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As filed with the Securities and Exchange Commission on June 11, 1999
Registration Statement No. 333-74211
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT No.1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICAN QUANTUM CYCLES, INC.
(Name of Small Business Issuer in Its Charter)
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<TABLE>
<S> <C> <C>
Florida 3751 59-2651232
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(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S.Employer
Incorporation or Organization) Classification Number) Identification No.)
</TABLE>
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Richard Hagen, President and Chief Executive Officer
American Quantum Cycles Incorporated
731 Washburn Road
Melbourne, Florida 32934
(407) 752-0008
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(Name, Address and Telephone Number of Agent For Service)
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731 Washburn Road
Melbourne, Florida 32934
(407) 752-0008
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(Address and Telephone Number of Principal Executive Offices)
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Copies of all communications to:
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
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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<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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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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
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<S> <C> <C> <C> <C>
Common stock,
$.001 par value 1,840,000(1) $ 5.00(2) $9,200,000(2) $2,556.60
Representative's Warrants
each to purchase one share
of Common Stock, $.001
par value 160,000 $.001 $150 (3)
Common stock,
$.001 par value 160,000(4) $8.25(2) $1,320,000(2) $366.96
Common stock,
$.001 par value (8) 169,500(5) $4.56(6) $772,920 $214.87
Common stock,
$.001 par value (8) 62,500(7) $16.00(8) $1,000,000 $278.00
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Amount Due $3,416.43
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<PAGE>
(1) Assumes the underwriter's over-allotment option to purchase 240,000
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 169,500 shares of American Quantum Cycles common stock being
offered by selling security holders pursuant to the alternate prospectus.
See "Concurrent Offering."
(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. See
"Concurrent Offering."
(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, 1,600,000 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, 169,500
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>
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PROSPECTUS
AMERICAN QUANTUM CYCLES, INC.
1,600,000 SHARES OF COMMON STOCK
$________ PER SHARE
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<S> <C> <C> <C>
American Quantum Cycles, Inc. We are a development stage company attempting
731 Washburn Road to manufacture and mass market custom made
Melbourne, FL 71934 motorcycles and motorcycle accessories. We
plan to sell our motorcycles and accessories
primarily through a network of authorized dealers.
Per Share Total
We are offering 1,600,000 shares of our common
stock through Barron Chase Securities, Inc., our
Offering Price $_______ $_______ underwriter. The chart to the immediate left shows
Underwriting discounts $_______ $_______ the basic terms of the offering. The offering price
Proceeds to American may be more than the market price of our common stock.
Quantum Cycles, Inc. $_______ $_______ after the offering.
</TABLE>
Our common stock currently trades
on the OTC Bulletin Board under the
Trading Symbol "AMQC"
On June 10, 1999, the closing bid price for our common stock was $2.50.
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We are attempting to register our common stock
for trading on the American Stock Exchange under
The symbol ________.
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.
IN CONNECTION WITH AN UNDERWRITTEN OFFERING, THE SECURITIES AND EXCHANGE
COMMISSION RULES PERMIT THE UNDERWRITERS TO ENGAGE IN TRANSACTIONS THAT
STABILIZE THE PRICE OF OUR SECURITIES. THESE TRANSACTIONS MAY INCLUDE, AMONG
OTHER THINGS, PURCHASES FOR THE PURPOSE OF FIXING OR MAINTAINING THE PRICE OF
OUR SECURITIES AT A LEVEL THAT IS HIGHER THAN THE MARKET WOULD DICTATE IN THE
ABSENCE OF SUCH TRANSACTIONS. WE DO NOT KNOW WHETHER THE UNDERWRITERS WILL
ENGAGE IN ANY TRANSACTIONS OF THAT SORT. IF THE UNDERWRITERS ENGAGE IN ANY
TRANSACTIONS OF THAT TYPE THEY MAY DISCONTINUE THEM AT ANY TIME.
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BARRON CHASE SECURITIES, INC.
[DATE]
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1
<PAGE>
TABLE OF CONTENTS
Page
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
2
<PAGE>
PROSPECTUS SUMMARY
American Quantum Cycles, Inc.
American Quantum Cycles, Inc. is a development stage company attempting
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.
THE OFFERING
Common stock outstanding prior to the offering..... 2,527,809 shares (1)
Common stock offered............................... 1,600,000 shares
Common stock outstanding after the offering........ 4,127,809 shares (2)
(1) Unless otherwise indicated in this prospectus, 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.
(2) Assumes that the underwriter's over-allotment option is not exercised.
See the section entitled "Underwriting" on page 37 of this prospectus.
Includes an aggregate of 169,500 shares of common stock being offered
by the selling security holders pursuant to the alternative prospectus.
See "Concurrent Offering." Does not include (i) 150,000 shares of
common stock issuable upon the exercise of the representatives
warrants; and (ii) an aggregate of 1,006,250 shares of common stock
issuable upon the exercise of outstanding options of which 62,500 are
being registered pursuant to the alternative prospectus. See the
sections of this prospectus entitled "Management - Stock Options"
"Description of Securities" and "Underwriting."
3
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SUMMARY FINANCIAL INFORMATION
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<CAPTION>
For the year ended For the Nine months ended
April 30 January 31
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1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
(unaudited)
STATEMENT OF
OPERATIONS DATA:
Revenues $192,856 $ 0 $700,305 $126,416
Total costs and expenses 2,824,567 2,634 4,266,188 1,283,734
Net loss $(2,631,711) $(2,634) $(3,565,883) $(1,157,318)
Weighted average
shares outstanding (2) 501,961 147,929 1,609,291 890,592
Net loss per common
share outstanding (2) $(5.243) $ (0.018) $(2.216) $ (1,299)
<CAPTION>
As of As of
April 30, 1998 January 31, 1999 Adjusted (1)
-------------- ---------------- ------------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Current assets $886,836 $6,124,084 $10,495,271
Working capital $(2,162,614) $(4,828,200) $3,214,240
Total assets $1,864,216 $7,630,247 $12,101,434
Total liabilities $3,167,426 $11,066,300 $7,395,047
Shareholders' equity (deficit) $(1,303,210) $(3,436,053) $4,706,387
</TABLE>
- ----------------------------
(1) Adjusted to show the effect of the sale of 1,600,000 shares of common stock
we are offering to you at a price of $5.00 per share. See "Use of
Proceeds."
(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 HEREBY IS SPECULATIVE IN NATURE
AND INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING AMERICAN QUANTUM CYCLES AND ITS BUSINESS BEFORE
PURCHASING THE SECURITIES OFFERED HEREIN. 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.
AMERICAN QUANTUM CYCLES HAS A LIMITED OPERATING HISTORY AND CONTINUED OPERATING
LOSSES
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 January 31, 1999, we incurred cumulative
losses of $6,035,134 and an accumulated deficit of $3,270,959. We anticipate our
losses will continue in the future unless we are able to produce revenue from
sales of our motorcycles.
RISK ASSOCIATED WITH THE PROTECTION, EXPIRATION OF PATENTS AND PATENTS PENDING
AND INFRINGEMENT OF AMERICAN QUANTUM CYCLES PRODUCTS
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 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.
COMPLIANCE WITH FEDERAL, STATE AND LOCAL GOVERNMENT REGULATIONS EFFECTING
MOTORCYCLE PRODUCTION
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.
CONSUMER DISCRETIONARY SPENDING MAY EFFECT MOTORCYCLE PURCHASES
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.
5
<PAGE>
RISK OF MOTORCYCLE DEFECTS
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.
LIABILITIES ASSOCIATED WITH OUR MOTORCYCLES
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.
ENVIRONMENTAL RISK ASSOCIATED WITH MOTORCYCLE PRODUCTION LIABILITIES
Our business operations and facilities are subject to a number of
federal, state and local environmental laws and regulations. Although our
management believes that our operations and facilities are in material
compliance with such laws and regulations, the risk of environmental liabilities
cannot be completely eliminated. There can be no assurance that future changes
in such laws, regulations or the nature of our operations will not 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,
such expenses could have a material adverse effect on our operations.
RISKS OF NON-APPROVAL FROM, ENVIROMENTAL PROTECTION AGENCY, DEPARTMENT OF
TRANSPORTATION, STATE AND LOCAL AGENCIES
We will 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. In addition, our
manufacturing facility will be required to comply with environmental and safety
standards. The potential delays and costs that could result from obtaining such
regulatory approvals and complying with, or failing to comply with, such
regulations could result in delays in motorcycle production and adversely affect
operating results.
RISK OF NOT BEING ABLE TO COMPETE WITH LARGER MOTOCYCLE COMPANIES
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.
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 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. See "Business Competition".
6
<PAGE>
RISK OF OUR MOTORCYCLE DEALERS BEING UNSUCCESSFUL
We expect to derive substantially all of our revenue from sales through
independent dealers. As of February 1999, we executed agreements with 24
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.
RISK OF NOT BEING ABLE TO EXPAND OUR MOTORCYCLE PRODUCTION AND DISTRIBUTION
CAPACITIES
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. The
foregoing 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.
RISK THAT PROCEEDS FROM THIS OFFERING WILL NOT BE SUFFICIENT
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.
SIGNIFICANT PORTION OF PROCEEDS FROM THIS OFFERING WILL BE USED TO PAY OUR
EXSISTING DEBT
Approximately 33% 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.
DEPENDENCE ON MOTORCYCLE PARTS AND MATERIALS SUPPLIERS
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.
7
<PAGE>
RISKS ASSOCIATED WITH NOT KEEPING OUR MOTORCYCLE AND MOTORCYCLE RELATED PRODUCTS
AND TECHNOLOGY CURRENT AND COMPETITIVE
Our success depends on our ability to develop new motorcycle models and
motorcycle related products that meet changing customer demands. The motorcycle
manufacturing industry is subject to rapidly changing technology and emerging
competition. 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. Also, we cannot assure you
that we will have the capital resources or the ability to implement any new
technology.
DEPENDENCE ON OUR COMPUTER INFRASTRUCTURE; IMPACT OF THE YEAR 2000 ON OUR
COMPUTER SYSTEMS
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.
DEPENDENCE ON 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. Even though we have employment agreements with the members of our
management team 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>
POSSIBILITY THAT 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.
RISK ASSOCIATED WITH OUR MANAGEMENT'S ABILITY TO USE OFFERING PROCEEDS
Our success will be substantially dependent on our management team with
respect to how the offering proceeds will be used. We believe net proceeds from
this offering will be used for the purposes described under "Use of Proceeds"
section of this prospectus. However, we reserve the right to use the offering
proceeds for purposes other than those described in the "Use of Proceeds"
section if we determine that such use is in our best interests. You will be
entrusting your funds to our management team with only limited information
concerning their specific intentions.
LIMITED MARKET FOR AMERICAN QUANTUM CYCLES' SECURITIES
There is currently only a limited trading market for our common stock.
Our common stock trades on the OTC Bulletin Board under the symbol "AMQC," which
is a limited market in comparison to the NASDAQ system or the American Stock
Exchange. Simultaneously with this offering, we intend to apply for inclusion of
our common stock on the AMEX, however, we cannot assure you that our common
stock will ever qualify for inclusion on the AMEX or that more than a limited
market will ever develop for our common stock.
RISK ASSOCIATED WITH PENNY STOCK RULES LIMITING THE LIQUDITY OF AMERICAN QUANTUM
CYCLES STOCK
Our common stock currently trades on the OTC Bulletin Board at a price
of less than $5.00 per share and is subject to the Penny Stock Rules under the
Securities Exchange Act of 1934. These rules regulate broker-dealer practices
for transactions in "Penny Stocks." Penny stocks generally are equity securities
with a price of less than $5.00. The penny stock rules require broker-dealers,
to deliver a standardized risk disclosure document prepared by the Security and
Exchange Commission that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to completing the transaction and must be given to the customer in writing
before or with the customer's confirmation.
In addition, the penny stock rules require that prior to a transaction,
the broker and/or dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may reduce purchases in this offering and trading activity in this offering
market for our common stock. As long as our common stock is subject to the penny
stock rules, investors in this offering may find it more difficult to sell their
securities.
RISK ASSOCIATED WITH MARKET ACCEPTANCE OF AMERICAN QUANTUM CYCLES' PRODUCT LINE
Our success depends on whether or not our products are accepted in the
market. You should be aware that development stage companies introducing new
products into the market are subject to a high level of uncertainty and risk.
