other annual compensation for 1998 represents payments
made to Mr. Irving under the terms of a consulting agreement and the
value on the date of issue of 150,000 shares of common stock issued
to Mr. Irving.
28
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value At
Assumed Annual Rates Of Stock
Price Appreciation For Option Grant Date
Individual Grants Term Value
----------------- ---- -----
Percent of
Number Of Total
Securities Options/
Underlying SARs Granted Expiration
Options/SARs To Employees Exercise Of Date
Name Granted (#) In Fiscal Year Base Price (S/Sh)
---- ----------- -------------- ---------- ------
<S> <C>
Richard Hagen N/A
President, Chief Executive
Officer and Chairman
- --------------------
Gary Irving N/A
Executive Vice President,
Director and Chief
Operating Officer
- -----------------
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
Number of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
At Fiscal Year-End At Fiscal Year-
Shares Value (#) End ($)
Acquired On Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---- ------------ --- ------------- -------------
<S> <C>
Richard Hagen
President, Chief Executive
Officer and Chairman N/A
Gary Irving N/A
Executive Vice President,
Director and Chief
Operating Officer
</TABLE>
Mr. Hagen was appointed Chief Financial Officer on September 22, 1998. Mr.
Irving was appointed Chief Operating Officer and to the Board of Directors on
October 1, 1998.
We do not currently have any long term inventive plans.
EMPLOYMENT AGREEMENTS
Richard K. Hagen, Chief Executive Officer, President, Chief financial Officer
and Chairman of the Board and Director. Pursuant to an employment agreement
between American Quantum Cycles, Inc. and Mr. Hagen, Mr. Hagen receives an
annual base salary of $200,000. As additional compensation, we have also
issued Mr. Hagen 225,000 shares of restricted common stock, and granted Mr.
Hagen options to purchase up to 12,500 shares of common stock of American
Quantum Cycles, at $4.00 per share exercisable through February 21, 2003.
Jim Cheal, Vice President and Director. Pursuant to a verbal employment
agreement between American Quantum Cycles, Inc. and Mr. Cheal, Mr. Cheal
receives an annual base salary of $75,000. As additional compensation, Mr. Cheal
also received options to purchase 12,500 shares of common stock at $4.00 per
share exercisable through December 31, 2003.
Robert L. Guess, Vice President and Secretary. Pursuant to a verbal agreement
between Mr. Guess and AQC, Mr. Guess receives an annual base salary of $60,000.
As additional compensation, Mr. Guess also received 6,250 shares of common
stock.
Michael Smith, Vice President of sales. Pursuant to a verbal employment
agreement between American Quantum Cycles, Inc. and Mr. Smith, Mr. Smith
receives an annual base salary of $80,000 and 2,500 shares of common stock.
29
<PAGE>
Jeffrey Starke, Vice President and Director. Pursuant to a verbal employment
agreement between Mr. Starke and American Quantum Cycles, Inc. Mr. Starke
receives an annual base salary of $85,000. As additional compensation, Mr.
Starke received options to purchase up to 12,500 shares of common stock at $4.00
per exercisable through December 30, 2003.
Gary W. Irving, Chief Operating Officer and Director. Pursuant to an employment
agreement between Mr. Irving and American Quantum Cycles, Inc., in his capacity
as Chief Operating Officer, Mr. Irving receives an annual base salary of
$175,000. Mr. Irving also received 150,000 shares of common stock, and
options to purchase 12,500 shares of common stock exercisable at $4.00 per share
through December 30, 2003.
Frank Aliano, Vice President of Engineering and Production. Pursuant to a verbal
agreement between Mr. Aliano and American Quantum Cycles, Inc. Mr. Aliano
receives an annual base salary of $90,000. As additional compensation, Mr.
Aliano also received 6,250 shares of common stock, with performance options of
6,250 options each year for the subsequent three years.
Linda Condon, Director of Finance and Treasurer. Pursuant to verbal employment
agreement between Ms. Condon and American Quantum Cycles, Inc. Ms. Condon
receives an annual base salary of $50,000 and 873 shares of common stock.
1997 AMENDED STOCK OPTION PLAN
On June 15, 1997, our Board of Directors and a majority of our shareholders
adopted the American Quantum Cycles 1997 Stock Option Plan. On February 21,
1998, our Board of Directors and majority shareholders amended the plan to
increase the number of plan options from 125,000 to 750,000 shares.
The plan works to increase the stock interest of employees, consultants and
employee directors in American Quantum Cycles and to align more closely their
goals with our shareholders' interests. The plan will also help us attract and
retain the services of experienced and highly qualified employees. The Plan
allows us to issue up to 750,000 shares of common stock to the people who we
grant options. Our Board of Directors or a Committee of our Board of Directors
administers the plan. Their responsibility includes the selection of the persons
who will be granted plan options, the type of plan options to be granted the
number of shares subject to each plan option and the plan option price.
Plan options may either be options qualifying as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, or options that do not so
qualify. In addition, the plan also allows for a reload option provision. Reload
options permit an eligible person to pay the exercise price of the plan option
with shares of common stock owned by the eligible person and receive a new plan
option to purchase shares equal to the tendered shares. Any incentive option
granted under the plan must provide for an exercise price of at least 100% of
the fair market value of the underlying shares on the date of such grant. The
exercise price of any incentive option granted to an eligible employee owning
more than 10% of our common stock must be at least 110% of such fair market
value on the date of the grant. Our Board of Directors or committee determines
the term of each plan option and the way in which it may be exercised. No plan
option may be exercisable more than 10 years after the date of its grant. In the
case of an incentive option granted to an eligible employee owning more than 10%
of our common stock, no plan option may be exercised more than five years after
the date of the grant. The exercise price of non-qualified options will be
determined by our board of directors or the committee.
All of our officers, directors, key employees and consultants will be eligible
to receive non-qualified options under the plan. Only Officers, Directors and
employees of American Quantum Cycles are eligible to receive incentive options.
All plan options are nonassignable and nontransferable, except by will or by the
laws of descent and distribution. If we terminate an employee's employment for
any reason (other than his death or disability or termination for cause), or if
an optionee is not an employee of American Quantum Cycles but is a member of our
Board of Directors and his service as a Director is terminated for any reason
(other than death or disability), the plan option will lapse on the earlier of
the expiration date or 30 days following the date of termination. If the
optionee dies during the term of his employment, the plan option will lapse on
the earlier of the expiration date of the plan option or the date one year
following the date of the optionee's death. If the optionee is permanently and
totally disabled within the meaning of Section 22(e)(3) of the Internal Revenue
Code of 1986, the plan option will lapse on the earlier of the expiration date
of the option or one year following the date of such disability.
The plan will terminate 10 years from the date of the plan's adoption. Any such
termination of the plan will not affect the validity of any plan options
previously granted.
As of August 16, 1999, we granted an aggregate of 50,000 incentive options all
of which have vested and an aggregate of 645,000 non-qualified options of which
268,750 are unexercised. We also granted 287,500 outside of the plan which are
unexercised .
30
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table describes certain information regarding certain individuals
who beneficially owned our common stock on August 16, 1999. In general, a person
is considered a "beneficial owner" of a security if that person has or shares
the power to vote or direct the voting of such security, or the power to dispose
of such security. A person is also considered to be a beneficial owner of any
securities of which the person has the right to acquire beneficial ownership
within (60) days.
The individuals included in the following table are:
o people who we know beneficially own or exercise voting or
control over 5% or more of our common stock,
o by each of our directors, and
o by all executive officers and directors as a group.
At August 16, 1999, we had 2,842,798 shares of common stock
outstanding. The information in the table gives effect to a one for four
revise stock split effective on June 3, 1999.
<TABLE>
<CAPTION>
Percent of Beneficial Ownership
No. of Shares
Name and Address or of Common Stock Before After
Identity of Group Beneficially Owned Offering Offering
-------------------- ------------------- -------- --------
<S> <C> <C> <C>
Richard Hagen, Director, Chairman, President,
CFO and CEO 237,500 8.4% 4.5%
Jim Cheal, Vice President and Director 12,500 *
*
Robert Guess, Vice President and Secretary 6,250 * *
Michael Smith, Vice President 2,500 * *
Jeffrey Starke, Vice President and Director 12,500 * *
Gary Irving, Executive Vice President, COO and Director(5) 162,500 5.7% 3.1%
Frank Aliano, Vice President 6,250 * *
Doreen Cheal 151,299 5.3% 2.9%
Linda Condon, Director of Finance
and Treasurer 1,073 * *
Susquehanna Holdings Corp 158,500 5.6% 3.0%
Mathers Associates 130,000 4.6% 2.5%
Denise O'Brien 163,799 5.8% 3.1%
All Executive Officers and Directors 441,073 15.5% 8.4%
as a group (8 persons)
</TABLE>
* Denotes less than 1% beneficial ownership.
- --------------------------------------------
Unless otherwise indicated, the address of each of the persons listed in the
table is 711-731 Washburn Road, Melbourne, FL 32934.
The shares of our common stock beneficially owned by Mr. Hagen include 12,500
shares of common stock issuable upon the exercise of options exercisable at
$4.00 until December 20, 2003.
The shares of our common stock beneficially owned by Mr. Cheal include 151,299
shares of common stock owned by Doreen Cheal, Mr. Jim Cheal's wife and (ii)
12,500 shares of common stock issuable upon the exercise of options exercisable
at $4.00 per share until December 30, 2003.
The shares of our common stock beneficially owned by Mr. Starke include 12,500
shares of common stock issuable upon the exercise of options exercisable at
$4.00 per share until December 20, 2003. Jeff Starke is the brother of Denise
O'Brien.
The shares of our common stock beneficially owned by Mr. Irving include 12,500
shares issuable upon the exercise of options exercisable at $4.00 per share
until December 20, 2003.
31
<PAGE>
The Address for Susquehanna Holdings Corp. is 230 Mathers Road, Ambler, PA
19002. Mr. Norbert Zeelander is the sole shareholder of Susquehanna Holdings
Corp. As such, Mr. Zeelander is deemed to beneficially own the 158,500 shares
held in the name of Susquehanna Holdings Corp. The shares of our common stock
beneficially owned by Susquehanna Holding Corp. does not include 9,500 shares of
common stock owned by Mr. Zeelander individually or 130,000 shares of common
stock owned by Mathers Associates, a limited partnership in which Mr. Zeelander
is a general partner.