Because the market for our motorcycles is new and evolving we cannot predict the
size and future growth rate, if any, of the market. We cannot assure you that
the market for our motorcycles will develop or that demand for our motorcycles
will emerge or become economically sustainable. Market acceptance of our
products depends on our ability to establish a brand image and a reputation for
high quality, which will differentiate our brand of products from our
competitors. There can be no assurance that our products will be perceived as
being of high quality and differentiated from such other products, or that we
will be successful in establishing our intended brand image. In addition, our
management team has no experience manufacturing or marketing motorcycles on a
large scale. Our management's lack of experience could result in the failure of
our ability to sell our motorcycles.
9
<PAGE>
RISK THAT OFFERING PRICE DOES NOT ACCURATELY REFLECT THE VALUE OF OUR COMMON
STOCK
The purchase price for the shares of common stock we are offering to
you was determined by American Quantum Cycles and Barron Chase Securities, Inc.,
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.
See the section of this prospectus entitled "Underwriting."
POSSIBLE VOLATILITY OF AMERICAN QUANTUM CYCLES' STOCK PRICE
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.
RISK ASSOCIATED WITH OUR UNDERWRITER EXERCISING THEIR WARRANTS FROM THIS
OFFERING
Barron Chase Securities, Inc., our underwriter, will receive warrants
to purchase a number of shares of our common stock equal to 10% of the shares
sold in this offering. At Barron Chase's request, we must register the shares
Barron Chase will receive if it exercises the warrants. If Barron Chase requires
us to register their shares, our ability to arrange future financing and the
market price of our common stock may be negatively affected. See the section of
this prospectus entitled "Underwriting."
NO DIVIDENDS ANTICIPATED ON AMERICAN QUANTUM CYCLES COMMON STOCK
We do not anticipate generating cash flows from operations in the near
future. If we do generate cash flows from operations we presently intend to use
those cash flows to finance further growth of our business and not to pay
dividends to our shareholders. Accordingly, investors should not purchase the
shares with a view towards receipt of dividends.
AUTHORIZATION OF PREFERRED STOCK POSSIBLE ANTI-TAKEOVER EFFECTS
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. Although we do not plan to issue any
shares of preferred stock, we may choose to in the future. See the section of
this prospectus entitled "Description of Securities - Preferred Stock."
RISK ASSOCIATED WITH EXPENSES INCURRED IN PROTECTING DIRECTORS AND OFFICERS FROM
LIABILITY
Our articles of incorporation allow us to reimburse our officers and
directors for damages they may be subject to resulting from a breach of their
fiduciary duties to our shareholders. Our articles of incorporation also require
us to advance money to any officer or director if the law does not prevent us
from doing so. 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. See "Management - Indemnification of Directors and Officers."
10
<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 $5.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses, will be approximately $6,731,500 (not including an additional
$1,200,000 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:
Approximate
Approximate Amount Percentage of
Application of Net Proceeds of Net Proceeds
----------- --------------- ---------------
Repayment of notes (1)............... $2,260,313 33.6%
Equipment Purchase (2)............... $100,000 1.5%
Working Capital (3).................. $4,371,187 64.9%
---------- -----
Total............................ $6,731,500 100%
========== ===
----------------------------
(1) Includes the repayment of (i) an aggregate of $444,467 principal and
accrued interest payable to the holders of American Quantum Cycles 10%
notes; (ii) an aggregate of $743,801 principal and accrued interest to
the holders of American Quantum Cycles 8% notes; and (iii) an
aggregate of $202,045 principal and accrued interest to the holders of
American Quantum Cycles 7% notes; (iv) an aggregate of $870,000 to the
holders of American Quantum Cycles senior promissory notes issued
between November 1998 and January 1999. "See "Management's Discussion
and Analysis" and "Plan of Operations".
(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.
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 such 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 May 31, 1999, there were approximately 218 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.
Common Stock
------------
High Low
---- ---
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 - June 10, 1999 5.52 2.48
11
<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 January
31, 1999 our capitalization as adjusted to show the sale of our common stock
offered at a public offering price of $5.00 per share; and the receipt of the
estimated net proceeds from the offering.
<TABLE>
<CAPTION>
January 31, 1999
----------------------------------
Actual(1) As Adjusted
--------- -----------
<S> <C> <C>
Short term debt:
Notes payable - shareholders $2,479,000 $ -
Note payable - related party 500,000 500,000
Current maturities of long-term debt 20,182 20,182
Current capital lease obligations 24,006 24,006
$3,023,188 $544,188
Long term debt:
Installment note for vehicle purchase
at 8.75% $13,802 $13,802
Installment notes for intellectual
property rights from 8% to 10% 14,656 13,802
28,458 28,458
Capital lease obligations 41,370 41,370
69,828 69,828
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; 2,033,711 shares issued
(actual); 3,633,711 shares (as adjusted) (2) 2,034 3,634
Additional paid-in capital (2) 2,762,141 10,902,981
Accumulated deficit (6,035,134) (6,035,134)
(3,270,959) 4,871,481
Total capitalization $(3,201,131) $4,941,309
</TABLE>
- ----------------------------
(1) As of May 31, 1999, there were 2,527,809 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.
12
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
For the year ended For the nine months ended
April 30 January 31
----------------------------- ------------------------
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
(unaudited)
STATEMENT OF
OPERATIONS DATA:
Revenues $192,856 $ 0 $700,305 $126,416
Total costs and expenses 2,824,567 2,634 1,266,188 1,283,734
Net loss $(2,631,711) $(2,634) $(3,565,883) $(1,157,318)
Weighted average
shares outstanding (2) 501,961 147,929 1,609,291 890,592
Net loss per common
share outstanding (2) $(5.243) $ (0.018) $(2.216) $ (1.299)
<CAPTION>
As of As of
April 30, 1998 January 31, 1999 Adjusted (1)
-------------- ---------------- ------------
(unaudited)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets $886,836 $6,124,084 $10,495,271
Working capital $(2,162,614) $(4,828,200) $3,214,240
Total assets $1,864,216 $7,630,247 $12,101,434
Total liabilities $3,167,426 $11,066,300 $7,395,047
Shareholders' equity (deficit) $(1,303,210) $(3,436,053) $4,706,387
</TABLE>
- ----------------------------
(1) Adjusted to show the effect of the sale of 1,600,000 shares of common stock
we are offering to you at a price of $5.00 per share. See "Use of
Proceeds."
(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.
13
<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 elsewhere.
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 40 motorcycles in March to 80
motorcycles per month by June 1999 with the addition of a second assembly line
and starting two shift operations during the late spring of 1999.
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 saddle bags 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 ("Management") 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 the company's 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.
14
<PAGE>
RESULTS OF OPERATION
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. The fiscal year ended April 30, 1997
had a deficit carry forward of $2,634. During the fiscal year ended April 30,
1998, our efforts have been 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 have 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 in the first nine
months of this fiscal year in the amount of $3,400,788 these losses include
$2,734,197 in general and administrative activities, representing significant
increases in personnel and the outside professional services necessary for
production increase, and $625,418 in accrued interest expense. We sustained
losses in the first nine months of the last fiscal year in the amount of
$1,157,317. These losses include $1,114,254 in general and administrative
activities, representing training and development of personnel and process
necessary in a development stage operation, and $30,880 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. An additional 18 motorcycles have been produced
during this fiscal year to date, and an additional 240 motorcycles have been
booked into production slots based on orders from 24 dealers. Eighty-six of
these bikes have been 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 and 7 were delivered in early May. 5 in early June, 1999.
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 240 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 240 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.
15
<PAGE>
While American Quantum Cycles anticipates that the current fiscal year
ending April 30, 1999 will have deficit earnings, including the aggregate for
the 4th Quarter. American Quantum Cycles expects their first profitable quarter
to occur second 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. seventeen of the 8% note holders, representing an aggregate of
$706,500 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 $5.00; and (ii) warrants to purchase a number of
shares of American Quantum Cycles common stock equal to the 8% note shares
at an exercise price of $5.00 per share. American Quantum Cycles redeemed
two of the 8% notes with a principal balance of $80,000.
Ten of the 8% note holders, representing an aggregate of $297,500 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. One of
the 8% note holders has sent American Quantum Cycles notice informing
American Quantum Cycles that it is in default of its repayment obligations
on the 8% notes. American Quantum Cycles is in the process of negotiating
with this note holder. The total amount of the proceeds that American
Quantum Cycles has designated for repayment of the 8% notes is $620,500
principal plus $123,301 interest.
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
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. Six of the 7% note holders,
representing an aggregate of $70,000 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. Fifteen of the 7% note holders, representing an
aggregate of $337,000 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 $5.00; and (ii) warrants to purchase a
number of shares of American Quantum Cycles common stock equal to the 7%
note shares at an exercise price of $5.00 per share. American Quantum
Cycles redeemed two of the 7% notes which had an aggregate principal
balance of $32,500.
Seven of the 7% note holders, representing an aggregate of $160,000 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 remaining one 7% note holder, representing an aggregate of $20,000 of
the outstanding principal balance of the 7% note, has not agreed to either
extend the terms of, or convert the 7% note. American Quantum Cycles has
not received a notice of default from this note holder and American Quantum
Cycles is in the process of negotiating with this note holder. The total
amount of the proceeds that American Quantum Cycles has designated for
repayment of the 7% notes is $180,000 principal plus $22,045 interest.
16
<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
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. Seven of the 10% note holders,
representing an aggregate of $320,000 of the outstanding principal amount
of the 10% 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 $5.00; and (ii) 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 $5.00 per share.
Two of the 10% note holders, representing an aggregate of $380,000 of
the outstanding principal balance of the 10% notes, agreed to extend the
maturity date of their 10% 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 10% notes is $380,000 principal plus
$64,467 interest.
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 note holders 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 (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. Valuation of the incentive shares
is to be determined by the public offering price per share. 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.
In December 1998, American Quantum Cycles contracted for a secured line
of credit 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. 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.
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 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 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, these lines of credit will cover expenses of American Quantum
Cycles through to the completion of this offering.
17
<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 (Win 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 which 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 (i.e.
ordering 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
24 prospective dealers and have received orders for 240 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
headcount (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.
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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.
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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):
Year Median Age Median Income
---- ---------- -------------
1980 24 years $17,500
1985 27.1 years $25,600
1990 32 years $33,100
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. ("Ferrex") 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.
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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 (designed to continually
track and control inventory and production) for use by dealers, customers and
American Quantum Cycles. See "Intranet/Extranet System."
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.
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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 class
(heavyweight cruisers) 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.
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
(e.g. 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.
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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-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 DEVELOPMEMNT
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.
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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.
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 (the "Dealernet") 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:
(1) corporate/product name identification; and
(2) 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.
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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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:
(1) design and development of high performance and quality
motorcycles
(2) market presence;
(3) timely delivery of made-to-order motorcycles;
(4) the pricing policies of our competitors and suppliers;
(5) the timing and introduction of new products and services by
American Quantum Cycles and others;
(6) our ability to support existing and emerging industry standards;
and
(7) 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.
26
<PAGE>
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.
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> <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 W. Starke.................... 42 Vice President and Director
Gary 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.
27
<PAGE>
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 L. 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 which 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 Act permits the indemnification of directors, employees,
officers and agents of Florida corporations. Our Articles of Incorporation
indemnify our Directors and Officers to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a Director,
Officer, employee, or other agents of our Company. Insofar as indemnification
for liability arising under the Securities Act may be permitted to Directors,
Officers, and controlling persons, we are aware that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is unenforceable.
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<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: (1) President and Chief Executive
Officer; and (2) each of our Executive Officers who earned more than $100,000
during the fiscal year ended April 30, 1998 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------------
Awards Payouts
------------------------------------
Securities
Other Under-
Annual Restricted Lying All Other
Compen- Stock Options/ LTIP Compen-
Name and Principal Year Salary Bonus sation Award(s) SARs Payouts sation
Position ($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Hagen 1996 $ -0- $ -0- $ -0- $ -0- -0- $ -0- $ -0-
Chief Executive Officer
and Chairman of the Board(1)
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $ -0- $ -0- $ -0- $ -0- -0- $ -0- $ -0-
- ------------------------------------------------------------------------------------------------------------------------------------
1998 $13,462 $ -0- $78,577(2) $ -0- -0- $ -0- $ -0-
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Hagen was appointed Chief Financial Officer on September 22, 1998.