The address for Mathers Associates is 230 Mathers Road, Ambler, PA 19002. Mr.
Norbert Zeelander is the general partner of Mathers Associates. As such, Mr.
Zeelander is deemed to beneficially own the 130,000 shares held in the name of
Mathers Associates. The shares of our common stock beneficially owned by Mathers
associates do not include 9,500 shares of common stock owned by Mr. Zeelander
individually or 158,500 shares of common stock owned by Susquehanna Holdings
Corp., a corporation in which Mr. Zeelander is sole shareholder.
Denise O'Brien is the sister of Jeffrey Starke. Mrs. O'Brien resigned as a
director on April 30, 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 9, 1997, pursuant to the terms of a purchase agreement the American
Quantum Cycles issued 301,786 shares of common stock to Doreen Cheal and 301,786
shares of common stock to Denise O'Brien in exchange for a prototype motorcycle
and certain equipment required to manufacture and market the prototype
motorcycle. The shares of common stock issued to Ms. Cheal and Ms. O'Brien were
valued at $116,608. The prototype motorcycle and related equipment was valued at
$92,270. On April 9, 1998, Ms. Cheal and Ms. O'Brien returned an aggregate of
125,974 shares of common stock to us after assets transferred by Ms. Cheal and
Ms. O'Brien received a valuation lower than originally anticipated.
On June 5, 1998, Robert Guess, Doug Paik, Jeff Starke and Jim Cheal returned an
aggregate of 175,000 shares of common stock to us for the purpose of improving
the capitalization of American Quantum Cycles.
In November 1998, Mr. Richard Hagen, Chairman, CEO, President, CFO and Director
of American Quantum Cycles, and Mr. Gary Irving, Executive Vice President, COO
and Director of American Quantum Cycles, were issued 225,000 and 150,000 shares
of American Quantum Cycles common stock, respectively. Mr. Hagen and Mr. Irving
voluntarily deferred salary to assist American Quantum during our development
stage. As partial compensation for their services and for the progress of
American Quantum over the prior 12 months, the Board of Directors authorized the
issuance of these shares to Mr. Hagen and Mr. Irving
CONCURRENT OFFERING
Concurrent with this offering, we are registering pursuant to an alternate
prospectus, for the account of the selling security holders, an additional
991,949 shares of common stock including 62,500 shares of common stock issuable
upon the exercise of options. These securities are not being underwritten in
this offering and we will not receive any proceeds from the sale of such shares.
We will pay the expenses of the concurrent offering, other than fees and
expenses of counsel to the selling security holders and the selling commissions.
The resale of the securities of the selling security holders is subject to
prospectus delivery and other sales at any time may have an adverse effect on
the market prices of the securities or the potential of such sales at any time
may have an adverse effect on the market prices of the securities offered
hereby.
DESCRIPTION OF SECURITIES
We are authorized to issue 12,500,000 shares of common stock, par value $.001
per Share, and 2,500,000 shares of preferred stock, $.001 per share. As of
August 16, 1999 there were 2,842,798 shares of common stock outstanding and no
shares of preferred stock issued or outstanding. Adjusted to give effect for a
one for four reverse stock split effective on June 3, 1999.
COMMON STOCK
The holders of our common stock are entitled to dividends, if any are declared,
and are entitled to a pro rata portion of our assets if we liquidate or dissolve
our business, if our assets are not first distributed to our creditors or
preferred stock holders.
Each share of common stock entitles the holders thereof, to one vote. Holders of
common stock do not have cumulative voting rights which means that the holders
of more than 50% of shares voting for the election of Directors can elect all of
the Directors if they choose to do so, and in such event, the holders of the
remaining shares will not be able to elect any Directors. Our bylaws require
that only a majority of the issued and outstanding shares of our common stock is
required to transact business at a shareholders' meeting. The common stock has
no preemptive, subscription or conversion rights nor may we redeem it.
32
<PAGE>
PREFERRED STOCK
The preferred stock may be issued in one or more series, the terms of which may
be determined at the time of issuance by our Board of Directors, without further
action by shareholders, and may include voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and
liquidation, conversion rights, redemption rights, and sinking fund provisions.
The issuance of any such preferred stock could adversely affect the rights of
the holders of our common stock and, therefore, reduce the value of the common
stock. The ability of the Board of Directors to issue preferred stock could
discourage, delay, or prevent a takeover of American Quantum Cycles, Inc.
CERTAIN FLORIDA LEGISLATION
Florida law and American Quantum Cycles Articles and Bylaws also authorize us to
indemnify our Directors, Officers, employees and agents. In addition, Florida
law presently limits the personal liability of corporate Directors for monetary
damages, except where the directors (i) breach their fiduciary duties and (ii)
such breach constitutes or includes certain violations of criminal law, a
transaction from which the Directors derived an improper personal benefit,
certain unlawful distributions or certain other reckless, wanton or willful acts
or misconduct.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION AND
BYLAWS
Certain provisions of the articles and bylaws of American Quantum Cycles, and
our ability to issue preferred stock, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt,
including attempts that might result in a premium being paid over the market
price for the shares held by shareholders.Our board of directors is authorized
to create and issue shares of preferred stock without the approval of our
shareholders. Any preferred stock that our board of directors creates and issues
could negatively affect the voting power or other rights of the holders of our
common stock. Also, our board of directors may create preferred stock, which
could be used to prevent a third party from taking control of our company. The
provisions in our Articles or Bylaws may not be amended without the affirmative
vote of the holders of a majority of the outstanding shares of our common stock.
The Articles and Bylaws provide that special meetings of shareholders of
American Quantum Cycles may be called only by our Board of Directors, or holders
of not less than 10% of our outstanding voting stock entitled to vote at the
Special Meeting.
Despite the belief of American Quantum Cycles as to the benefits to shareholders
of these provisions of our Articles of Incorporation, these provisions may also
have the effect of discouraging a future takeover attempt which would not be
approved by our Board, but pursuant to which the shareholders may receive a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of American Quantum Cycles Board of Directors and management more difficult and
may tend to stabilize our stock price, thus limiting gains which might otherwise
be reflected in price increases due to a potential merger or acquisition. The
Board of Directors, however, has concluded that the potential benefits of these
provisions outweigh the possible disadvantages. Pursuant to applicable
regulations, at any annual or special meeting of its shareholders, American
Quantum Cycles may adopt additional Articles of Incorporation provisions
regarding the acquisition of its equity securities that would be permitted to a
Florida corporation.
TRANSFER AGENT
Our transfer agent for our common stock is Continental Stock Transfer & Trust
Company, 2 Broadway, New York, New York 10004.
33
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after the completion of this offering, American Quantum Cycles will
have 5,272,798 shares of common stock outstanding, not including up to 556,250
shares of common stock that may be issued upon the exercise of options. Of the
outstanding shares
o 699,794 are freely tradable without restriction under the Securities Act of
1933 as amended
o 929,449 shares of common stock being registered in the alternate prospectus
will be freely tradable without restriction the Act ;
o 772,482 shares are "Restricted Securities" but will be eligible for resale
pursuant to Rule 144 between October 1999 and January 2000; and
o 441,073 shares held by Officers and Directors of American Quantum Cycles, all
of which will be eligible for sale under Rule 144 beginning November 1999.
Under Rule 144, a person or persons whose shares are aggregated who has
beneficially owned restricted securities for at least one year, including the
holding period of any prior owner except an affiliate, would be generally
entitled to sell within any three month period a number of shares that does not
exceed the greater of 1% of the number of then outstanding shares of the common
stock or the average weekly trading volume of the common stock in the public
market during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about American Quantum Cycles.
Any person who is not deemed to have been an affiliate of American Quantum
Cycles at any time during the three months preceding a sale, and who has
beneficially owned shares for at least two years, including any period of
ownership of preceding nonaffiliated holders, would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations,
manner-of-sale provisions, public information requirements or notice
requirements.
The availability for sale of substantial amounts of common stock subsequent to
this offering could adversely affect the prevailing market price of the common
stock and could impair our ability to raise additional capital through the sale
of its equity securities. Prospective investors should be aware that the
possibility of such sales may, in the future, have a depressive effect on the
price of our common stock in any market which may develop and, therefore, the
ability of any investor to market his shares may be dependent directly upon the
number of shares that are offered and sold. Affiliates of American Quantum
Cycles may sell their shares during a favorable movement in the market price of
our common stock ,which may have a depressive effect on its price per share.
UNDERWRITING
As described in the underwriting agreement, the underwriter agreed to purchase
from American Quantum Cycles an aggregate of 2,430,000 shares of common stock.
The securities are offered by the underwriter subject to prior sale, when, as
and if delivered to and accepted by the underwriter and subject to approval of
certain legal matters by counsel and certain other conditions. The underwriter
is committed to purchase all securities offered by this prospectus, if any are
purchased other than those covered by the over-allotment option described below.
The purchase price for the shares of common stock we are offering to you was
determined by American Quantum Cycles and the underwriter for this offering. We
calculated the purchase price for the shares based on our current financial
condition and the general condition of the securities market; however, we cannot
assure you that the purchase price we established accurately reflects the value
of our assets or potential earnings.
American Quantum Cycles has been advised by the underwriter that the underwriter
proposes to offer the securities to the public at the offering price listed
on the cover page of this prospectus. The underwriter has advised us that the
underwriter proposes to offer the securities through members of the National
Association of Securities Dealers, Inc., and may allow concessions, in its
discretion, to certain selected dealers who are members of the NASD and who
agree to sell the securities in conformity with the NASD's conduct rules. These
concessions will not exceed the amount of the underwriting discount that the
underwriter is to receive.
American Quantum Cycles has granted to the underwriter an over-allotment option,
exercisable for 45 days from the effective date, to purchase up to an additional
364,500 shares at the public offering price less the underwriting discount
listed on the cover page of this prospectus. The underwriter may exercise this
option only to cover over-allotments in the sale of the shares of common stock
being offered by this prospectus.
Officers and Directors of American Quantum Cycles may introduce the underwriter
to persons to consider this offering and to purchase shares of common stock
either through the underwriter or through participating dealers. In this
connection, no securities have been reserved for those purchases and Officers
and Directors will not receive any commissions or any other compensation.