(2) Includes (i) $10,500 we provided to Mr. Hagen as a relocation allowance;
and (ii) $68,077 we paid to Mr. Hagen under the terms of a consulting
agreement. Does not include (i) 225,000 shares of common stock issued to
Mr. Hagen in November 1998, and (ii) options to purchase 12,500 shares of
common stock granted to Mr. Hagen in November 1998. See "Principal
Shareholders."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value At
Assumed Annual Rates Of Stock
Price Appreciation For Option Grant Date
Individual Grants Term Value
- ------------------------------------------------------------------------------------------------------------------------------------
Percent of
Number Of Total
Securities Options/
Underlying SARs Granted Expiration
Options/SARs To Employees Exercise Of Date
Name Granted (#) In Fiscal Year Base Price (S/Sh)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard Hagen N/A
President, Chief Executive
Officer and Chairman
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Number of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
At Fiscal Year-End At Fiscal Year-
Shares Value (#) End ($)
Acquired On Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard Hagen
President, Chief Executive
Officer and Chairman (1) N/A
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Hagen was appointed Chief Financial Officer on September 22, 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 (i) issued Mr. Hagen 225,000 shares of restricted common stock; and (ii)
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 AND DIRECTOR. 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.
JEFFREY W. 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. 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 (i) 150,000 shares of common stock; and (ii)
options to purchase 12,500 shares of common stock exercisable at $4.00 per share
through December 30, 2003.
30
<PAGE>
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 "Majority Shareholders" adopted American Quantum Cycles 1997 Stock
Option Plan the "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
the "Committee" 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 "Incentive Options" under Section 422 of the Internal Revenue Code of
1986, or options that do not so qualify "Non-Qualified Options". In addition,
the plan also allows for a reload option provision "Reload Option". 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 the 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 who are employed by AQC 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 February 4, 1999, we granted an aggregate of 50,000 incentive
options (all of which have vested) and an aggregate of 645,000 non-qualified
options. We also granted 311,250 outside of the plan.
31
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table describes certain information regarding certain individuals
who beneficially owned our common stock on May 31, 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:
(1) people who we know beneficially own or exercise voting or control
over 5% or more of our common stock,
(2) by each of our directors, and
(3) by all executive officers and directors as a group.
At May 31, 1999, we had 2,527,809 shares of common stock outstanding
(10).
<TABLE>
<CAPTION>
Percent of Beneficial Ownership
-------------------------------
No. of Shares
Name and Address or of Common Stock Before After
Identity of Group(1) Beneficially Owned (10) Offering Offering
-------------------- ----------------------- -------- --------
<S> <C> <C> <C>
Richard Hagen, Director, Chairman, President,
CFO and CEO(2) 237,500 9.5% 5.8%
Jim Cheal, Vice President and Director(3) 12,500 * *
Robert Guess, Vice President and Secretary 6,250 * *
Michael Smith, Vice President 2,500 * *
Jeffrey W. Starke, Vice President and Director(4) 12,500 * *
Gary Irving, Executive Vice President, COO and Director(5) 162,500 6.5% 3.9%
Frank Aliano, Vice President 6,250 * *
Doreen Cheal(6) 151,299 6.1% 3.7%
Linda Condon, Director of Finance
and Treasurer(7) 1,073 * *
Susquehana Holdings Corp(7) 158,500 6.3% 3.8%
Mathers Associates (8) 130,000 5.2% 3.2%
Denise O'Brien(9) 163,799 6.6% 4.0%
All Executive Officers and Directors 756,170 30.3% 18.4%
as a group (9 persons)
</TABLE>
* Denotes less than 1% beneficial ownership.
- ----------------------------
(1) Unless otherwise indicated, the address of each of the persons is 711-731
Washburn Road, Melbourne, FL 32934.
(2) Includes 12,500 shares of common stock issuable upon the exercise of
options exercisable at $4.00 until December 20, 2003.
(3) Includes (i) 151,299 shares of common stock owned by Doreen Cheal, Mr.
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.
(4) Includes 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.
(5) Includes 12,500 shares issuable upon the exercise of options exercisable at
$4.00 per share until December 20, 2003.
(6) Jim Cheal is Doreen Cheal's husband.
32
<PAGE>
(7) Address is 213 Mathers Road, Ambler, PA 19002. Mr. Norbert Zeelander is the
sole shareholder of Susquehana Holdings Corp. As such, Mr. Zeelander is
deemed to beneficially own the 158,500 shares held in the name of
Susquehana Holdings Corp. Does not include (i) 9,500 shares of common stock
owned by Mr. Zeelander individually; or (ii) 130,000 shares of common stock
owned by Mathers Associates, a limited partnership in which Mr. Zeelander
is a general partner.
(8) Address is 213 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.
Does not include (i) 9,500 shares of common stock owned by Mr. Zeelander
individually; or (ii) 158,500 shares of common stock owned by Susquehana
Holdings Corp., a corporation in which Mr. Zeelander is sole shareholder.
(9) Denise O'Brien is the sister of Jeffrey Starke. Mrs. O'Brien resigned as a
director on April 30, 1999.
(10) Adjusted to give effect for a one for four reverse stock split effective on
June 3, 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 9, 1997, pursuant to the terms of a purchase agreement the
"Initial Agreement" 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 prototype motorcycle and
related equipment was valued at $116,608. On April 9, 1998, Ms. Cheal and Ms.
O'Brien returned an aggregate of 125,974 shares of common stock to us because
they were overvalued.
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.
CONCURRENT OFFERING
Concurrent with this offering, we are registering pursuant to an
alternate prospectus, for the account of the selling security holders, an
additional 290,125 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
May 31, 1999 there were 2,527,809 shares of common stock issued and 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.
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<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 includes certain provisions, which prevent third parties
from taking over Florida corporations. The Florida Control Share Act generally
provides that shares acquired in excess of certain specified thresholds will not
possess any voting rights unless such voting rights are approved by a majority
of a corporation's disinterested shareholders. The Florida Affiliated
Transactions Act generally requires super majority approval by disinterested
shareholders of certain specified transactions between a public corporation and
holders of more than 10% of the outstanding voting shares of the corporation (or
their affiliates). Florida law and American Quantum Cycles Articles and Bylaws
also authorize us to indemnify our Directors, Officers, employees and agents. In
addition, our Articles and Florida law presently limit 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 summarized in the following paragraphs, and above under the Section
entitled "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. The following provisions may not be amended in our
Articles or Bylaws without the affirmative vote of the holders of at least
two-thirds 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 Florida Atlantic Stock
Transfer, Inc., 7130 Nob Hill Road, Tamarac, Florida 33321.
34
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after the completion of this offering, American Quantum
Cycles will have 4,097,809 shares of common stock outstanding the "Outstanding
Shares" not including up to 1,006,250 shares of common stock that may be issued
upon the exercise of options. Of the outstanding shares (i) 813,530 are freely
tradable without restriction under the Securities Act of 1933 as amended (the
"Act") (ii) 232,500 shares of common stock being registered in the alternate
prospectus will be freely tradable without restriction the Act, but will be
subject to a lock up agreement with the underwriter the transfer of the shares
for a 6 month period commencing on the date the offering closes (iii) 67,725
shares are "Restricted Securities" but were eligible for resale pursuant to Rule
144 promulgated under the Act beginning in May 1998; (iv) 699,625 shares are
"Restricted Securities" but will be eligible for resale pursuant to Rule 144
between October 1999 and January 2000; and (v) 756,170 shares held by Officers
and Directors of American Quantum Cycles are subject to lock-up agreements with
the underwriter restricting the transfer of such shares for a period of two
years from the closing date of this offering (the "Lock-Up Shares"). After the
expiration of the lock-up agreements all 756,170 shares held by our Officers and
Directors will be eligible for sale under Rule 144.
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 (i) 1% of the number of then outstanding shares of the
common stock or (ii) 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 (or persons whose shares are aggregated) 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. See
"Description of Securities", "Principal Shareholders", "Concurrent Offering" and
"Risk Factors".
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriter agreed to purchase from American Quantum Cycles an aggregate of
1,600,000 Shares (the "Securities"). 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).
American Quantum Cycles has been advised by the underwriter that the
underwriter proposes to offer the securities to the public at the offering price
set forth 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. ("NASD"), 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. Such 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 240,000 Shares at the public offering price less
the underwriting discount set forth on the cover page of this prospectus. The
underwriter may exercise this option solely to cover over-allotments in the sale
of the securities 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 securities
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.
35
<PAGE>
American Quantum Cycles has agreed to pay to the underwriter a
commission of ten percent (10%) of the gross proceeds of this offering (the
"Underwriting Discount"), 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. 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 (including mergers, acquisitions, joint ventures and any
other business transaction for American Quantum Cycles introduced by the
underwriter), and which is consummated after the closing (including an
acquisition of assets or stock for which it pays, in whole or in part, with
shares or other securities of American Quantum Cycles), or if we retain the
services of the underwriter in connection with any such transaction (an
"Introduced Consummated 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 such value, 3% of the
next million of such value, 2% of the next million of such value, and 1% of the
next million dollars of such value and of all such value above $4,000,000.
At the closing, 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 160,000 shares of common stock (the
"Underlying Shares"). 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 (____% of the
public offering price). The underwriter warrants will be restricted from sale,
transfer, assignment or hypothecation for a period of twelve months from the
effective date by the holder, except (i) to officers of the underwriter and
members of the selling group and Officers and partners thereof; (ii) by will; or
(iii) by 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. Such 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 underwriter warrants do not
entitle the holders thereof to any rights as a shareholder of American Quantum
Cycles until such underwriter warrants are exercised and shares of common stock
are purchased thereunder.
The underwriter warrants and the securities issuable thereunder may not
be offered for sale except in compliance with the applicable provisions of the
Securities Act. American Quantum Cycles has agreed that if it shall cause a
post-effective amendment, a new registration statement, or similar offering
document to be filed with the Securities and Exchange Commission, the holders
shall have the right, for seven (7) years from the Effective Date, to include in
such registration statement or offering statement the underwriter warrants
and/or the securities 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 thereafter, American
Quantum Cycles will, under certain circumstances, register the underwriter
warrants and/or any of the securities issuable upon their exercise.
36
<PAGE>
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. 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 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. To the extent that these provisions
may purport to provide exculpation from possible liabilities arising under the
federal securities laws, in the opinion of the commission, such 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. See ("Additional Information").
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 5,250 shares of common stock. Certain matters will be passed
upon for the underwriter by David A. Carter, P.A., 2300 Glades Road, Suite 210,
West Tower, 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 such 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 (the "Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a
registration statement on Form SB-2 the "Registration Statement" 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 thereto, as permitted by the rules and regulations of the
Commission. For further information, reference is made to the registration
statement and to the exhibits filed therewith. 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 thereto may be
inspected without charge at the offices of the Commission and copies of all or
any part thereof may be obtained from the Commission's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549 or at certain of the regional offices
of the 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 Commission. Electronic reports and
other information filed through the Electronic Data Gathering, Analysis, and
Retrieval System are publicly available through the Commission's website
(http://www.sec.gov.).
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Certified Public Accountant............................................................................... F-2
Balance Sheets as of April 30, 1998 and 1997........................................................................ F-3
Statements of Operations for the Years Ended April 30 1998, 1997 and 1996 and
for the Period from March 20, 1986 (Inception)
to April 30, 1998................................................................................................. F-4
Statements of Stockholders' Equity (Deficit) for the Period
from March 20, 1986 (Inception) to April 30, 1998................................................................. F-5
Statements of Cash Flows for the Years Ended April 30, 1998 1997 and 1996 and
from the Period from March 20, 1986 (Inception) to April 30, 1998................................................. F-6
Notes to Financial Statements........................................................................................ F-7
Unaudited Balance Sheet as of January 31, 1999...................................................................... F-15
Unaudited Statements of Operations for the Nine Months
Ended January 31, 1999 and 1998................................................................................... F-17
Unaudited Statements of Cash Flows for the Nine Months Ended
January 31, 1999 and 1998......................................................................................... F-18
Unaudited Statement of Stockholders' Equity (Deficit) for the Nine
Months Ended January 31, 1999................................................................................... F-19
Notes to the Financial Statements................................................................................... F-20
</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, 1998 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for the years ended April 30,
1998, 1997 and 1996, and for the period from March 20, 1986 (inception) to April
30, 1998. 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, 1998 and 1997 and the results of its operations and
its cash flows for the years ended April 30, 1998, 1997 and 1996, and for the
period from March 20, 1986 (inception) to April 30, 1998 in conformity with
generally accepted accounting principles.