34
<PAGE>
American Quantum Cycles has agreed to pay to the underwriter a commission of ten
percent (10%) of the gross proceeds of this offering, including the gross
proceeds from the sale of the over-allotment option, if exercised. In addition,
American Quantum Cycles has agreed to pay to the underwriter a non-accountable
expense allowance of three percent (3%) of the gross proceeds of this offering,
including proceeds from any securities purchased pursuant to the over-allotment
option. The underwriter's expenses in excess of the non-accountable expense
allowance will be paid by the underwriter. To the extent that the expenses of
the underwriter are less than the amount of the non-accountable expense
allowance received, such excess shall be deemed to be additional compensation to
the underwriter. The underwriter has informed us that it does not expect sales
to discretionary accounts to exceed five percent (5%) of the total number of
securities offered by American Quantum Cycles hereby.
American Quantum Cycles has agreed to engage the underwriter as a financial
advisor at a fee of $108,000, which is payable to the underwriter on the closing
date of this Offering. Pursuant to the terms of a financial advisory agreement,
the underwriter has agreed to provide, at our request, advice to American
Quantum Cycles concerning potential merger and acquisition and financing
proposals, whether by public financing or otherwise. American Quantum Cycles has
also agreed that if American Quantum Cycles participates in any transaction
which the underwriter has introduced to American Quantum Cycles during a period
of five years after the closing of this offering including mergers,
acquisitions, joint ventures and any other business transaction introduced by
the underwriter, and which is completed after the closing, or if we retain the
services of the underwriter in connection with any transaction, then we will pay
for the underwriter's services an amount equal to 5% of up to one million
dollars of value paid or received in the transaction, 4% of the next million of
value, 3% of the next million of value, 2% of the next million of value, and 1%
of the next million dollars of value and of all value above $4,000,000.
At the closing of this Offering , American Quantum Cycles will issue to the
underwriter and/or persons related to the underwriter, for nominal
consideration, common stock underwriter warrants to purchase up to 243,000
shares of common stock. The underwriter warrants will be exercisable for a
five-year period commencing on the effective date. The initial exercise price of
each underwriter warrant shall be $______ per underlying share (165% of the
public offering price) although the underwriter warrants will be restricted from
sale, transfer, assignment or hypothecation for a period of twelve months from
the effective date of the restriction statement by the holder, the restrictions
will not apply to officers of the underwriter and members of the selling group,
by will or operation of law.
The underwriter warrants contain provisions providing for appropriate adjustment
in the event of any merger, consolidation, recapitalization, reclassification,
stock dividend, stock split or similar transaction. The underwriter warrants
contain net issuance provisions permitting the holders thereof to elect to
exercise the underwriter warrants in whole or in part and instruct American
Quantum Cycles to withhold from the securities issuable upon exercise, a number
of securities, valued at the current fair market value on the date of exercise,
to pay the exercise price. The net exercise provision has the effect of
requiring American Quantum Cycles to issue shares of common stock without a
corresponding increase in capital. A net exercise of the underwriter warrants
will have the same dilutive effect on the interests of American Quantum Cycles
shareholders as will a cash exercise. The holders of the underwriter warrants
are not entitled to any rights as a shareholder of American Quantum Cycles until
the underwriter warrants are exercised and shares of common stock are purchased.
The underwriter warrants and the common stock issuable upon exercise of the
underwriter warrants may not be offered for sale except in compliance with the
applicable provisions of the Securities Act of 1933, as amended. American
Quantum Cycles has agreed that if it files a post-effective amendment, a new
registration statement, or similar offering document with the Securities and
Exchange Commission, the holders of the underwriter warrants will have the
right, for seven (7) years from the effective date, to include in the
registration statement the underwriter warrants and/or the common stock issuable
upon their exercise at no expense to the holders. Additionally, American Quantum
Cycles has agreed that, upon request by the holders of 50% or more of the
underwriter warrants during the period commencing one year from the effective
date and expiring four years after effectiveness, American Quantum Cycles will,
under certain circumstances, register the underwriter warrants and/or any of the
securities issuable upon their exercise.
In order to facilitate the offering of the common stock, the underwriter may
engage in transactions that stabilize, maintain or otherwise affect the price of
the shares of our common stock. Specifically, the underwriter may sell or allot,
more shares than the ______ shares American Quantum Cycles has agreed to sell to
the underwriter. This over-allotment would create a short position in the shares
for the account of the underwriter. To cover any over-allotments or to stabilize
the price of the shares, the underwriter may bid for, and purchase, shares in
the open market. Finally, the underwriter may reclaim selling concessions
allowed to dealers for distributing the shares in the offering, if the
underwriter repurchases previously distributed shares in transactions to cover
short positions, in stabilization transactions or
35
<PAGE>
otherwise. The underwriter has reserved the right to reclaim selling concessions
in order to encourage dealers to distribute the shares for investment, rather
than for short-term profit taking. Increasing the proportion of the offering
held for investment may reduce the supply of shares available for short-term
trading. Any of these activities may stabilize or maintain the market price of
the shares above independent market levels. The underwriter is not required to
engage in these activities, and may end any of these activities at any time.
American Quantum Cycles has agreed to indemnify the underwriter against any
costs or liabilities incurred by the underwriter by reason of misstatements or
omissions to state material facts in connection with the statements made in the
registration statement filed by American Quantum Cycles and this prospectus. The
underwriter has in turn agreed to indemnify American Quantum Cycles against any
costs or liabilities by reason of misstatements or omissions to state material
facts in connection with the statements made in the registration statement and
this prospectus, based on information relating to the underwriter and furnished
in writing by the underwriter. Although these provisions may appear to provide
indemnification from possible liabilities arising under the federal securities
laws, in the opinion of the Securities and Exchange Commission, indemnification
is contrary to public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements described
above and does not purport to be complete. Reference is made to copies of each
such agreement, which are filed as exhibits to the registration statement.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be passed
upon for American Quantum Cycles by Atlas, Pearlman, Trop & Borkson, P.A., Fort
Lauderdale, Florida. Certain members of the firm of Atlas, Pearlman, Trop &
Borkson own 3,750 shares of common stock. Certain matters will be passed upon
for the underwriter by David A. Carter, P.A., Boca Raton, Florida.
EXPERTS
The financial statements of American Quantum Cycles appearing in this prospectus
have been audited by Pricher and Company, independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
American Quantum Cycles intends to furnish to its shareholders annual reports,
which will include financial statements audited by independent accountants, and
other periodic reports as it may determine to furnish or as may be required
by law, including sections 13(a) and 15(d) of the Securities Exchange Act of
1934, as amended.
American Quantum Cycles has filed with the Securities and Exchange Commission
450 Fifth Street, N.W., Washington, D.C. 20549, a registration statement on Form
SB-2 under the Securities Act with respect to the securities offered hereby.
This prospectus does not contain all the information set forth in the
registration statement and the exhibits to the registration statement, as
permitted by the rules and regulations of the Securities and Exchange
Commission. For further information, reference is made to the registration
statement and to the exhibits. Statements contained in this prospectus as to the
contents of any contract or other document which has been filed as an exhibit to
the registration statement are qualified in their entirety by reference to such
exhibits for a complete statement of their terms and conditions. The
registration statement and the exhibits may be inspected without charge at the
offices of the Securities and Exchange Commission and copies of all or any part
thereof may be obtained from the Securities and Exchange Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549 or at certain of the
regional offices of the Securities and Exchange Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, upon payment of the fees prescribed by the
Securities and Exchange Commission. Electronic reports and other information
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Securities and Exchange Commission's website
(http://www.sec.gov.).
36
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
FINANCIAL STATEMENTS
APRIL 30, 1999
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Certified Public Accountant............................................................................... F-2
Balance Sheets as of April 30, 1999 and 1998........................................................................ F-3
Statements of Operations for the Years Ended April 30 1999, 1998 and 1997 .......................................... F-4
Statements of Cash Flows for the Years Ended April 30, 1999 1998 and 1997 .......................................... F-5
Statements of Shareholders' Deficit for the Years Ended April 30, 1999 1998 and 1997................................ F-6
Notes to Financial Statements........................................................................................ F-7-F-17
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders American Quantum Cycles, Inc.
We have audited the accompanying balance sheet of American Quantum Cycles, Inc.
as of April 30, 1999 and 1998, and the related statements of operations,
stockholders' deficit, and cash flows for each of the years in the three year
period ended April 30, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Quantum Cycles, Inc.
as of April 30, 1999 and 1998 and the results of its operations and its cash
flows for each of the years in the three year period ended April 30, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about the
entity's ability to continue as a going concern. Management's plans regarding
those matters are also described in Note 8. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Pricher and Company
Orlando, Florida
June 24, 1999
F-2
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
BALANCE SHEET
April 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,397 $ 48,768
Accounts receivable 94,439 35,602
Other current assets 35,734 39,308
Inventories 791,084 763,158
----------- -----------
Total current assets 936,654 886,836
----------- -----------
Property and equipment 1,666,661 649,499
Less accumulated depreciation 331,630 62,486
----------- -----------
1,335,031 587,013
----------- -----------
Other assets:
Deposits 45,555 40,700
Licenses and intellectual rights, less accumulated
amortization of $36,714 and $12,565 325,518 349,667
----------- -----------
371,073 390,367
----------- -----------
$ 2,642,758 $ 1,864,216
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,149,882 $ 370,658
Accrued liabilities 921,835 317,103
Current maturities of long-term debt 15,558 20,183
Current capital lease obligations 147,560 24,006
Lines of credit 1,093,893
Notes payable 2,188,753 2,317,500
----------- -----------
Total current liabilities 5,517,481 3,049,450
----------- -----------
Capital lease obligations, less current maturities 81,341 75,598
Long-term debt, less current maturities 1,386,418 42,378
----------- -----------
1,467,759 117,976
----------- -----------
Stockholders' deficit:
Common stock, par value $.001 per share; authorized
50,000,000 shares, issued and outstanding
2,300,586 and 617,761 shares 2,301 618
Preferred stock, par value $.001 per share; authorized
2,500,000 shares, no shares issued
Additional paid-in capital 5,076,353 1,330,517
Deficit (9,421,136) (2,634,345)
----------- -----------
Total stockholders' deficit (4,342,482) (1,303,210)
----------- -----------
$ 2,642,758 $ 1,864,216
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
STATEMENT OF OPERATIONS
Years Ended April 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 975,780 $ 192,856 $
----------- ----------- -----------
Cost and expenses:
Cost of goods sold 1,539,728 173,424
General and administrative 5,144,615 2,453,062 1,542
----------- ----------- -----------
6,684,343 2,626,486 1,542
----------- ----------- -----------
Loss from operations (5,708,563) (2,433,630) (1,542)
----------- ----------- -----------
Other income (expense):
Loss on disposition of property and
equipment (13,956)
Interest and other income 1,724 3,107
Interest expense (1,079,952) (187,232) (1,092)
----------- ----------- -----------
(1,078,228) (198,081) (1,092)
----------- ----------- -----------
Net loss $(6,786,791) $(2,631,711) $ (2,634)
=========== =========== ===========
Loss per common share:
Weighted average shares outstanding 1,212,503 501,961 147,929
=========== =========== ===========
Net loss $ (5.597) $ (5.243) $ (0.018)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
STATEMENT OF CASH FLOWS
Years Ended April 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net cash used in
operating activities:
Net loss $(6,786,791) $(2,631,711) $ (2,634)
Items not requiring (providing) cash:
Loss on disposition of equipment 13,956
Depreciation and amortization 293,293 75,051 1,092
Issuance of common stock for compensation,
services and interest 3,069,270 304,409 275
Changes in assets and liabilities:
Receivables (62,471) (35,602) 500
Inventories (27,926) (763,158)
Prepaid expenses 7,208 (35,143)
Other assets (4,855) (40,700)
Accounts payable 779,224 370,658
Accrued liabilities 604,731 316,336 767
----------- ----------- -----------
Net cash used in operating activities (2,128,317) (2,425,904)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (1,017,162) (615,950)
Investment in licenses and intellectual rights (362,232)
----------- ----------- -----------
Net cash used in investing activities (1,017,162) (978,182)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 2,488,519 2,317,500 244,985
Repayment of notes payable (54,661) (221,770)
Long-term borrowing 175,159
Repayment of long-term debt (12,994)
Proceeds from issuance of common stock 678,250 949,974
----------- ----------- -----------
Net cash provided by financing activities 3,112,108 3,207,869 244,985
----------- ----------- -----------
Net increase (decrease) in cash (33,371) (196,217) 244,985
Cash, beginning of year 48,768 244,985
----------- ----------- -----------
Cash, end of year $ 15,397 $ 48,768 $ 244,985
=========== =========== ===========
Supplemental cash flow information:
Amounts paid for:
Interest $ 257,551 $ 5,332 $
=========== =========== ===========
Income taxes $ $ $
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
Years Ended April 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock
-----------------------
Additional Total
Number of Par Paid-In Stockholders'
Shares Value Capital Deficit Deficit
---------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1996 125 $ 125 $ 375 $ $ 500
1,000 for 1 stock split 124,875
Stock issued for consulting services 68,750 69 206 275
Stock issued to bridge loan participants 31,250 31 28,441 28,472
Net loss for the year ended April 30, 1997 (2,634) (2,634)
---------- -------- ----------- ------------ ------------
Balance, April 30, 1997 225,000 225 29,022 (2,634) 26,613
Stock issued in exchange for equipment
and services 315,269 315 94,694 95,009
Private placement of common stock for cash 61,436 61 949,913 949,974
Employee stock bonuses recorded as
compensation expense 12,825 13 205,188 205,201
Stock issued to a dealership for
promotional expense 2,500 3 39,997 40,000
Stock issued to lenders for interest on bridge
loans 731 1 11,703 11,704
Net loss for the year ended April 30, 1998 (2,631,711) (2,631,711)
- ----------------------------------------------------------- -------- ----------- ------------ ------------
Balance, April 30, 1998 617,761 618 1,330,517 (2,634,345) (1,303,210)
Private placement of common stock for cash 62,500 63 254,937 255,000
Stock issued upon exercise of stock options 399,375 400 422,850 423,250
Employee stock bonuses recorded as
compensation expense 375,350 375 706,285 706,660
Stock issued in exchange for consulting
and other services 237,350 237 913,523 913,760
Stock issued to lenders for interest on bridge
loans and lines of credit 608,250 608 1,448,241 1,448,849
Net loss for the year ended April 30, 1999 (6,786,791) (6,786,791)
- ----------------------------------------------------------- -------- ----------- ------------ ------------
Balance, April 30, 1999 2,300,586 $ 2,301 $ 5,076,353 $ (9,421,136) $ (4,342,482)
========== ======== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business and organization - American Quantum Cycles, Inc., a
Florida corporation, ("The Company") designs, produces, markets, distributes and
sells American-made, high performance V-twin engine cruiser and touring style
motorcycles. These motorcycle products include stock models and motorcycles
built to customer specified configurations. The Company was originally
incorporated on March 20, 1986 as "Norbern, Inc." and was inactive until March
1997 when it began developing and implementing its business and financing plans.
On May 8, 1997 the Company changed its name to American Quantum Cycles, Inc. and
its fiscal year end to April 30. The accompanying financial statements for years
prior to 1998 are presented on an April 30 fiscal year end which does not
require restatement since the Company had no operations prior to March 1997.
Basis of presentation - For years prior to the fiscal year ended April
30, 1999 the Company was considered to be in the development stage. During the
current year the Company commenced planned operations, however, substantial
efforts are still being made to raise capital, enter into dealership agreements
and implement its business plan.
Cash and cash equivalents - For purposes of the statement of cash
flows, the Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Inventories - Inventories are carried at the lower of cost or market,
with cost principally determined under the average cost method.
Property and equipment - Property and equipment are carried at cost.
Depreciation is recorded principally on the straight-line method at rates based
on the estimated useful lives of the assets that range from three to seven
years. The book value of obsolete assets is charged to depreciation expense when
they are scrapped. Profits or losses from the sale of assets are included in
other income. Repairs and maintenance are charged to expense as incurred.
Intangible Assets - Intangible assets consist of licenses and
intellectual rights and are amortized on the straight-line method over fifteen
years.
Income taxes - Deferred taxes are recognized for temporary differences
between the basis of assets and liabilities for financial statements and income
tax purposes. The differences relate primarily to depreciable assets (using
accelerated depreciation methods for income tax purposes), the allowance for
doubtful accounts (deductible for financial statement purposes but not for
income tax purposes), stock-based compensation, and net operating loss
carryforwards.
Concentration of credit risk - The Company occasionally maintains
deposits in excess of federally insured limits. Statement of Financial
Accounting Standards No. 105 identifies these items as a concentration of credit
risk requiring disclosure, regardless of the degree of risk. The risk is managed
by maintaining all deposits in high quality financial institutions.
F-7
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
Sales returns and warranty allowances - The Company establishes an
allowance for product warranties and sales returns based on experience with
customers' claims arising from the sale of defective merchandise and a study of
the experiences of other companies engaged in the sale of similar products.
Changes in the allowance are charged to selling expense.
2 INVENTORIES
Inventories at April 30, 1999 and 1998 are comprised as follows:
<TABLE>
<CAPTION>
Description 1999 1998
--------------------------------------------------------------- -------------- --------------------
<S> <C> <C>
Finished goods $ 27.573 $ 13,787
Work in process 24,032 66,796
Purchased raw materials 739,479 682,575
============== =================
Total inventory $ 791,084 $ 763,158
============== =================
</TABLE>
3 PROPERTY AND EQUIPMENT
Property and equipment includes the following:
<TABLE>
<CAPTION>
Description 1999 1998
--------------------------------------------------------------- -------------- -----------------
<S> <C> <C>
Leasehold improvements $ 559,742 $ 52,750
Manufacturing tools and equipment 251,159 142,805
Office furniture, equipment and software 696,055 308,025
Vehicles 159,705 145,919
=============== ===============
Total $ 1,666,661 $ 649,499
=============== ===============
</TABLE>
Depreciation expense for the years ended April 30, 1999 and 1998
amounted to $269,144 and $62,486, respectively. As of April 30, 1997, the
Company had not yet acquired any property and equipment, accordingly, there was
no depreciation expense for years prior to 1998.
F-8
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
4 LICENSES AND INTELLECTUAL PROPERTY
Licenses and intellectual property are comprised of the following:
Proprietary technology license $ 235,000
Intellectual property rights 127,232
-------
362,232
Less accumulated amortization (36,714)
$ 325,518
In August 1997, the Company entered into a license agreement (the
"Agreement") with Feuling Advanced Technologies, Inc. whereby the Company
obtained a license to use certain proprietary technologies including, among
other things, patents, trade secrets, techniques, tooling designs, product
designs, and trademarks. Pursuant to the terms of the Agreement, as long as the
Company complies with certain other provisions including non-disclosure of the
proprietary technology, the Company has an exclusive license, for motorcycle
applications, in perpetuity for the 4-Valve technology. This technology is used
in connection with the Company motorcycles and bolt-on kits for the Harley
Davidson motorcycles which feature the evolution engine, evolution big twin,
other Harley Davidson clones and aftermarket parts.
5 NOTES PAYABLE AND LINES OF CREDIT
Notes payable at April 30, 1999 consist of:
10% Subordinated Notes - The Company issued nine unsecured promissory
notes dated March 30, 1998 to individuals providing bridge loan financing. The
aggregate principal balance of the notes at April 30, 1999 is $700,000 with
interest payable at 10% at maturity (originally September 30, 1998). The terms
of the loan agreements provide for the Company to issue a total of 35,500 shares
of common stock to the note holders at maturity in order to obtain a favorable
interest rate and repayment terms. Additional interest expense (equal to the
fair value of the common stock to be issued minus the conversion price) is being
recognized over the term of the loans. The note holders of $320,000 of the
outstanding notes subsequently agreed to convert the notes and accrued interest
thereon into common stock at a conversion price equal to the offering price of
shares of the Company's common stock in a proposed public offering as discussed
in Note 8 ("the proposed stock offering"). The note holders will also receive
two common stock warrants for each share of common stock to be received upon
conversion. Note holders representing the remaining $380,000 of the outstanding
notes have agreed to extend the maturity date of their notes until the
completion of the proposed stock offering.