Pricher and Company
Orlando, Florida
September 21, 1998
F-2
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
BALANCE SHEET
April 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 48,768 $244,985
Accounts receivable 35,602
Prepaid expenses 39,308 4,165
Inventories 763,158
-----------
Total current assets 886,836 249,150
----------- --------
Property and equipment 649,499
Less accumulated depreciation 62,486
-----------
587,013
-----------
Other assets:
Deposits 40,700
Licenses and intellectual rights, less accumulated
amortization of $12,565 349,667
-----------
390,367
-----------
$ 1,864,216 $249,150
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $370,658 $
Accrued liabilities 317,103 767
Current maturities of long-term debt 20,183
Current capital lease obligations 24,006
Notes payable 2,317,500 221,770
----------- --------
Total current liabilities 3,049,450 222,537
----------- --------
Capital lease obligations, less current maturities 75,598
Long-term debt, less current maturities 42,378
-----------
117,976
-----------
Stockholders' equity (deficit):
Common stock, par value $.001 per share; authorized
50,000,000 shares, issued and outstanding
2,471,045 and 900,000 shares 2,471 900
Preferred stock, par value $.001 per share; authorized
2,500,000 shares, no shares issued and outstanding
Additional paid-in capital 1,328,664 28,347
Deficit accumulated during the development stage (2,634,345) (2,634)
----------- -------
Total stockholders' equity (deficit) (1,303,210) 26,613
----------- --------
1,864,216 $249,150
=========== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Years Ended April 30, 1998, 1997 and 1996
and the Period from March 20, 1986 (inception) to April 30, 1998
<TABLE>
<CAPTION>
March 20, 1986
(inception)
1998 1997 1996 to April 30, 1998
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Sales $ 192,856 $ $ $ 192,856
Cost and expenses:
Cost of goods sold 173,424 173,424
General and administrative 2,453,062 1,542 2,454,604
----------- ------- -----------
2,626,486 1,542 2,628,028
----------- ------- ------------
Loss from operations (2,433,630) (1,542) (2,435,172)
------------ ------- -----------
Other income (expense):
Loss on disposition of property and
equipment (13,956) (13,956)
Interest and other income 3,107 3,107
Interest expense (187,232) (1,092) (188,324)
----------- ------- -----------
(198,081) (1,092) (199,173)
----------- ------- -----------
Net loss $ 2,631,711 $(2,634) $ $(2,634,345)
=========== ======= ======= ===========
Loss per common share:
Weighted average shares
outstanding 2,007,844 591,716 500,000
=========== ======= =======
Net loss $ (1.311) $(0.004) $0.00 $(1.315)
=========== ======= ===== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from March 20, 1986 (inception) to April 30, 1998
<TABLE>
<CAPTION>
Common Stock Deficit
------------ Accumulated
Additional During the Total
Number of Par Paid-In Development Stockholders'
Shares Value Capital Stage Equity (Deficit)
------ ----- ------- ----- ----------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock,
March 20, 1986 500 $ 500 $ $ $ 500
Net income (loss) from inception to
April 30, 1996
Balance, April 30, 1996 500 500 500
1,000 for 1 stock split 499,500
Stock issued for consulting services 275,000 275 275
Stock issued to bridge loan participants 125,000 125 28,347 28,472
Net loss for the year ended
April 30, 1997 (2,634) (2,634)
----------- -----------
Balance, April 30, 1997 900,000 900 28,347 (2,634) 26,613
Common stock issued in exchange
for equipment and services 1,261,075 1,261 93,748 95,009
Private placement of common stock
for cash, net of issuance costs 245,744 246 949,728 949,974
Employee stock bonuses recorded
as compensation expense 51,300 51 205,150 205,201
Common stock issued to a dealership
for promotional expense 10,000 10 39,990 40,000
Stock issued to lenders for interest
on bridge loans 2,926 3 11,701 11,704
Net loss for the year ended
April 30, 1998 (2,631,711) (2,631,711)
----------- -----------
Balance, April 30, 1998 2,471,045 $2,471 $1,328,664 $(2,634,345) $(1,303,210)
========= ====== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Years Ended April 30, 1998, 1997 and 1996
and the Period from March 20, 1986 (inception) to April 30, 1998
<TABLE>
<CAPTION>
March 20, 1986
(inception)
1998 1997 1996 to April 30, 1998
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net cash used in
operating activities:
Net loss $(2,631,711) $ (2,634) $ $(2,634,345)
Items not requiring (providing) cash:
Loss on disposition of equipment 13,956 13,956
Depreciation and amortization 75,051 1,092 76,143
Issuance of common stock for services
and interest 304,409 275 304,684
Changes in assets and liabilities:
Receivables (35,602) 500 (35,102)
Inventories (763,158) (763,158)
Prepaid expenses (35,143) (35,143)
Other assets (40,700) (40,700)
Accounts payable 370,658 370,658
Accrued liabilities 316,336 767 317,103
---------- ---------- ----------
Net cash used in operating activities (2,425,904) (2,425,904)
---------- ----------
Cash flows from investing activities:
Capital expenditures (615,950) (615,950)
Investment in licenses and intellectual rights (362,232) (362,232)
---------- ----------
Net cash used in investing activities (978,182) (978,182)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable 2,317,500 244,985 2,562,485
Repayment of notes payable (221,770) (221,770)
Long-term borrowing 175,159 175,159
Repayment of long-term debt (12,994) (12,994)
Proceeds from issuance of common stock 949,974 949,974
----------
Net cash provided by financing activities 3,207,869 244,985 3,452,854
----------- ----------- ----------
Net increase (decrease) in cash (196,217) 244,985 48,768
Cash, beginning of year 244,985
-----------
Cash, end of year $ 48,768 $ 244,985 $ $ 48,768
=========== =========== = =======
Supplemental cash flow information:
Amounts paid for:
Interest $ 5,332 $ $ 5,332
=========== = = ===========
Income taxes $ $ $ $
= = = =
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
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.
Basis of presentation - As of April 30, 1998, the Company is still
considered to be in the development stage as substantially all of its efforts to
date have been devoted to raising capital, developing technological resources,
entering into employment agreements with key executives, leasing facilities and
securing licensing and dealership agreements. Sales during 1998 were minimal
compared to planned operations. 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.
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 which 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.
(A Development Stage Company)
Notes to Financial Statements
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.
2 INVENTORIES
Inventories at April 30, 1998 are comprised as follows:
Finished goods $13,787
Work in process 66,796
Purchased raw materials 682,575
--------
$763,158
========
There were no inventories as of April 30, 1997.
3 PROPERTY AND EQUIPMENT
Property and equipment includes the following:
Leasehold improvements $52,750
Manufacturing tools and equipment 142,805
Office furniture, equipment and software 308,025
Vehicles 145,919
--------
$649,499
========
Depreciation expense for the year ended April 30, 1998 amounted to $ 62,486. 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.
(A Development Stage Company)
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 (12,565)
--------
$349,667
========
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 will be
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
Notes payable at April 30, 1998 consist of:
10% Subordinated Bridge Loans - The Company issued eight unsecured promissory
notes dated March 30, 1998 to individuals providing bridge loan financing. The
aggregate principal balance of the notes at April 30, 1998 is $650,000 with
interest payable at 10% at maturity on September 30, 1998. The terms of the loan
agreements provide for the Company to issue a total of 130,000 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) will be recognized
over the term of the loans.
Convertible Debentures - The Company has issued two separate series of
convertible notes to investors:
Beginning in October 1997, the Company issued thirty-four 8%
Subordinated Notes, for an aggregate of $1,524,500. The notes mature one year
from date of issue, convertible at $2.00 per share. Interest is convertible at
the same rate as the principal, at the discretion of the note holder. Additional
interest expense of $381,125 (equal to the fair value of the common stock
assumed to be issued minus the conversion price) will be recognized over the
term of the loans. During the year ended April 30, 1998, $125,168 of such
additional interest expense was accrued.
F-9
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
Beginning in April 1998, the Company issued three 7% Subordinated
Notes, for an aggregate of $143,000. The notes mature one year from the date of
issue, 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 secondary
offering.
Notes payable at April 30, 1997 consisted of seven unsecured promissory
notes dated April 16, 1997 with principal aggregating $250,000. Interest at 8%
and principal were paid at maturity in September, 1997.
6 LONG-TERM DEBT
Long-term debt at April 30, 1998 is as follows:
Installment loan, monthly payments of $618 including
interest at 8.75%, matures September, 2002, secured by a
vehicle $27,074
Three installment notes payable to individuals for the
purchase of intellectual property rights, monthly payments
aggregating $1,389 including interest at 8% to 10%, matures
January, 2001 and 2002, secured by property rights 35,487
-------
62,561
Less current maturities 20,183
-------
Total long-term debt $42,378
=======
The aggregate maturities of total long-term debt during the next five years are
$20,182 in 1999, $19,461 in 2000, $13,073 in 2001, $6,822 in 2002 and $3,023 in
2003.
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 February, 2002. 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.
F-10
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
The following is an analysis of the leased assets included in property and
equipment as of April 30, 1998:
Telephone equipment $ 16,452
Computer equipment 49,142
Machinery and production equipment 41,479
--------
107,073
Less accumulated amortization (7,489)
--------
$ 99,584
========
The following is a schedule by years of future minimum payments required under
the leases together with their present value as of April 30, 1998:
Year ending
April 30, Amount
--------- ------
1999 $35,308
2000 35,308
2001 32,378
2002 21,276
2003 4,030
-------
Total minimum lease payments 128,300
Less amount representing interest (28,697)
-------
Present value of minimum lease payments $ 99,604
========
Operating leases - The Company leases its facilities and other real
property under non-cancelable operating leases with terms of one to four years
expiring in February, 2002. The Company is also responsible for real estate
taxes on the leased facilities. Rent expense under these leases was $ 83,155 for
the year ended April 30, 1998. The following is a schedule of future minimum
lease payments required under operating leases:
Year ending
April 30, Amount
--------- ------
1999 $133,956
2000 $ 69,756
2001 $ 69,756
2002 $ 58,130
F-11
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
8 CONTINGENCIES
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
9 SECURITY TRANSACTIONS
Following is a summary of security transactions during the year
ended April 30, 1998:
On May 21, 1997 the Company issued 1,261,075 shares of common
stock valued at $95,009 for management services, equipment and other assets (See
Subsequent Events - Note 14).
In September, 1997 the Company issued 245,744 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 (see note 5) and to provide working capital.
On October 24, 1997 and December 31, 1997, 50,000 and 1,300 shares,
respectively, of common stock valued at $205,201 were issued to key employees as
performance bonuses (See Subsequent Events - Note 14).
On December 15, 1997, 10,000 shares of common stock valued at $40,000
were issued to a dealership and recorded as promotional expense and 2,926 shares
valued at $11,794 were issued to bridge lenders and recorded as interest
expense.
10 PREFERRED STOCK
As of April 30, 1998, the Company was 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.
F-12
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
11 INCOME TAXES
American Quantum Cycles 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, 1998, the Company has net operating loss carryforwards
totaling approximately $2,600,000 that may be offset against future taxable
income through 2012. No tax benefit has been reported in the 1998 financial
statements, however, because the Company believes there is at least a 50% chance
that the carryforwards will expire unused. Accordingly, a $1,040,000 tax benefit
of the loss carryforward has been offset by a valuation allowance of the same
amount. The Company 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.
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.
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
250,000 shares of Company common stock based upon the successful completion of a
private placement of Company's common stock (see note 9), with each option
exercisable at $4.00 per share. Also under the terms of the agreement, as
amended, the Company granted GFC a five year option to purchase 300,000 shares
of Company common stock, exercisable when and if there is a successful
completion of a secondary offering of the Company's common stock, at an exercise
price of $0.10 per share.
F-13
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
On June 15, 1998, the Company adopted the "1997 Stock Option Plan" (the
"Plan"). Under the Plan, 3,000,000 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, 1998, the Company has granted common stock
options to plan participants as follows:
Exercise Price Number of Options
-------------- -----------------
$5.00 405,000
$6.00 315,000
$7.00 500,000
$8.00 685,000
---------
Total options granted 1,905,000
=========
No options have been exercised as of April 30, 1998 (See Subsequent Events -
Note 14)
14 SUBSEQUENT EVENTS
On August 11, 1998 the Company retroactively reduced an employee
stock bonus awarded to two individuals on October 24, 1997, from 100,000 shares
to 50,000 shares. The reduced number of shares have been recorded as
compensation expense of $200,000 for the year ended April 30, 1998 based on a
value of $4.00 per share (See Note 9).
Also, on August 11, 1998 the Company retroactively reduced the number
of common shares issued in an exchange for certain property and equipment on May
21, 1997, from 1,911,075 shares to 1,261,075 shares. The exchange has been
recorded as a capital expenditure during the year ended April 30, 1998 based on
the fair market value of the equipment (See Note 9).
As of September 21, 1998, the board of directors is considering
rescinding all of the common stock options previously granted under the 1997
Stock Option Plan, however, no formal action has been approved (See Note 13).
F-14
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
January 31, 1999 April 30, 1998
---------------- --------------
(Unaudited)
-----------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 103,038 $ 8,768
Accounts receivable - trade (Note 8) 5,313,648 35,602
Inventory - raw materials (at FIFO) 157,819 682,575
Inventory - work in process 683,056 66,796
Inventory - finished goods 0 13,787
Prepaid expenses and other current assets 41,523 39,308
---------- ----------
Total current assets 6,299,084 886,836
Property and equipment, net 1,126,480 587,013
Patents and licenses, net (Note 4) 337,916 349,667
Other assets 41,767 40,700
Total Assets $7,805,247 $1,864,216
========== ==========
</TABLE>
(See accompanying notes to condensed financial statements)
F-15
<PAGE>
<TABLE>
<CAPTION>
January 31, 1999 April 30, 1998
---------------- --------------
(Unaudited)
-----------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities Current liabilities
Accounts payable - trade $ 952,349 $ 370,658
Accrued compensation 74,064 21,921
Notes payable - bridge loan (Note 6) 1,570,000 650,000
Convertible debentures - 8% (Note 7) 1,579,500 1,524,500
Convertible debentures - 7% (Note 7) 692,000 143,000
Lines of credit - secured & unsecured (Note 9) 293,200 0
Deferred income (Note 8) 4,533,308 0
Other accrued expenses and current liabilities 1,267,768 295,182
Total current liabilities 10,962,189 3,005,261
Long term liabilities
Capitalized leases (Note 5) 65,377 99,604
Notes payable - bank 23,573 27,074
Notes payable - other 25,067 35,487
------
Total long term liabilities 114,017 162,165
Total Liabilities 11,076,206 3,167,426
----------- -----------
Shareholders' Equity
Preferred stock - $.001 par value; 2,500,000
shares authorized; no shares issued 0 0
Common stock - $.001 par value; 50,000,000
shares authorized; 4,361,345 shares and
2,471,045 shares issued and outstanding 8,135 2,471
Capital in excess of par value 2,756,040 1,328,664
Retained earnings (deficit) (6,035,134) (2,634,345)
Total shareholders' equity (deficit) (3,270,959) (1,303,210)
----------- -----------
Total Liabilities & Shareholders' Equity $ 7,805,247 $ 1,864,216
=========== ===========
</TABLE>
(See accompanying notes to condensed financial statements)
F-16
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Three months ended Six months ended Six months ended
January 31, 1999 January 31, 1998 January 31, 1999 January 31, 1998
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales of tangible goods $ 391,376 $ 103,061 $ 865,399 $ 126,416
Cost of goods sold 263,947 37,422 908,263 132,188
Gross profit (deficit) 127,429 8,295 (42,864) (5,772)
Selling, general and administrative expenses 756,761 590,282 2,734,197 1,114,254
Operating profit (deficit) (629,332) (581,987) (2,777,061) (1,120,026)
Other income (expense):
Interest expense (56,335) (4,634) (625,418) (30,880)
Loss on disposition of asset 0 0 0 (7,566)
Other income (Note 9) 0 834 1,691 1,155
Net Operating Loss $(685,667) $(585,787) $(3,400,788) (1,157,317)
Weighted average shares outstanding 4,903,095 3,568,987 4,821,291 3,562,370
Loss per common share $ (0.140) $ (0.164) $ (0.705) $ (0.325)
Loss per Common Share-diluted $ (0.075) $ (0.164) $ (0.371) $ (0.325)
</TABLE>
(See accompanying notes to condensed financial statements)
F-17
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
January 31, 1999 January 31, 1998
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,400,788) $(1,157,317)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 201,482 33,603
Changes in assets and liabilities:
Receivables (881,039) (48,343)
Inventories (77,718) (559,828)
Prepaid expenses and other 9,861 (62,015)
Accounts payable 581,691 110,776
Other accrued expenses and current liabilities 892,935 205,068
Net cash used by operating activities (2,673,546) (1,478,056)
Cash flows from financing activities:
Loan proceeds 1,345,700 200,000
Convertible debenture proceeds 611,500 1,054,000
Retirement of prior debt (7,500) (450,000)
Payment of loan principal (48,148) (2,057)
Net capital and stock changes 1,550,628 1,137,808
Net cash provided by financing activities 3,452,180 1,939,751
Cash flows from investing activities:
Additions to property and equipment (724,364) (310,874)
Additions to intangible assets (Note 4) 0 (349,039)
Net cash used by investing activities (724,364) (659,913)
Net (decrease) increase in cash 54,270 (198,218)
Cash at beginning of period 48,768 244,985
----------- -----------
Cash at end of period $ 103,038 $ 46,767
=========== ===========
</TABLE>
(See accompanying notes to condensed financial statements)
F-18
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from March 20, 1986 (inception) to
January 31, 1999
<TABLE>
<CAPTION>
Common stock Deficit
---------------------------------------- Accumulated
Additional During the Total
Number of Par Paid-In Development Stockholders'
Shares Value Capital Stage Equity (Deficit)
------ ----- ------- ----- ----------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock,
March 20, 1986 500 $ 500 $ $ $ 500
Net income (loss) from inception to
April 30, 1996
Balance, April 30, 1996 500 500 500
========= ====== ===========
1,000 for 1 stock split 499,500
Stock issued for consulting services 275,000 275 275
Stock issued to bridge loan participants 125,000 125 28,347 28,472
Net loss for the year ended
April 30, 1997 (2,634) (2,634)
----------- -----------
Balance, April 30, 1997 900,000 900 28,347 (2,634) 26,613
========= ====== ========== =========== ===========
Common stock issued in exchange
for equipment and services 1,261,075 1,261 93,748 95,009
Private placement of common stock
for cash, net of issuance costs 245,744 246 949,728 949,974
Employee stock bonuses recorded
as compensation expense 51,300 51 205,150 205,201
Common stock issued to a dealership
for promotional expense 10,000 10 39,990 40,000
Stock issued to lenders for interest
on bridge loans 2,926 3 11,701 11,704
Net loss for the year ended
April 30, 1998 (2,631,711) (2,631,711)
----------- -----------
Balance, April 30, 1998 2,471,045 $2,471 $1,328,664 $(2,634,345) $(1,303,210)
========= ====== ========== =========== ===========
Stock issued for consulting services 4,644,500 4,645 624,995 629,640
Common stock issued in exchange
for equipment and services 88,000 88 87,912 88,000
Private placement of common stock
for cash, net of issuance costs 917,400 917 700,583 701,500
Employee stock bonuses recorded
as compensation expense 13,900 14 13,886 13,900
Net loss for the nine months ended
January 31, 1999 (3,400,788) (3,400,788)
----------- -----------
Balance January 31, 1999 8,134,845 8,135 2,756,040 (6,035,134) (3,270,959)
========= ====== ========== =========== ===========
</TABLE>
F-19
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
Notes to Condensed Financial Statements
(Unaudited)
(1) Basis of Presentation, General and Business
American Quantum Cycles, Inc. is an early production stage company that 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.
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.
The accompanying interim financial statements are prepared in accordance with
the instructions to Form-10QSB, are unaudited and do not include all the
information and disclosures required by generally accepted accounting principles
for complete financial statements. All adjustments that, in the opinion of
management, are necessary for a fair presentation of the results of operations
for the interim periods have been made and are of a recurring nature unless
otherwise disclosed herein. The results of operations for such interim periods
are not necessarily indicative of results of operations for a full year.
(2) Concentration of Credit Risk
American Quantum Cycles 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.
(3) Transition from Development Stage Company to Production
American Quantum Cycles has transitioned from a development stage company into
an early production increase stage company. American Quantum Cycles has
completed various activities necessary for this transition including entering
into dealership agreements, a technology license agreement (see Note 4), leasing
and upgrading facilities, purchasing supplies and equipment, and hiring and
training employees. American Quantum Cycles anticipates that the current fiscal
year ending April 30, 1999 will sustain additional losses. Except for the
historical information contained herein, the matters set forth in this Form
10-QSB are forward looking and involve a number of risks and uncertainties.
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 sourcing of supplies,
recruitment of highly skilled employees and integration of such persons into a
cohesive organization, and the ability of American Quantum Cycles to raise funds
and control costs.
(4) Patents, Licenses and Certificates
In August 1997, American Quantum Cycles entered into a license agreement (the
"Agreement") with Feuling whereby American Quantum Cycles, as licensee, 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, so long as American Quantum
Cycles complies with certain other provisions including non-disclosure of the
proprietary technology, American Quantum Cycles has an exclusive license, for
motorcycle applications, in perpetuity for the 4-Valve technology. This
technology will be used in connection with our 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. An American
Quantum Motorcycle with its 4-Valve engine successfully passed Environmental
Protection Agency testing and was awarded an Environmental Protection Agency
certificate for 49 states (less California). American Quantum Cycles will submit
a second motorcycle for further testing aimed at a 50 state certificate in the
early spring of 1999.
F-20
<PAGE>
(5) Capitalized Leases
American Quantum Cycles has executed capital leases with Nations Commercial
Credit Corporation for purchasing manufacturing and production equipment, and
for computer equipment to expand and improve American Quantum Cycles network
infrastructure. All leases provide a $1 purchase buy-out provision at the end of
the term of the lease.
(6) Bridge Loan Financing
Notes payable consist of nine (9) unsecured promissory notes dated March 30,
1998 to individuals providing bridge loan financing. The principal aggregate is
$700,000 with interest payable at 10% at maturity on September 30, 1998.
American Quantum Cycles also contracted to issue a total of 142,000 shares of
common stock to these individuals at maturity in order to obtain a favorable
interest rate and repayment terms. Loan costs are expensed as incurred.
Two of the 10% note holders, representing an aggregate of $380,000 of the
outstanding principal balance of the 10% notes, agreed to extend the maturity
date of their 10% notes until the close of a public secondary offering. Seven of
the 10% note holders, representing an aggregate of $320,000 of the aggregate
outstanding principal amount of the 10% notes agreed to convert the balance plus
accrued interest of their respective notes into (i) common stock of American
Quantum Cycles at a price per share equal to the price of the public secondary
offering; and (ii) two warrants to purchase a number of shares of American
Quantum Cycles common stock equal to the 10% note shares at an exercise price
per share equal to the price of the pubic secondary offering
American Quantum Cycles has completed a private bridge program in the amount of
$870,000 which consisted of approximately 35 units to eleven investors against
this secondary offering. The terms of the bridge program are to repay the
principle plus incentive shares at the time of the completion of this offering.
Valuation of the incentive shares is to be determined by the public offering
price per share. American Quantum Cycles 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.
(7) Convertible Debentures
As part of its equity funding and financing, American Quantum Cycles has issued
two separate series of convertible notes to investors: Beginning in October
1997, American Quantum Cycles issued thirty-four (34) 8% Subordinated Notes, for
an aggregate of $1,579,500. The notes mature one year from date of issue,
convertible at $2.00 per share, with no warrants attached. Interest is
convertible at the same rate as the principal, at the discretion of the note
holder.
Seventeen of the 8% note holders, representing an aggregate of $706,500 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 $5.00;
and (ii) warrants to purchase a number of shares of American Quantum Cycles
common stock equal to the 8% note shares at an exercise price of $5.00 per
share. American Quantum Cycles redeemed two of the 8% notes with a principal
balance of $80,000. Ten of the 8% note holders, representing an aggregate of
$297,500 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. One of the 8% note holders has
sent American Quantum Cycles notice informing American Quantum Cycles that it is
in default of its repayment obligations on the 8% notes. American Quantum Cycles
is in the process of negotiating with these investors. For the purposes of this
Offering, American Quantum Cycles is treating these notes as to be paid back out
of the proceeds of this offering.