F-9
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
5 NOTES PAYABLE AND LINES OF CREDIT (Continued)
Convertible Debentures - The Company has issued two separate series of
unsecured convertible notes to investors:
Beginning in October 1997, the Company issued forty 8% Subordinated
Notes, for an aggregate of $1,524,500. The notes were scheduled to mature one
year from date of issue and were convertible at $8.00 per share. Interest was
also convertible at the same rate as the principal, at the discretion of the
note holder. As of April 30, 1999 the outstanding principal balance of these
notes is $1,327,000. The note holders of $706,500 of the outstanding notes
subsequently agreed to convert the notes and accrued interest thereon into
common stock at a conversion price equal to the offering price of shares of the
Company's common stock in the proposed stock offering and will also receive one
common stock warrant for each share of common stock to be received upon
conversion. Note holders representing $297,500 of the outstanding notes have
agreed to extend the maturity date of their notes until the completion of the
proposed stock offering. The remaining note holders representing $323,000 of the
outstanding notes have not agreed to convert or extend the maturity date of
their notes and the notes are, therefore, in default.
Beginning in April 1998, the Company issued twenty-seven 7%
Subordinated Notes, for an aggregate of $549,500. The notes were scheduled to
mature one year from the date of issue and were convertible at $8.00 per share.
Interest is payable in cash or convertible at the same rate as the principal, at
the discretion of the Company. A warrant is attached at 10% above the final
price of a proposed stock offering. As of April 30, 1999 the outstanding
principal balance of these notes is $517,000. The note holders of $337,000 of
the outstanding notes subsequently agreed to convert the notes and accrued
interest thereon into common stock at a conversion price equal to the offering
price of shares of the Company's common stock in the proposed stock offering and
will also receive one common stock warrant for each share of common stock to be
received upon conversion. Note holders representing the remaining $180,000 of
the outstanding notes have agreed to extend the maturity date of their notes
until the completion of the proposed stock offering.
Senior Promissory Notes - Between November 1998 and January 1999 the
Company issued thirty-five units at a price of $25,000 per unit. Each unit
consisted of a non-interest bearing, unsecured $25,000 senior promissory note
and common stock warrants for a number of shares of stock determined by dividing
$12,500 by the public offering price of shares of common stock of the Company to
be issued in the proposed stock offering. The warrants are exercisable at the
offering price of the proposed stock offering. The outstanding principal balance
of the senior promissory notes at April 30, 1999 is $870,000.
8% Subordinated Demand Notes - Between January and April 1999 the
Company issued seven unsecured 8% subordinated demand notes for an aggregate
principal amount of $587,000. These notes remain outstanding at April 30, 1999.
F-10
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
5 NOTES PAYABLE AND LINES OF CREDIT (Continued)
Bank Note - In January 1999, the Company assumed a $61,005 bank note in
default from one of its dealers and regained title to five motorcycles. The
Company has agreed to repay the note at $5,000 per month commencing in February
1999. As of April 30, 1999, the remaining principal balance on the note is
$46,005.
Lines of Credit at April 30, 1999 consist of:
Investor Group Line of Credit - In February 1999 the Company contracted
with a group of six individuals for an unsecured line of credit in the aggregate
amount of $500,000. The loans bear interest at 8% per annum plus the note
holders received 28,125 shares of common stock valued at $125,000. Principal and
interest are payable upon the completion of the proposed stock offering.
Revolving Line of Credit - In March 1999, the Company contracted for a
$750,000 secured line of credit. Interest is payable monthly at 10% plus the
lender received 187,500 shares of common stock valued at $187,500. The loan is
secured by inventory, accounts receivable and general intangibles and matures on
June 30, 1999. Borrowing under the agreement is based on firm purchase orders
for motorcycles received by the Company. As of April 30, 1999, the Company had
drawn $220,000 on this line of credit.
Line of Credit - In December 1998, the Company contracted for a
$755,000 secured line of credit. Interest is payable quarterly at 10% per annum
plus the lender received 188,750 shares of common stock valued at $188,750. The
loan is secured by inventory, accounts receivable, general intangibles and
equipment and is due on demand. As of April 30, 1999, the Company had drawn
$755,000 on this line of credit.
Outstanding notes payable and lines of credit as of April 30, 1999 are
summarized as follows:
10% Subordinated Notes $ 700,000
8% Subordinated Notes 1,327,000
7% Subordinated Notes 517,000
Senior Promissory Notes 870,000
8% Subordinated Demand Notes 587,000
Bank Note 46,005
Lines of Credit 1,475,000
-----------
5,522,005
Less unamortized discount (875,859)
-----------
Total notes payable and lines of credit $ 4,646,146
===========
F-11
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
5 NOTES PAYABLE AND LINES OF CREDIT (Continued)
Notes payable and lines of credit are included in the accompanying
balance sheet under the following captions:
Lines of credit $ 1,093,893
Notes payable 2,188,753
Long term debt 1,363,500
-----------
Total $ 4,646,146
===========
The shares of common stock issued to note holders and line of credit
lenders, as discussed above, were valued at the market value at the date of
issue. The value of the shares, which aggregated $1,448,850, has been recorded
as a discount from the face value of the related debt and is being amortized
over the term of the debt using the interest method. During the year ended April
30, 1999, $572,991 of such discount has been amortized and charged to interest
expense. These transactions result in an effective interest rate on the notes
payable and lines of credit of 31.2% and 61%, respectively.
6 LONG-TERM DEBT
Long-term debt at April 30, 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Installment loan, monthly payments of $618 including interest
at 8.75%, matures September, 2002, secured by a vehicle $ 21,822
Installment note payable for the purchase of intellectual property
rights, monthly payments of $783 including interest at 8%, matures
January, 2001, secured by property rights 16,654
Short-term obligations expected to be refinanced (see note 5) 1,363,500
----------
1,401,976
Less current maturities 15,558
----------
Total long-term debt $1,386,418
==========
</TABLE>
The aggregate maturities of long-term debt as of April 30, 1999 are
$15,558 in 2000, $13,073 in 2001, $6,822 in 2002 and
$3,023 in 2003.
F-12
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
7 LEASES
Capital leases - The Company leases various manufacturing, production,
telephone and computer equipment under capital lease agreements with terms of
three to five years through May, 2003. The economic substance of the leases is
that the Company is financing the acquisition of the assets, and accordingly,
they are capitalized as property and equipment. The leases contain bargain
purchase options at the end of the lease terms.
The following is an analysis of the leased assets included in property
and equipment as of April 30, 1999:
Telephone equipment $ 16,452
Computer equipment 255,611
Machinery and production equipment 41,479
-----------
313,542
Less accumulated amortization (35,531)
-----------
$ 278,011
===========
The following is a schedule of future minimum payments required under
the leases together with their present value as of April 30, 1999:
Year ending
April 30, Amount
-------------------- ------------------
2000 $ 95,710
2001 92,945
2002 52,667
2003 32,866
2004 4,908
---------------
Total minimum lease payments 279,096
Less amount representing interest ( 50,195)
---------------
Present value of minimum lease payments $ 228,901
===============
Operating leases - The Company leases its administration and production
facilities under noncancelable operating leases with terms of four years
expiring in February, 2002. The Company is also responsible for real estate
taxes on the leased facilities. Rent expense under operating leases was $69,756
and $83,155 for the years ended April 30, 1999 and 1998, respectively. The
following is a schedule of future minimum lease payments required under
operating leases:
Year ending
April 30, Amount
-------------------- -------------------
2000 $ 69,756
2001 $ 69,756
2002 $ 58,130
F-13
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
8 CONTINGENCIES
The Company has suffered recurring losses since its inception and at
April 30, 1999 has a capital deficiency of $9,421,136 and a working capital
deficiency of $4,580,827. As described in note 5, the Company has negotiated
with its lenders to convert certain loans to common stock and stock warrants and
to defer payment on certain loans until completion of a proposed stock offering
planned for July 1999. The proposed stock offering of up to 1,840,000 shares of
the Company's common stock is expected to provide sufficient net proceeds to
repay all delinquent obligations and provide working capital to sustain
operations until such time as positive cash flow and profits can be generated.
Results of operations in the future will be influenced by numerous
factors including technological developments, competition, regulation, increases
in expenses associated with sales growth, market acceptance of the products of
the Company, the capacity of the Company to expand and maintain the quality of
its motorcycles and related services, continued development of the dealer
organization, favorable sourcing of supplies, recruitment of highly skilled
employees and integration of such persons into a cohesive organization, and the
ability of the Company to raise funds and control costs.
Management believes that it will be successful in completing the stock
offering and achieving profitable operations, however, there is no assurance
that such efforts will be successful.
9 SECURITY TRANSACTIONS
Following is a summary of security transactions during the years ended
April 30, 1999 and 1998:
On May 21, 1997 the Company issued 315,269 shares of common stock
valued at $95,009 for management services, equipment
and other assets.
In September, 1997 the Company issued 61,436 shares of common stock in
a private placement. The net proceeds of the offering of $949,974 were used to
repay debt of $250,000 and provide working capital.
On October 24, 1997 and December 31, 1997, 12,825 shares of common
stock valued at $205,201 were issued to key employees
as performance bonuses.
On December 15, 1997, 2,500 shares of common stock valued at $40,000
were issued to a dealership and recorded as promotional expense and 732 shares
valued at $11,704 were issued to bridge lenders and recorded as interest
expense.
At various dates during the year ended April 30, 1999 the Company
issued 62,500 shares of common stock for cash at prices ranging from $4.00 to
$4.20 per share and an additional 399,375 shares were issued upon exercise of
stock options at prices ranging from $.40 to $4.00 per share.
F-14
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
9 SECURITY TRANSACTIONS (Continued)
In October and November, 1998 the Company issued 375,350 shares of
common stock valued at $706,660 to management and other employees as performance
bonuses.
At various dates between October, 1998 and January, 1999 the Company
issued 237,350 shares valued at $913,760 for consulting and other services.
As discussed in note 5, the Company issued 35,500 shares of common
stock valued at $177,500 during December, 1998 to certain 10% note holders to
obtain a favorable interest rate and repayment terms. Additionally, in January
and April, 1999, in connection with agreements to provide $2,005,000 in secured
and unsecured lines of credit, the lenders were issued 572,750 shares of common
stock valued at $1,271,350. The value of the shares issued to the 10% note
holders and the line of credit lenders is being amortized as additional interest
expense over the original terms of the debt.
10 PREFERRED STOCK
The Company is authorized to issue up to 2,500,000 shares of $.001 par
value Preferred Stock. Preferred Stock is designated as the "Series A 7%
Convertible Preferred Stock" and has a stated value of $6.00 per share.
Dividends of 7% of the stated value accrue and are payable semi-annually. Each
share of Preferred Stock is convertible into one share of common stock at the
option of the shareholder. No preferred shares have been issued.