F-21
<PAGE>
Beginning in April 1998, American Quantum Cycles issued twenty-seven (27) 7%
Subordinated Notes to 25 investors, for an aggregate of $549,500. The notes
mature one year from the date of issue, convertible at $8.00 per share. Interest
is payable in cash or convertible at the same rate as the principal, at the
discretion of American Quantum Cycles. A warrant is attached at 10% above the
final price of a secondary offering.
Six of the 7% note holders, representing an aggregate of $70,000 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. Fifteen of the 7% note
holders, representing an aggregate of $337,000 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 $5.00; and (ii) warrants to
purchase a number of shares of American Quantum Cycles common stock equal to the
7% note shares at an exercise price of $5.00 per share. American Quantum Cycles
redeemed two of the 7% notes which had an aggregate principal balance of
$32,500. Seven of the 7% note holders, representing an aggregate of $160,000 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 remaining
one 7% note holder, representing an aggregate of $20,000 of the outstanding
principal balance of the 7% notes, has not agreed to either extend the terms of,
or convert, their 7% note. American Quantum Cycles has not received a notice of
default from this investor and American Quantum Cycles is in the process of
negotiating with this investor. For the purposes of this offering, American
Quantum Cycles is treating this note as to be paid back out of the proceeds of
this Offering.
(8) Recognition of Income
Orders received from American Quantum Cycles dealers are booked as received in
account receivable, with an offset in deferred income. Dealers either prepay for
the motorcycle in cash or finance the motorcycle through preapproved commercial
floor planning. Motorcycles are invoiced and the income recognized at the time
of shipping from the American Quantum Cycle facility in Melbourne, Florida.
(9) Subsequent Events
In December 1998, American Quantum Cycles contracted for a secured line of
credit in the amount of $755,000 to use for costs of goods required for
motorcycle manufacturing , research and development, product development,
marketing and administrative expenses. Terms of the line of credit include a 10%
interest rate and a total of 755,000 incentive shares issued. Interest and
principle on the line of credit must be repaid to the line of credit provider on
demand.
In February 1999, American Quantum Cycles contracted with six individuals for an
additional unsecured line of credit in the aggregate amount of $650,000 to use
for costs of goods required for motorcycle manufacturing, research and
development, product development, marketing and administrative expenses.
Interest of 8% plus principle is to be paid after the completion of this
offering, and a total of 520,000 incentive shares issued.
American Quantum Cycles is currently arranging for a $3,000,000 secured line of
credit to use for inventory and production expenses. In addition to the bridge
funding, these lines of credit will cover expenses of American Quantum Cycles
through to the completion of this offering.
F-22
<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 INCORPORATED
[LOGO]
1,600,000 Shares of Common Stock
PROSPECTUS
_________________, 1999
BARRON CHASE SECURITIES
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
---------------------------
March _____, 1999
Subject to Completion ____________, 1999
<PAGE>
PROSPECTUS (ALTERNATE)
AMERICAN QUANTUM CYCLES, INC.
232,500 Shares of Common Stock
This is an offering of 232,500 shares of common stock (1)of American
Quantum Cycles, Inc., a Florida corporation, held by certain of our shareholders
the "Selling Security Holders". Of the 232,500 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 _________, 1999, the closing bid price per share of the common stock
as reported by the OTC Bulletin Board was $_____.
------------------------------------------------------------
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>
THE OFFERING
<TABLE>
<S> <C>
Shares of our common stock offered by the selling
security holders(1)..................................................... 232,500 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)......................................... 2,527,809
After the offering (3)............................................ 4,127,809
Risk Factors............................................................ The offering involves a high degree of
risk and immediate substantial dilution. See
"High Risk Factors" beginning on page ____.
</TABLE>
- ----------
(1) 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.
(2) Does not include 1,600,00 Shares of common stock which are being offered
in a concurrent underwritten offering. See "Concurrent Public Offering".
(3) Includes the 232,500 shares being offered by the selling security holders
and the 1,600,000 shares of common stock being offered in the concurrent
offering. Does not include (i) 160,000 shares of common stock issuable to
the underwriters in the concurrent offering; and (ii) up to 943,750
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 1,600,000 shares of our common stock the
"Underwritten Public Offering" was declared effective by the Securities and
Exchange Commission ("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.
<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(1) PROSPECTUS(4) 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 68,125 68,125 0
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
</TABLE>
(1) Gives effect to the 1 for 4 reverse stock split of our issued and
outstanding common stock effective June 3, 1999.
(2) Includes 25,000 shares of common stock issuable upon the exercise of
options exercisable at $16.00 per share.
(3) Includes 12,500 shares of common stock issuable upon the exercise of
options exercisable at $16.00 per share.
(4) Subject to a six month restriction on transfer beginning on the date our
underwritten public offering closes.
PLAN OF DISTRIBUTION
The selling security holders may offer their Shares at various times in one
or more of the following transactions: 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; by
pledgees or donees; or a combination of any of the above transactions.
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.
3
<PAGE>
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.
232,500 SHARES OF COMMON STOCK
AMERICAN QUANTUM CYCLES, INC.
PROSPECTUS
________________, 1999
5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Florida Business Corporation Act the "Florida 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 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 Representative's
non-accountable expense allowance and advisory fee) are as follows:
II-1
<PAGE>
<TABLE>
<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. 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, a principal
shareholder of American Quantum Cycles, and 238,799 shares were issued to Denise
O'Brien, a Director and principal shareholders of American Quantum Cycles. Each
investor was non-accredited, but 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. 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. 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, 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 $240,000 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. Sixteen of the 8% note holders, representing
an aggregate of $624,000 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 $5.00, (the "8% Note Shares"); and (ii) warrants to purchase
a number of shares of American Quantum Cycles common stock equal to the 8% note
shares at an exercise price of $5.00 per share. American Quantum Cycles redeemed
one of the 8% Notes with a principal balance of $70,000. The remaining six 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 $473,000 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. 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. 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 April 1998, American Quantum Cycles issued an aggregate of
twenty-seven 7% subordinated notes to 24 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. Six of the 7%
note holders, representing an aggregate of $70,000 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. Thirteen of the 7% note holders, representing
an aggregate of $292,000 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 $5.00, (the "7% Note Shares"); and (ii) warrants to purchase
a number of shares of American Quantum Cycles common stock equal to the 7% note
shares at an exercise price of $5.00 per share. American Quantum Cycles redeemed
two of the 7% notes which had an aggregate principal balance of $32,500. The
remaining four 7% note holders, representing an aggregate of $255,000 of the
outstanding principal balance of the 7% notes, have not agreed to either extend
the terms of, or convert, their respective 7% notes. As a result, if any of the
remaining four 7% note holders are not repaid, or do not convert or extend the
terms of their 7% notes by April 1999, and such 7% note holders send American
Quantum Cycles notice informing American Quantum Cycles that it is in default of
its repayment obligations on the 7% Notes, American Quantum Cycles will be
considered in default of the 7% Notes.
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. Two of the 10% Note holders, representing
an aggregate of $380,000 of the outstanding principal balance of the 10% Notes,
agreed to extend the maturity date of their
II-3
<PAGE>
10% notes until the close of this offering. Seven of the 10% note holders,
representing an aggregate of $320,000 of the aggregate outstanding principal
amount of the 10% 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 $5.00, (the "10% Note Shares"); and
(ii) 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 $5.00 per
share. Each of the note holder 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 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 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.
ITEM 27. EXHIBITS
Exhibits Description of Document
- -------- -----------------------
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)
II-4
<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 (3)
3.2 American Quantum Cycles, Inc. Amended 1997 Stock Option Plan(1)
4.1 Form of Common Stock Certificate (3)
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. (3)
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 (3)
10.8 Employment Agreement with Gary W. Irving (3)
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(3)
10.12 Consulting Agreement with Richard K. Hagen(3)
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
- --------------------------------
(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:
(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;
(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
(1) File a post effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
II-5
<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.
II-6
<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. 1 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 June 10, 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Chairman of the
Board of Directors,
/s/Richard Hagen Principal Executive Officer,
- ------------------------ Principal Financial Officer June 10, 1999
Richard Hagen and President
/s/Jim Cheal Vice President
- ------------------------ and Director June 10, 1999
Jim Cheal
/s/Jeffrey W. Starke Vice President
- ------------------------ and Director June 10, 1999
Jeffrey W. Starke
/s/Gary Irving Executive Vice President, Chief
- ------------------------ Operating Officer and Director June 10, 1999
Gary Irving
/s/Linda Condon Principal Accounting Officer
- ------------------------ and Treasurer June 10, 1999
Linda Condon
</TABLE>
II-7
<PAGE>
EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.4 Amended Articles of Incorporation of American Quantum Cycles,
Inc. filed June 3, 1999
4.1 Form of Common Stock Certificate
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.
10.7 Employment Agreement with Richard K. Hagen
10.8 Employment Agreement with Gary W. Irving
10.11 Forms of the letter of intent between American Quantum Cycles
and Dealers
10.12 Consulting Agreement with Richard K. Hagen
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (contained in
such firm's opinion filed as Exhibit 5.1)
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
AMERICAN QUANTUM CYCLES, INC.
Pursuant to Section 607.10025 of the Business Corporation Act of the
State of Florida, the undersigned President of American Quantum Cycles, Inc.
("Corporation"), a corporation organized and existing under and by virtue of the
Business Corporation Act of the State of Florida adopts the following Articles
of Amendment to its Articles of Incorporation.
1. The name of the corporation is AMERICAN QUANTUM CYCLES, INC.,
Charter #J05073, filed on March 20, 1986.
2. The following Amendments to the Articles of Incorporation were
adopted by all of the directors of the Corporations by unanimous written consent
effective as of May 21, 1999, in the manner prescribed by the Florida Business
Corporation Act. Shareholder consent of the following amendments to the Articles
of Incorporation was not required pursuant to ss.607.10025 of the Florida
Business Corporation Act:
(a) The First paragraph of Article IV of the Corporation's
Articles of Incorporation shall be and hereby is amended and restated to read in
its entirety as follows:
ARTICLE IV
The maximum number of shares of common stock that this
Corporation is authorized to issue and have outstanding at any one time shall be
12,500,000 shares of common stock having a par value of $.001 per share (the
"Common Stock") and Two Million Five Hundred Thousand (2,500,000) shares of
preferred stock having a par value of $.001 per share (the "Preferred Stock").
Series of the Preferred Stock may be created and issued from time to time, with
such designations, preferences, conversion rights, cumulative, relative,
participating, optional or other rights, including voting rights,
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution or resolutions providing for the creation and
issuance of such series of Preferred Stock as adopted by the Board of Directors
pursuant to the authority in this paragraph given. On the date of filing of
these Articles of Amendment which the Secretary of State of the State of
Florida, every four (4) issued and outstanding shares of the Corporation's
previously authorized common stock, par value $.001 per share (the "Old Common
Stock") shall thereby and thereupon be reclassified and converted into one (1)
validly issued, fully paid and nonassessable share of Common Stock (the "New
Common Stock").
1
<PAGE>
Each certificate that theretofore represented shares of Old
Common Stock shall thereafter represent the number of shares of New Common Stock
into which the shares of Old Common Stock represented by such certificate were
reclassified and converted hereby; provided, however, that each person holding
of record a stock certificate or certificates that represented shares of Old
Common Stock shall receive, upon surrender of stock certificate or certificates,
a new certificate or certificates evidencing and representing the number of
shares of New Common Stock to which such person is entitled, except that no
fractional shares resulting from the combination shall be issued, any such
fractional share to be converted to the right of the holder thereof to receive
one share of New Common Stock.
3. The herein amended Articles of Incorporation of the Corporation do
not adversely affect the rights or preferences of the holders of outstanding
shares of any class or series and does not result in the percentage of
authorized shares that remain unissued after the combination exceeding the
percentage of authorized shares that were unissued before the combination.
4. This Certificate of Amendment shall be effective as of 7:00 a.m.,
Miami, Florida, time, on June 3, 1999.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the Chief Executive Officer
and Director of the Corporation, has executed these Articles of Amendment to the
Articles of Incorporation of American Quantum Cycles, Inc., as of this 25 day of
May 1999.
AMERICAN QUANTUM CYCLES, INC.,
a Florida Corporation
By:___________________________
Richard Hagen, Chief Executive Officer
and Director
3
PAR VALUE $.001
1949 ***********
AMERICAN QUANTUM CYCLES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
THIS CERTIFIES THAT CUSIP 02914P 20 4
****SPECIMEN****
Is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
AMERICAN QUANTUM CYCLES, INC. (hereinafter called the "Corporation"),
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to the laws of the state of Florida and to the Articles of
Incorporation and Bylaws of the Corporation, as now or hereafter amended.
This Certificate is not valid unless countersigned and registered by
the Transfer Agent.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Date /s/ Robert L. Guess
--------------------
PRESIDENT
AMERICAN QUANTUM CYCLES
CORPORATE SEAL 1986 FLORIDA
Countersigned:
Florida Atlantic Stock Transfer, Inc.
5701 North Pine Island Road,
Tamarac, Florida 33321 Transfer agent
<PAGE>
The following abbreviation, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-..............Custodian ..............
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
Act....................................
JT TEN - as joint tenants with right (State)
of survivorship and not as
tenants in common
</TABLE>
Additional abbreviation may also be used though not in above list.
For value received, .......................hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------..........................................
................................................................................
Please print or typewrite name and address including postal zip code of assignee
................................................................................
................................................................................
................................................................................
................................................................................
Shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
................................................................................
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated.....................
........................................
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
American Quantum Cycles, Inc.
June 11, 1999
Page 1
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
200 East Las Olas Boulevard, Suite 1900
Fort Lauderdale, Florida 33301
June 11, 1999
American Quantum Cycles, Inc.
731 Washburn Road
Melbourne, FL 32934
Re: Registration Statement on Form SB-2; American Quantum, Cycles,
Inc. (the "Company")
Gentlemen:
This opinion is submitted pursuant to the applicable rules of the
Securities and Exchange Commission with respect to the public offering by the
Company of 1,840,000 shares of Common Stock, $.001 par value ("Common Stock")
including up to 240,000 shares of Common Stock issuable in connection with the
Underwriters over-allotment option and an aggregate of 232,500 shares of Common
Stock being registered by the Company on behalf of the selling security holders
listed in the Registration Statement (the "Selling Security Holder Shares")
including 62,500 Selling Security Holder Shares issuable upon the exercise of
options (the "Option Shares").
In connection therewith, we have examined and relied upon original,
certified, conformed, photostat or other copies of (i) the Articles of
Incorporation, as amended, and Bylaws of the Company; (ii) resolutions of the
Board of Directors of the Company authorizing the offering and the issuance of
the Common Stock and the Selling Security Holder Shares and related matters;
(iii) the Registration Statement and the exhibits thereto; and (iv) such other
matters of law as we have deemed necessary for the expression of the opinion
herein contained. In all such examinations, we have assumed the genuineness of
all signatures on original documents, and the conformity to originals or
certified documents of all copies submitted to us as conformed, photostat or
other copies. In passing upon certain corporate records and documents of the
Company, we have necessarily assumed the correctness and completeness of the
statements made or included therein by the Company, and we express no opinion
thereon. As to the various questions of fact material to this opinion, we have
relied, to the extent we deemed reasonably appropriate, upon representations or
certificates of officers or directors of the Company and upon documents, records
and instruments furnished
<PAGE>
American Quantum Cycles, Inc.
June 11, 1999
Page 2
to us by the Company, without independently checking or verifying the accuracy
of such documents, records and instruments.
Based upon the foregoing, we are of the opinion that the Common Stock,
the Selling Security Holder Shares and the Option Shares when issued in
accordance with their terms) will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to use our name under the caption "Legal Matters" in
the prospectus comprising part of the Registration Statement.
Sincerely,
ATLAS, PEARLMAN, TROP & BORKSON, P.A.
/s/ Atlas, Pearlman, Trop & Borkson, P.A.
EXECUTIVE EMPLOYMENT CONTRACT
Employment, Noncompetition, and Nondisclosure Agreement
THIS AGREEMENT is entered into on 12th day of February, 1999 by American Quantum
Cycles, Inc., a Florida corporation, and Richard K. Hagen (enter employee's
name), a resident of 3400 Ocean Beach Blvd, Cocoa Beach, Florida, 32931 (enter
employee's address).
WITNESSETH: WHEREAS, Employee is an employee of the Corporation, with access to
certain sensitive and confidential information and records of the Corporation,
and
WHEREAS, as a part of such employment, the Corporation has requested that the
Employee execute and deliver to it this Agreement;
NOW, THEREFORE, for good and valuable consideration from the Corporation,
including, but not limited to, the Employee's present employment with the
Corporation, Employee promises as follows:
1. Duties. Employee shall perform all work, duties, actions, and
services as directed by the Corporation. Employee shall substantially
devote Employee's entire work time, attention, and energies (exclusive
of vacation periods) to the Corporation's business. Employee shall not,
without the Corporation's consent, engage in any other conflicting or
extensive business activity, whether or not such activity is pursued
for gain or other financial advantage. However, the Employee may invest
personal assets if Employee's services will not be required for the
operation of the enterprises in which the investments are made.
2. Return of records. If Employee's employment by the Corporation
terminates, Employee shall immediately return to the Corporation all
records and documents pertaining to the Corporation's business,
including without limitation, any letters, customer lists, agreements,
graphs, artwork, papers, computer disks or other media, and all copies
of such items. Employee shall not turn over copies of such records or
documents, or the information contained in them, to any person or
entity, except as required by the Employee's work for the Corporation.
3. Noncompetition. For three (3) years after the termination of Employee's
employment with the Corporation, Employee shall not directly or
indirectly compete with the Corporation in any business of the kind
that has been conducted by the Corporation. Neither shall Employee
assist, either as an employee, consultant, or as an owner/officer, any
person or entity to compete with the Corporation in such a business.
4. Nondisclosure. Employee shall not at any time disclose to any person or
party, directly or indirectly, any of the secret or confidential
information of the Corporation. Such information includes, but is not
limited to, the names and addresses of all customers and suppliers, the
manufacturing processes, know-how, trade secrets, and all other similar
and related information of the Corporation.
1
<PAGE>
5. Good faith. At all times pertinent to this Agreement, Employee shall
act honestly and in good faith toward the Corporation in carrying out
Employee's responsibilities and duties under the Agreement.
6. Termination of employment. Employee's employment by the Corporation
will be for a period of 3 years from the date of the execution of
this Agreement, and will automatically terminate at the end of the
term. Employee's employment can terminate on two (2) weeks prior
notice, in writing, by either party to the other or on Employee's
death. The Corporation shall be deemed in default of this employment
contract should the Employee be given more than a fifteen percent (15%)
decrease in base salary; and/or the Employee is demoted in title and/or
position; and/or the Employee does not receive a regular base salary
paycheck for four (4) sequential pay periods. Despite the first two (2)
sentences of this paragraph, the Corporation can immediately terminate
Employee's employment without giving two (2) weeks prior notice if
cause for immediate termination exists. Such cause include, but are not
limited to:
a. gross misconduct or gross mismanagement of Corporation
business;
b. after written notice, repeated failure to effectively or
efficiently perform Employee's duties under this Agreement;
c. Employee's violation of any part of this Agreement;
d. breach of Employee's duty of trust to the Corporation, its
directors, and its shareholders;
e. falsification of any information that Employee gives to any
officer or director of the Corporation;
f. Employee's intentional violation of any federal, state, or
local law, ordinance, or regulation that adversely affects the
Corporation, its directors, or its shareholders;
g. determination by a court of competent jurisdiction that
Employee is prohibited for any reason from performing
Employee's duties under this Agreement; and
h. any fraud, theft, or dishonesty by Employee that adversely
affects the Corporation or its board of directors.
7. Injunctive relief. Employee agrees that any breach of Employee's
promises in this Agreement may cause permanent or irreparable damage to
the Corporation and that consequently the Corporation will be entitled
to injunctive relief prohibiting any breach or to the specific
performance of this Agreement. This does not limit any other type of
relief that the Corporation might be entitled to for any breach of the
Agreement by Employee, including, but not limited to, an appropriate
award of compensatory damages or punitive damages or both.
8. Interpretation. It is intended by Employee and the Corporation that:
2
<PAGE>
a. this Agreement be reasonable interpreted in all respects to
give meaning and validity to Employee's promises;
b. any terms or limitation that may be required to uphold the
validity of the Agreement be inferred, with the understanding
that the Corporation have all the protection under the
Agreement as can be reasonable and properly be granted; and
c. the Agreement be construed and enforced in a manner fully
consistent with the understanding that the Employee and the
Corporation shall act in good faith at all times and in all
respects pertinent to the Agreement.
9. Consideration acknowledged. Employee acknowledges receiving, through
employment with the Corporation, good and valuable consideration for
Employee's promises in this Agreement. Employee agrees not to raise,
assert, or present any contentions to the contrary as a defense against
the enforcement of this Agreement.
a. Base Compensation:
For all the services rendered and to be rendered by the
Employee hereunder, the Corporation shall pay the Employee an
annual salary at the rate of $200,000.00, less such
withholding and other deductions as may be required by law or
any employee benefit plan in which the Employee participates,
payable in installments at such times as the Corporation
customarily pays its executive officers. During the employment
term, the Employee shall also be entitled to 2 weeks of
paid vacation and 10 days of paid sick leave and 5
paid personal days in each calendar year of the employment
term. The Employee shall be permitted to participate in such
life insurance, medical plan and other fringe benefit programs
of the Corporation as may exist from time to time on the same
basis as other senior executives.
b. Incentive Compensation:
In addition to the base compensation listed above in Section
9a, for each calendar year of the employment term the Employee
shall be entitled to the following performance based
incentives: (1) Cash and stock incentives as approved by the
Board of Directors, (2) Car allowance, $1000/month
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
c. Expenses:
The Corporation will reimburse the Employee for all ordinary
and necessary out-of-pocket business expenses incurred by the
Employee in connection with the discharge of the Employee's
duties and responsibilities during the Employee's employment
term in accordance with the Corporation's expense approval
3
<PAGE>
procedures then in effect and upon presentation to the
Corporation of an itemized account and written proof of such
expenses. Extraordinary expenses shall be subject to the prior
approval of the Corporation's Chief Executive Officer.
10. Binding effect. This Agreement will bind the respective heirs,
executors, administrators, successors, and assigns of the Employee and
the Corporation. This Agreement may be amended from time to time as
necessary by the execution of an amending document by both parties.
Any/all executed Amendments to this Agreement constitute an integral
part of the Agreement, and will be interpreted as such.
11. Headings. The headings used in this Agreement are for reference only.
It is not intended that they be used to interpret the Agreement.
12. No waiver. No delay or failure of the Employee or the Corporation in
exercising any right in this Agreement will affect that right. Nor will
any exercise of a right affect any other right. Nor will a waiver of
any right constitute a continuing waiver of any subsequent right or any
other part of this Agreement.
13. Cumulative remedies. The parties' remedies under this Agreement or any
provision of law or otherwise are cumulative. Exercising any of the
remedies in the Agreement or under applicable law will not be
considered a waiver of any other remedies.
14. Severability. Any provision of this Agreement found invalid or
unenforceable will be severable from the remaining provisions, and the
rest of the Agreement will be valid and enforceable as stated.
15. Entire agreement. This Agreement replaces all prior discussions,
understandings, and oral agreements between the parties, and supercedes
any previously executed written agreement between the parties. Any
documents specifically outlined, referred to, or mentioned in this
Agreement are to be considered as an integral component of this
Agreement, and interpreted as such. This Agreement contains the entire
understanding between the parties on matters included here. The
Agreement cannot be modified unless it is done by an instrument or
amending document executed by both parties.
16. State law. This Agreement will be construed and governed according to
Florida law.
IN WITNESS WHEREOF, the parties have signed this Agreement intending it to be
effective on the date above.
Corporation: Employee:
AMERICAN QUANTUM CYCLES, INC. Printed name: Richard K. Hagen
by: /s/ Gary W. Irving Signature: /s/Richard K. Hagen
title: Chief Operating Officer
Member of Board of Directors
4
EXECUTIVE EMPLOYMENT CONTRACT
Employment, Noncompetition, and Nondisclosure Agreement
THIS AGREEMENT is entered into on 12th day of February, 1999 by American
Quantum Cycles, Inc., a Florida corporation, and Gary W. Irving (enter
employee's name), a resident of 25 Cedar Drive, Sterling, VA 20164
(enter employee's address).