11 INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting For Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires that
the Company use the liability method which attempts to recognize the future tax
consequences of temporary differences between the book and tax bases of assets
and liabilities.
At April 30, 1999, the Company has net operating loss carryforwards
totaling approximately $9,400,000 that may be offset against future taxable
income through 2012. No tax benefit has been reported in the accompanying
financial statements, however, because the Company believes there is at least a
50% chance that the carryforwards will expire unused. Accordingly, a $3,760,000
tax benefit of the loss carryforward has been offset by a valuation allowance of
the same amount. During the years ended April 30, 1999 and 1998, the valuation
allowance increased by $2,720,000 and $1,040,000, respectively.
The expected tax benefit that would result from applying federal
statutory tax rates to the pretax loss differs from amounts reported in the
financial statements primarily because of the increase in the valuation
allowance. The company paid no income taxes since its inception.
F-15
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
12 LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during the period.
All share and per share data, except shares authorized, have been retroactively
adjusted to reflect a 1,000 for 1 stock split effective March 25, 1997 and a 4
for 1 reverse stock split effective June 3, 1999.
13 STOCK OPTIONS
On May 9, 1997 (and as amended June 3, 1997) the Company entered into a
consulting agreement with Greenstone Financial Corp. ("GFC") to assist the
Company with corporate development and strategic business planning. Under terms
of the agreement, the Company granted GFC an option to purchase up to 62,500
shares of Company common stock based upon the successful completion of a private
placement of Company common stock, with each option exercisable at $16.00 per
share. Also under the terms of the agreement, as amended, the Company granted
GFC an option to purchase 75,000 shares of Company common stock at an exercise
price of $0.40 per share. GFC exercised this option in October, 1998.
On June 15, 1998, the Company adopted the "1997 Stock Option Plan" (the
"Plan"). Under the Plan, 750,000 shares of common stock are reserved for
issuance upon exercise of options granted to management, key employees and
consultants. The plan provides for the granting of either "incentive stock
options" or "non-qualified stock options", as defined under the Internal Revenue
Code. Options may be granted at prices not less than 100 percent of the fair
market value at the date of grant and may be exercisable with a term not
exceeding ten years. As of April 30, 1999, the Company has granted common stock
options to plan participants as follows:
Exercise Price Number of Options
-------------- -----------------
$ .40 37,500
$ 1.00 142.500
$ 2.00 146,250
$ 2.32 75,000
$ 2.80 105,000
$ 3.20 225,000
$ 4.00 212,500
-------
Total options granted 943,750
=======
F-16
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Financial Statements
13 STOCK OPTIONS (Continued)
In addition to the 75,000 options exercised by GFC, an additional
324,375 options were exercised during the year ended April 30, 1999. As of April
30, 1999 the following options are exercisable:
Exercise Price Number of Options
$ 2.00 103,125
$ 2.80 101,250
$ 3.20 225,000
$ 4.00 190,000
$ 16.00 62,500
-------
Total options exercisable 681,875
=======
14 COMPREHENSIVE INCOME
As of May 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
Company's net loss or shareholders' deficit for any of the periods presented in
the accompanying financial statements. SFAS No. 130 requires other comprehensive
income to include foreign currency translation adjustments and minimum pension
liability adjustments, which prior to adoption were reported separately in
shareholders' equity.
15 SUBSEQUENT EVENTS
On June 3, 1999, the Company declared a one for four reverse stock
split. All share and per share data have been retroactively restated in the
accompanying financial statements.
F-17
<PAGE>
No dealer, sales representative, or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by American Quantum Cycles or the
underwriter. This prospectus does not constitute an offer or any securities
other than those to which it relates or an offer to sell, or a solicitation of
any offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
the information set forth herein is correct as of any time subsequent to the
date hereof.
AMERICAN QUANTUM
CYCLES, INC.
[LOGO]
2,430,000 Shares of Common Stock
PROSPECTUS
BARRON CHASE SECURITIES, INC.
7700 West Camino Real
Boca Raton, Florida 33433
(561) 347-1200
Beverly Hills, California
Boston, Massachusetts
Brooklyn, New York
Buffalo, New York
Chicago, Illinois
Clearwater, Florida
Duluth, Georgia
Edison, New Jersey
Eureka Springs, Arkansas
Fort Lauderdale, Florida
Hasbrook Heights, New Jersey
La Jolla, California
Naples, Florida
New York, New York
Orlando, Florida
Sarasota, Florida
Tampa, Florida
West Boca Raton, Florida
_____, 1999
<PAGE>
PROSPECTUS (ALTERNATE)
AMERICAN QUANTUM CYCLES, INC.
991,949 Shares of Common Stock
This is an offering of 991,949 shares of common stock of American Quantum
Cycles, Inc., held by certain of our shareholders. Of the 991,949 shares being
offered by the selling security holders, 62,500 shares are issuable upon the
exercise of options owned by certain of the selling security holders. We will
not receive any proceeds from the sale of the shares but we will receive
proceeds from the selling security holders if they exercise their options.
Our common stock is quoted on the OTC Bulletin Board under the symbol "AMQC". On
August 16, 1999, the closing bid price per share of the common stock as reported
by the OTC Bulletin Board was $3.56.
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss of your investment. See "High Risk Factors"
beginning on page __.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ____________, 1999
<PAGE>
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Shares of our common stock offered by the selling
security holders........................................................... 991,949 shares of common stock
Use of proceeds............................................................ We will not receive any proceeds from
the re-sale of the shares offered
by the selling security holders.
Common stock outstanding:
Prior to the offering .............................................. 2,842,798
After the offering ................................................. 5,335,298
</TABLE>
The number of shares being offered by the selling security holders
includes 62,500 shares of our common stock issuable upon the exercise
of options held by the selling security holders. The options are
exercisable at $16.00 per share.
The number of shares of our common stock outstanding prior to the
offering does not include 2,430,000 shares of common stock which are
being offered in a concurrent underwritten offering.
The number of our shares of common stock to be outstanding after the
offering includes the 991,949 shares being offered by the selling
security holders and the 2,430,000 shares of common stock being offered
in the concurrent offering. The number of our shares of common stock to
be outstanding after the offering does not include 243,000 shares of
common stock issuable to the underwriters in the concurrent offering
and up to 493,750 shares of common stock issuable upon the exercise of
outstanding options to purchase shares of our common stock.
2
<PAGE>
CONCURRENT OFFERING
On the date of this prospectus, a registration statement with respect to an
underwritten public offering of 2,430,000 shares of our common stock was
declared effective by the Securities and Exchange Commission. Sales of
securities under this prospectus by the selling security holders, and in the
underwritten public offering, or even the potential of such sales may have an
adverse effect on the market price of our common stock.
SELLING SECURITY HOLDERS
Unless otherwise indicated, none of the selling security holders holds any
office or position with us or has a material relationship with us or our
affiliates. The information below gives effect to the one for four reverse stock
split of our common stock on June 3, 1999.
<TABLE>
<CAPTION>
SHARES SHARES OF
SHARES OF THAT MAY COMMON
COMMON BE OFFERED STOCK
STOCK BENEFICIALLY PURSUANT OWNED
SELLING OWNED PRIOR TO TO THIS AFTER
SECURITY HOLDER THIS OFFERING PROSPECTUS OFFERING
--------------- ---------------- ------------- --------
<S> <C> <C> <C>
Violetta Dwyer 41,250(2) 25,000 16,250
Terri Grundstedt 63,525(2) 25,000 38,525
Laine Moskowitz 38,137(3) 12,500 25,637
Jefferson Hen 3,000 3,000 0
Colson Construction 1,500 1,500 0
Todd Hemm 4,500 4,500 0
Allen Solomon 1,250 1,250 0
Wayne Laglia 1,250 1,250 0
Chase Construction 2,500 2,500 0
Dante Greco 108,821 105,071 3,750
Bridget McMahon 18,750 18,750 0
Carl Domino 18,750 18,750 0
Abe Goldberger 6,250 6,250 0
Catherine Hass 17,468 17,468 0
Michael Howell 16,782 16,782 0
Harvey Stober 9,375 9,375 0
Jerry Lowry 5,000 5,000 0
Arthur Gronbach 12,500 12,500 0
Sheldon Miller 21,875 21,875 0
Andrew Friss 21,875 21,875 0
J.W. Hammond 28,125 21,875 6,250
Parkplace Consulting 25,000 25,000 0
Whitehall Trust 6,250 6,250 0
RWH and Co., Ltd. 156,250 156,250 0
Gerald Frisen 77,167 77,167 0
Harry Newton 33,584 33,584 0
Anchor Capital 187,500 187,500 0
John Pollock 36,946 36,946 0
David Friedman 3,695 3,695 0
Norman Cannella 1,478 1,478 0
Lori Smith Bajorek 1,478 1,478 0
Edward Oxley 3,695 3,695 0
Rahmat Simani 7,389 7,389 0
Richard Dwelle 14,778 14,778 0
Robert Smith 3,695 3,695 0
Terrell Kirksey 14,778 14,778 0
Richard Heidt 3,695 3,695 0
Kimberly DeCamp 40,000 40,000 0
Amil Fleysher 3,750 3,750 0
Clifford Fruithandler 444 375 69
Newburry Realty Co. 1,500 1,500 0
Alphonso Petti 2,500 2,500 0
Karen Pisani 13,394 9,644 3,750
Atlas Partners 3,750 3,750 0
Douglas Paik 6,500 981 5,519
</TABLE>
The shares of common stock beneficially owned by Violeta Dwyer include
25,000 shares of Common Stock issuable upon the exercise of options
exercisable at $16.00 per share.
The shares of common stock beneficially owned by Laine Moskowitz
include 25,000 shares of common stock issuable upon the exercise of
options exercisable at $16.00 per share.
The shares of common stock beneficially owned by Terri Grundstedt
include 12,500 shares of common stock issuable upon the exercise of
options exercisable at $16.00 per share.
3
<PAGE>
PLAN OF DISTRIBUTION
The selling security holders, or their pledges or donees, may offer their shares
at various times in in the over-the-counter market where our common stock is
listed, transactions other than in the over-the-counter market, in connection
with short sales of American Quantum Cycles common stock or in a combination of
any of the above transactions. If the selling security holders listed in this
prospectus donate or pledge their shares and we become aware of the donee or
pledgee, we will supplement this prospectus to provide the name of the pledge or
donee and the number of shares of our common stock beneficially owned by the
pledgee or donee.
The selling security holders may sell their shares at market prices prevailing
at the time of sale, at prices related to such prevailing market prices and at
negotiated prices or at fixed prices.
The selling security holders may use broker dealers to sell their shares. If
this happens, broker dealers will either receive discounts or commissions from
the selling security holders, or they will receive commissions from purchasers
of shares for whom they acted as agents.
We have advised the selling security holders that during such time as they may
be engaged in a distribution of the shares they are required to comply with
Regulation M under the Securities Exchange Act of 1934. Regulation M generally
precludes any selling security holders, any affiliated purchasers and any
broker-dealer or other person who participates in such distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchase made in order to
stabilize the price of a security in connection with the distribution of that
security. All of the foregoing may affect the marketability of the common stock.
It is anticipated that the selling security holders will offer all of the shares
for sale. Further, because it is possible that a significant number of shares
could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a depressive effect on the market price of American Quantum
Cycles common stock.
4
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by american quantum cycles or any
of the underwriters. This prospectus does not constitute an offer of any
securities other than those to which it relates or an offer to sell, or a
solicitation of any offer to buy, to any person in any jurisdiction where such
an offer or solicitation would be unlawful. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create an
implication that the information set forth herein is correct as of any time
subsequent to the date hereof.
991,949 SHARES OF COMMON STOCK
AMERICAN QUANTUM CYCLES, INC.
PROSPECTUS
________________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Florida Business Corporation Act contains provisions entitling American
Quantum Cycles directors and officers to indemnification from judgments,
settlements, penalties, fines, and reasonable expenses (including attorney's
fees) as the result of an action or proceeding in which they may be involved by
reason of having been a director or officer of American Quantum Cycles. In its
Articles of Incorporation, American Quantum Cycles has included a provision that
limits, to the fullest extent now or hereafter permitted by the Florida Act, the
personal liability of its directors to American Quantum Cycles or its
shareholders for monetary damages arising from a breach of their fiduciary
duties as directors. Under the Florida Act as currently in effect, this
provision limits a director's liability except where such director breaches a
duty. American Quantum Cycles Articles of Incorporation and By-Laws provide that
American Quantum Cycles shall indemnify its directors and officers to the
fullest extent permitted by the Florida Act. The Florida Act provides that no
director or officer of American Quantum Cycles shall be personally liable to
American Quantum Cycles or its shareholders for damages for breach of any duty
owed to American Quantum Cycles or its shareholders, except for liability for
(i) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (ii) any unlawful payment of a dividend or
unlawful stock repurchase or redemption in violation of the Florida Act, (iii)
any transaction from which the director received an improper personal benefit or
(iv) a violation of a criminal law. This provision does not prevent American
Quantum Cycles or its shareholders from seeking equitable remedies, such as
injunctive relief or rescission. If equitable remedies are found not to be
available to shareholders in any particular case, shareholders may not have any
effective remedy against actions taken by directors or officers that constitute
negligence or gross negligence.
The Articles of Incorporation also include provisions to the effect that
(subject to certain exceptions) American Quantum Cycles shall, to the maximum
extent permitted from time to time under the law of the State of Florida,
indemnify and upon request shall advance expenses to, any director or officer to
the extent that such indemnification and advancement of expenses is permitted
under such law, as may from time to time be in effect.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 as amended may be permitted to directors, officers and controlling persons
of American Quantum Cycles pursuant to any charter provision, by-law, contract,
arrangement, statute or otherwise, American Quantum Cycles has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by American Quantum Cycles in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the underwriter's non-accountable
expense allowance and advisory fee) are as follows:
II-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee............................................................................................ $3,000
NASD filing fee................................................................................................. $1,731
Amex listing fee................................................................................................ 22,500
Legal fees and expenses......................................................................................... 50,000
Accounting fees and expenses.................................................................................... 25,000
Blue sky fees and expenses...................................................................................... 25,000
Printing and engraving expense.................................................................................. 75,000
Transfer agent fees and expenses................................................................................ 15,000
Miscellaneous................................................................................................... 10,000
--------
Total...........................................................................................................$222,731
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1997, American Quantum Cycles issued an aggregate of $250,000 in
promissory notes to seven investors (the "April 1997 Notes") three of whom were
accredited and four were non-accredited but sophisticated. The April 1997 notes
yielded interest at 8% annually and matured at the earlier of April 8, 1998 or
upon receipt by American Quantum Cycles of $1,000,000 or more in any public or
private financing. The interest on the April 1997 notes was payable by American
Quantum Cycles, at its option, either (i) in cash; or (ii) in common stock of
American Quantum Cycles based on the lower of (A) $2.00 per share; or (B) the
average closing bid price of the common stock of American Quantum Cycles for the
five trading days preceding one date prior to the date of interest on the note
the "Interest Provision"). Pursuant to the interest provision, American Quantum
Cycles issued 732 shares of common stock to the April 1997 note holders in
December 1997 as interest on the April 1997 Notes. As of the date hereof, all
the April 1997 notes have been repaid and cancelled by American Quantum Cycles.
Each investor was provided with or had access to financial and other information
concerning American Quantum Cycles and had the opportunity to ask questions
concerning American Quantum Cycles and its operations. Accordingly, the issuance
of these securities was exempt from the registration requirements of the Act
pursuant to Section 4(2) of the Act.
In May 1997, American Quantum Cycles acquired assets totaling $92,270 in
exchange for an aggregate of 477,598 shares of common stock of American Quantum
Cycles, of which 238,799 shares were issued to Doreen Cheal, and 238,799 shares
were issued to Denise O'Brien. Each investor was non-accredited but
sophisticated, and was provided with or had access to financial and other
information concerning American Quantum Cycles and had the opportunity to ask
questions concerning American Quantum Cycles and its operations. Accordingly,
the issuance of these securities was exempt from the registration requirements
of the Act pursuant to Section 4(2) of the Act.
In June 1997, American Quantum Cycles commenced an offering of common stock at
$4.00 per share pursuant to Rule 504 of Regulation D under the Act. An aggregate
of 61,436 shares of common stock for an aggregate of $949,974 were sold by
management to two accredited and thirteen non-accredited sophisticated
investors. Each of the investors were provided with and had access to financial
and other information concerning American Quantum Cycles and had the opportunity
to ask questions concerning American Quantum Cycles and its operations.
Accordingly, the issuance of these securities was exempt from the registration
requirements of the Act pursuant to Section 3(b) of the Act.
In January 1998, American Quantum Cycles granted options to purchase an
aggregate of 142,500 shares of common stock to a consultant who was a
sophisticated investor. The options are exercisable until October 2004 and are
exercisable at $1.00 per share. Each investor was provided with or had access to
financial and other information concerning American Quantum Cycles and had the
opportunity to ask questions concerning American Quantum Cycles and its
operations. Accordingly, the issuance of these securities was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
Beginning in October 1997, American Quantum Cycles issued an aggregate of forty
8% subordinated notes to 32 note holders, eleven of which were accredited and
twenty-one of which were non-accredited but sophisticated, in the aggregate
principal amount of $1,407,000 (the "8% Notes"). Each note holder was provided
II-2
<PAGE>
with or had access to financial and other information concerning American
Quantum Cycles and had the opportunity to ask questions concerning American
Quantum Cycles and its operations. Accordingly, the issuance of these securities
was exempt from the registration requirements of the Act pursuant to Section
4(2) of the Act. The notes matured one year from date of issue. Nine of the 8%
note holders, representing an aggregate of $247,500 of the outstanding principal
balance of the 8% notes, agreed to extend the maturity date of their 8% notes
until the close of this offering. Eighteen of the 8% note holders, representing
an aggregate of $756,500 of the aggregate outstanding principal amount of the 8%
Notes agreed to convert the principle balance plus accrued interest of their
respective notes into (i) common stock of American Quantum Cycles at the a price
per share equal to $3.50, (the "8% Note Shares"); and (ii) warrants to purchase
an equal number of shares of American Quantum Cycles common stock equal at an
exercise price of $3.50 per share. American Quantum Cycles redeemed two of the
8% Notes with a principal balance of $80,000. The remaining three 8% note
holders have not agreed to either extend the terms of, or convert, their
respective 8% notes. As a result, if the remaining six 8% note holders,
representing an aggregate of $323,000 of the outstanding principal balance of
the 8% notes, send American Quantum Cycles notice informing American Quantum
Cycles that it is in default of its repayment obligations on the 8% notes,
American Quantum Cycles will be considered in default of the 8% notes.
Between May 1997 and June 1997, American Quantum Cycles granted options to
purchase an aggregated 137,500 shares to a consultant who was an accredited
investor. Of the options 75,000 are exercisable at $.40 per share and 62,500 are
exercisable at $16.00 per share. The options are exercisable until September
2003. The consultant was provided with or had access to financial and other
information concerning American Quantum Cycles and had the opportunity to ask
questions concerning American Quantum Cycles and its operations. Accordingly,
the issuance of these securities was exempt from the registration requirements
of the Act pursuant to Section 4(2) of the Act.
Beginning in April 1998, American Quantum Cycles issued an aggregate of
twenty-seven 7% subordinated notes to 24 investors, 6 of whom were accredited
investors and eighteen of whom were non-accredited but sophisticated investors,
in return for which American Quantum Cycles received proceeds of , for an
aggregate of $549,500 (the "7% Notes"). Each investor was provided with or had
access to financial and other information concerning American Quantum Cycles and
had the opportunity to ask questions concerning American Quantum Cycles and its
operations. Accordingly, the issuance of these securities was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act. The 7%
notes mature one year from the date of issuance and are convertible into shares
of common stock of American Quantum Cycles at $8.00 per share. Interest is
payable in cash or shares of common stock of American Quantum Cycles, at the
discretion of American Quantum Cycles. The notes matured one year from date of
issue. Seventeen of the 7% note holders, representing an aggregate of $367,000
of the aggregate outstanding principal amount of the 7% notes agreed to convert
the principle balance plus accrued interest of their respective notes into (i)
common stock of American Quantum Cycles at the a price per share equal to $3.50,
(the "7% Note Shares"); and (ii) warrants to purchase an equal number of shares
of American Quantum Cycles common stock at an exercise price of $3.50 per share.
American Quantum Cycles redeemed two of the 7% notes which had an aggregate
principal balance of $32,500. Six of the 7% note holders, representing an
aggregate of $150,000 of the outstanding principal balance of the 7% notes, have
agreed to extend the maturity date of their respective 7% notes until the close
of this offering.
In May 1998, American Quantum Cycles completed an offering of an aggregate of
$700,000 of 10% subordinated promissory notes (the "10% Notes") and an aggregate
of 35,500 shares of Common Stock to nine accredited investors. The 10% Notes
mature one year from the date of issuance and are convertible into shares of
common stock of American Quantum Cycles at $8.00 per share. Interest is payable
in cash or shares of common stock of American Quantum Cycles, at the discretion
of American Quantum Cycles.
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All of the 10% note holders agreed to convert the principle balance plus accrued
interest of their respective notes into (i) common stock of American Quantum
Cycles at the a price per share equal to $3.50, (the "10% Note Shares"); and
(ii) two warrants to purchase an equal number of shares of American Quantum
Cycles common stock at an exercise price of $3.50 per share. Each of the note
holders was provided with, or had access to financial and other information
concerning American Quantum Cycles and had the opportunity to ask questions
concerning American Quantum Cycles and its operations. Accordingly, the issuance
of these securities was exempt from the registration requirements of the Act
pursuant to Section 4(2) of the Act.
Between September 1998 and November 1998, American Quantum Cycles granted
options to purchase an aggregate of 676,250 shares of common stock to 14
consultants, 3 of whom were accredited and eleven of whom were non-accredited
but sophisticated, in connection with services rendered regarding the promotion
of American Quantum Cycles motorcycles. The options are exercisable until
December 2004. The exercise price for the options ranges between $2.00 and $4.00
with the exception of 37,500 options which are exercisable at $.40. Each
investor was provided with or had access to financial and other information
concerning American Quantum Cycles and had the opportunity to ask questions
concerning American Quantum Cycles and its operations. Accordingly, the issuance
of these securities was exempt from the registration requirements of the Act
pursuant to Section 4(2) of the Act.
In November 1998, American Quantum Cycles issued an aggregate of 375,000 shares
of common stock and granted options to purchase an aggregate of 50,000 shares of
common stock exercisable at $4.00 per share until December 31, 2003 to four
Executive Officers of American Quantum Cycles pursuant to the exemption from the
registration requirements of the Act provided by Section 4(2) of the Act.
Between November 1998 and January 1999, American Quantum Cycles completed a
Regulation D Rule 506 private offering of approximately 35 Units of its
securities (the "Units") to 10 accredited investors and 1 sophisticated investor
from which American Quantum Cycles received gross proceeds of $870,000. Each
Unit consisted of (i) a senior promissory note in the principal amount of
$25,000 and (ii) the right to receive a number of shares of common stock of
American Quantum Cycles determined by dividing $12,500 by the subsequent public
offering price per share of American Quantum Cycles common stock in an
underwritten public offering from which American Quantum Cycles receives at
least $5,000,000 gross proceeds. Barron Chase Securities, Inc., ("Barron") acted
as the selling agent for the offering. In consideration for acting as selling
agent, Barron received a placement fee equal to ten percent (10%) of the
proceeds received from this offering and an unaccountable expense allowance
equal to 3% of the proceeds received from this offering.
Between December 1998 and February 1999, American Quantum Cycles obtained lines
of credit in the aggregate amount of $1,405,000 from nine accredited investors.
The line of credit accrues interest at 10% and 8% respectively. In connection
with obtaining the lines of credit, American Quantum Cycles agreed to issue an
aggregate of 318,750 shares of common stock to the providers of the credit
lines. Each line of credit provider was provided with or had access to financial
and other information concerning American Quantum Cycles and had the opportunity
to ask questions concerning American Quantum Cycles and its operations.
Accordingly, the issuance of these securities was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
As of June 14, 1999, American Quantum Cycles issued an aggregate of five (5) 8%
subordinated notes in the aggregate principal amount of $284,181 to five
investors, one of whom was accredited and four of whom were non-accredited but
sophisticated. The notes mature October 1, 1999 with interest and principal
payable in cash. Each noteholder was provided with or had access to financial
and other information concerning American Quantum Cycles and had the opportunity
to ask questions concerning American Quantum Cycles and its operations.
Accordingly, the issuance of these securities was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
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ITEM 27. EXHIBITS
Exhibits Description of Document
- -------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement (2)
1.2 Form of Selected Dealer Agreement (2)
2.1 Amended and Restated Articles of Incorporation of American
Quantum Cycles, Inc., filed November 21, 1997(1)
2.2 Amended Articles of Incorporation of American Quantum Cycles,
Inc. filed April 6, 1998, creating "Series A 7% Convertible
Preferred Stock"(1)
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<PAGE>
2.3 Amended and Restated Bylaws of American Quantum Cycles, Inc.(1)
2.4 Amended Articles of Incorporation of American Quantum Cycles,
Inc. filed June 3, 1999 (2)
3.2 American Quantum Cycles, Inc. Amended 1997 Stock Option Plan(1)
4.1 Form of Common Stock Certificate (2)
4.2 Warrant Agreement between American Quantum Cycles and Barron
Chase Securities, Inc. (2)
4.3 Form of Warrant Certificate (2)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. (2)
10.1 Consulting Agreement between American Quantum Cycles, Inc. and
Greenstone Financial Corporation dated May 9, 1997(1)
10.2 License Agreement between Feuling Advanced Technologies, Inc.
and American Quantum Cycles, Inc. dated as of August 19, 1997(1)
10.3 Agreement between the Company and Ferrex International, Inc.(1)
10.4 Sample Dealer Agreement(1)
10.5 Lease Agreement between American Quantum Cycles and Bruce and
Karen Weiss effective May 1, 1997(1)
10.6 Amendment to Lease Agreement between American Quantum Cycles
and Bruce and Karen Weiss dated January 29, 1998(1)
10.7 Employment Agreement with Richard K. Hagen (2)
10.8 Employment Agreement with Gary W. Irving (2)
10.9 Financial Advisory Agreement between American Quantum Cycles
and Barron Chase Securities, Inc.(2)
10.10 Merger and Acquisition Agreement between American Quantum
Cycles and Barron Chase Securities, Inc.(2)
10.11 Forms of the letter of intent between American Quantum Cycles
and Dealers(2)
10.12 Consulting Agreement with Richard K. Hagen(2)
10.13 10% Secured Promissory Note issued by American Quantum Cycles
to Skippack Capital Corp.(2)
10.14 Security Agreement between American Quantum Cycles and Skippack
Capital Corp.(2)
10.15 8% Subordinated Note issued by American Quantum Cycles to Carl Domion(2)
10.16 8% Subordinated Note issued by American Quantum Cycles to Andrew Friss(2)
10.17 8% Subordinated Note issued by American Quantum Cycles to Dante Greco(2)
10.18 8% Subordinated Note issued by American Quantum Cycles to Bridget McMahon(2)
10.19 8% Subordinated Note issued by American Quantum Cycles to Sheldon Miller(2)
10.20 8% Subordinated Note issued by American Quantum Cycles to Harvey Stober(2)
10.21 8% Subordinated Note issued by American Quantum Cycles to Abe Goldberger(2)
10.22 10% Secured Promissory Note issued by American Quantum Cycles to Anchor
Capital Corporation(2)
10.23 Loan and Security Agreement between American Quantum Cycles and Anchor
Capital Corporation(2)
23.1 Consent of Pricher and Company Certified Public Accountants(3)
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (contained in
such firm's opinion filed as Exhibit 5.1) (2)
27 Financial Data Schedule (2)
</TABLE>
(1) Incorporated by reference from American Quantum Cycles Registration
Statement on Form 10-SB filed April 24, 1998 (File No. 000-24083).
(2) Previously filed
(3) Filed herewith
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
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<S> <C> <C>
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act.
(ii) Reflect in the prospectus any
facts or events which, individually or together,
represent a fundamental change in the information set
forth in the registration statement.
(iii) Include any additional or changed material
information on the plan of distribution;
</TABLE>
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration of the securities
offered, and the offering of such securities at that time to be
the initial bona fide offering; and
(3) File a post effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
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<PAGE>
(4) American Quantum Cycles will provide to the underwriter at the
closing specified in the underwriter's agreement certificates in
such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of American Quantum Cycles pursuant to the
foregoing provisions, or otherwise, American Quantum Cycles has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by American Quantum Cycles of
expenses incurred or paid by a director, officer or controlling
person of American Quantum Cycles in the successful defense of any
action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
registered, American Quantum Cycles will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final
adjudication of such issue.
For the purpose of determining any liability under the Securities
Act, American Quantum Cycles will treat the information omitted
from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of
prospectus filed by American Quantum Cycles pursuant to Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of
this registration statement as of the time the Securities and
Exchange Commission declares it effective.
For the purpose of determining any liability under the Securities
Act, American Quantum Cycles will treat such post-effective
amendment that contains a form of prospectus as a new registration
statement for the securities offered in the registration statement
therein, and treat the offering of the securities at that time as
the initial bona fide offering of those securities.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing of this Amendment No. 5 to the Form SB-2 and
authorizes this registration statement to be signed on its behalf by the
undersigned, in the city of Melbourne, State of Florida on August 31, 1999.
AMERICAN QUANTUM CYCLES, INC.
By: /s/ Richard K. Hagen
------------------------------
Richard K. Hagen, President
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
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SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Chairman of the
Board of Directors,
/s/Richard Hagen Principal Executive Officer,
- ------------------------- Principal Financial Officer August 31, 1999
Richard Hagen and President
/s/Jim Cheal Vice President
- ------------------------- and Director August 31, 1999
Jim Cheal
/s/Jeffrey W. Starke Vice President
- ------------------------- and Director August 31, 1999
Jeffrey W. Starke
/s/Gary Irving Executive Vice President, Chief
- ------------------------- Operating Officer and Director August 31, 1999
Gary Irving
/s/Linda Condon Principal Accounting Officer
- ------------------------- and Treasurer August 31, 1999
Linda Condon
</TABLE>
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<PAGE>
EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
23.1 Consent of Independent Certified Public Accountants Pricher and
Company
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated June 24, 1999, relating to the financial statements of American
Quantum Cycles, Inc. We also consent to the reference to our firm under the
caption "Experts" in the Prospectus.
/s/ Pricher & Company
Orlando, Florida
August 31, 1999