WITNESSETH: WHEREAS, Employee is an employee of the Corporation, with access to
certain sensitive and confidential information and records of the Corporation,
and
WHEREAS, as a part of such employment, the Corporation has requested that the
Employee execute and deliver to it this Agreement;
NOW, THEREFORE, for good and valuable consideration from the Corporation,
including, but not limited to, the Employee's present employment with the
Corporation, Employee promises as follows:
1. Duties. Employee shall perform all work, duties, actions, and
services as directed by the Corporation. Employee shall substantially
devote Employee's entire work time, attention, and energies (exclusive
of vacation periods) to the Corporation's business. Employee shall not,
without the Corporation's consent, engage in any other conflicting or
extensive business activity, whether or not such activity is pursued
for gain or other financial advantage. However, the Employee may invest
personal assets if Employee's services will not be required for the
operation of the enterprises in which the investments are made.
2. Return of records. If Employee's employment by the Corporation
terminates, Employee shall immediately return to the Corporation all
records and documents pertaining to the Corporation's business,
including without limitation, any letters, customer lists, agreements,
graphs, artwork, papers, computer disks or other media, and all copies
of such items. Employee shall not turn over copies of such records or
documents, or the information contained in them, to any person or
entity, except as required by the Employee's work for the Corporation.
3. Noncompetition. For three (3) years after the termination of Employee's
employment with the Corporation, Employee shall not directly or
indirectly compete with the Corporation in any business of the kind
that has been conducted by the Corporation. Neither shall Employee
assist, either as an employee, consultant, or as an owner/officer, any
person or entity to compete with the Corporation in such a business.
4. Nondisclosure. Employee shall not at any time disclose to any person or
party, directly or indirectly, any of the secret or confidential
information of the Corporation. Such information includes, but is not
limited to, the names and addresses of all customers and suppliers, the
manufacturing processes, know-how, trade secrets, and all other similar
and related information of the Corporation.
1
<PAGE>
5. Good faith. At all times pertinent to this Agreement, Employee shall
act honestly and in good faith toward the Corporation in carrying out
Employee's responsibilities and duties under the Agreement.
6. Termination of employment. Employee's employment by the Corporation
will be for a period of 3 years from the date of the execution of
this Agreement, and will automatically terminate at the end of the
term. Employee's employment can terminate on two (2) weeks prior
notice, in writing, by either party to the other or on Employee's
death. The Corporation shall be deemed in default of this employment
contract should the Employee be given more than a fifteen percent (15%)
decrease in base salary; and/or the Employee is demoted in title and/or
position; and/or the Employee does not receive a regular base salary
paycheck for four (4) sequential pay periods. Despite the first two (2)
sentences of this paragraph, the Corporation can immediately terminate
Employee's employment without giving two (2) weeks prior notice if
cause for immediate termination exists. Such cause include, but are not
limited to:
a. gross misconduct or gross mismanagement of Corporation
business;
b. after written notice, repeated failure to effectively or
efficiently perform Employee's duties under this Agreement;
c. Employee's violation of any part of this Agreement;
d. breach of Employee's duty of trust to the Corporation, its
directors, and its shareholders;
e. falsification of any information that Employee gives to any
officer or director of the Corporation;
f. Employee's intentional violation of any federal, state, or
local law, ordinance, or regulation that adversely affects the
Corporation, its directors, or its shareholders;
g. determination by a court of competent jurisdiction that
Employee is prohibited for any reason from performing
Employee's duties under this Agreement; and
h. any fraud, theft, or dishonesty by Employee that adversely
affects the Corporation or its board of directors.
7. Injunctive relief. Employee agrees that any breach of Employee's
promises in this Agreement may cause permanent or irreparable damage to
the Corporation and that consequently the Corporation will be entitled
to injunctive relief prohibiting any breach or to the specific
performance of this Agreement. This does not limit any other type of
relief that the Corporation might be entitled to for any breach of the
Agreement by Employee, including, but not limited to, an appropriate
award of compensatory damages or punitive damages or both.
8. Interpretation. It is intended by Employee and the Corporation that:
2
<PAGE>
a. this Agreement be reasonable interpreted in all respects to
give meaning and validity to Employee's promises;
b. any terms or limitation that may be required to uphold the
validity of the Agreement be inferred, with the understanding
that the Corporation have all the protection under the
Agreement as can be reasonable and properly be granted; and
c. the Agreement be construed and enforced in a manner fully
consistent with the understanding that the Employee and the
Corporation shall act in good faith at all times and in all
respects pertinent to the Agreement.
9. Consideration acknowledged. Employee acknowledges receiving, through
employment with the Corporation, good and valuable consideration for
Employee's promises in this Agreement. Employee agrees not to raise,
assert, or present any contentions to the contrary as a defense against
the enforcement of this Agreement.
a. Base Compensation:
For all the services rendered and to be rendered by the
Employee hereunder, the Corporation shall pay the Employee an
annual salary at the rate of $175,000.00, less such
withholding and other deductions as may be required by law or
any employee benefit plan in which the Employee participates,
payable in installments at such times as the Corporation
customarily pays its executive officers. During the employment
term, the Employee shall also be entitled to 2 weeks of
paid vacation and 10 days of paid sick leave and 5
paid personal days in each calendar year of the employment
term. The Employee shall be permitted to participate in such
life insurance, medical plan and other fringe benefit programs
of the Corporation as may exist from time to time on the same
basis as other senior executives.
b. Incentive Compensation:
In addition to the base compensation listed above in Section
9a, for each calendar year of the employment term the Employee
shall be entitled to the following performance based
incentives: (1) Cash and stock option incentives as approved
by Board of Directors, (2) Car allowance, $1000.00/month
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
c. Expenses:
The Corporation will reimburse the Employee for all ordinary
and necessary out-of-pocket business expenses incurred by the
Employee in connection with the discharge of the Employee's
duties and responsibilities during the Employee's employment
term in accordance with the Corporation's expense approval
3
<PAGE>
procedures then in effect and upon presentation to the
Corporation of an itemized account and written proof of such
expenses. Extraordinary expenses shall be subject to the prior
approval of the Corporation's Chief Executive Officer.
10. Binding effect. This Agreement will bind the respective heirs,
executors, administrators, successors, and assigns of the Employee and
the Corporation. This Agreement may be amended from time to time as
necessary by the execution of an amending document by both parties.
Any/all executed Amendments to this Agreement constitute an integral
part of the Agreement, and will be interpreted as such.
11. Headings. The headings used in this Agreement are for reference only.
It is not intended that they be used to interpret the Agreement.
12. No waiver. No delay or failure of the Employee or the Corporation in
exercising any right in this Agreement will affect that right. Nor will
any exercise of a right affect any other right. Nor will a waiver of
any right constitute a continuing waiver of any subsequent right or any
other part of this Agreement.
13. Cumulative remedies. The parties' remedies under this Agreement or any
provision of law or otherwise are cumulative. Exercising any of the
remedies in the Agreement or under applicable law will not be
considered a waiver of any other remedies.
14. Severability. Any provision of this Agreement found invalid or
unenforceable will be severable from the remaining provisions, and the
rest of the Agreement will be valid and enforceable as stated.
15. Entire agreement. This Agreement replaces all prior discussions,
understandings, and oral agreements between the parties, and supercedes
any previously executed written agreement between the parties. Any
documents specifically outlined, referred to, or mentioned in this
Agreement are to be considered as an integral component of this
Agreement, and interpreted as such. This Agreement contains the entire
understanding between the parties on matters included here. The
Agreement cannot be modified unless it is done by an instrument or
amending document executed by both parties.
16. State law. This Agreement will be construed and governed according to
Florida law.
IN WITNESS WHEREOF, the parties have signed this Agreement intending it to be
effective on the date above.
Corporation: Employee:
AMERICAN QUANTUM CYCLES, INC. Printed name: Gary W. Irving
by: /s/ Richard K. Hagen Signature: /s/Gary W. Irving
title: CEO
4
_________________________ ____________________, 199
_________________________
_________________________
RE: PROPOSED DEALERSHIP
Gentlemen:
This letter of intent (the "Letter of Intent") is designed to set forth
the terms and conditions under which _____________________________ ("Dealer")
intends to become a dealer in the products of American Quantum Cycles, Inc. (the
"Company"). The principal terms of the relationship between the Company and
Dealer are set forth below:
Subject to the terms and conditions of a Definitive dealership
agreement (the "Definitive Agreement") to be negotiated and executed by us
during the 30 day period following the date hereof, the Company shall engage
Dealer as an authorized dealer for the "Liberty" Motorcycle manufactured and
marketed by the Company (the "Products").
The Definitive Agreement shall require Dealer to purchase from the
Company, at least 10 Products Per million capita of exclusive territory during
the 12 month period following execution of the Definitive Agreement (the
"Initial Period") Thereafter, in order to remain a Dealer for the Company,
Dealer must purchase a minimum number of Products during each year following
expiration of Initial Period. The minimum number of Products that Dealer must
purchase shall be the subject of negotiation between the Company and Dealer and
shall be contained in the Definitive Agreement.
The price at which the Company will sell Products to Dealer shall be
contained in the Definitive Agreement.
OPTIONAL: The Definitive Agreement shall designate an exclusive
territory within which the Company agrees that it shall not designate another
Dealer to sell the Company's Products. The exclusive territory shall be the
subject of negotiation between the Company and Dealer and shall be described in
the Definitive Agreement.
<PAGE>
It is understood that this Letter of Intent is a statement of the
parties' present intent, that the rights and obligations of the parties shall
only be set forth in the executed Definitive Agreement, and that this Letter of
Intent is not to be binding on either party. This Letter of Intent shall
terminate and be of no further effect at 5:00 p.m. (Eastern Time),
on_________________________, 199________ if the Definitive Agreement is
not executed by the Company and Dealer prior to then.
If the foregoing correctly reflects the understanding between us,
please sign, date and return the enclosed copy of this letter. We will then
proceed with the good faith negotiations and preparation of the Definitive
Agreement. This letter may be executed simultaneously in two or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute one and the same instrument.
Sincerely,
AMERICAN QUANTUM CYCLES, INC.
By: ______________________________
Mike Smith, Vice President/Sales
ACCEPTED AND AGREED TO THIS
_____DAY OF _____________,199_
By: ____________________________
Name: __________________________
Title: _________________________
AGREEMENT FOR
INDEPENDENT CONSULTING SERVICES
DATE:______________________________________
I. PARTIES
----------
American Quantum Cycles, Inc,
hereinafter "Company,"
and
Richard Hagen,
hereinafter "Consultant,"
hereby enter into this Agreement for Independent Consulting Services,
hereinafter "Agreement," effective the above date.
II. ENGAGEMENT OF CONSULTANT
----------------------------
Company hereby engages Consultant, and Consultant accepts engagement, to provide
to Company the services described in Exhibit "A," attached hereto and
incorporated herein by reference as if fully set forth.
III. TERM OF ENGAGEMENT
-----------------------
This Agreement shall be for a term commencing _______________,19___ and ending
________________, 19___.
IV. WORKPLACE AND HOURS
-----------------------
Consultant shall render services primarily at Consultant's offices or any other
place of Consultant's choosing. However, Consultant shall provide the services
at such other place or places as reasonably requested by Company as appropriate
for the performance of particular services.
Consultant's schedule and hours worked under this Agreement on a given day shall
generally be subject to Consultant's discretion. Consultant and Company
anticipate that Consultant shall work, on average, _______ hours per month
pursuant to this Agreement. Company relies upon Consultant's discretion to
determine sufficient time as is reasonably necessary to fulfill this Agreement.
V. COMPENSATION
---------------
Company shall pay Consultant $_____________ for services performed pursuant to
this
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<PAGE>
Agreement, according to the Pay Schedule described in Exhibit "B." Consultant
shall bear all of Consultant's expenses incurred in the performance of this
Agreement.
VI. NONCOMPETITION
------------------
During the term of this Agreement and for a period of _______ months thereafter,
Consultant shall not, within the "Restriction Area" described in Exhibit "C,"
directly or indirectly, own, manage, operate, control, be employed by, or
consult with, any business the same as or reasonably similar to the business
conducted by Company. In the event any of the provisions of this Paragraph 6 are
determined to be invalid by reason of their scope or duration, this Paragraph 6
shall be deemed modified to the extent required to cure the invalidity.
VII. CONFIDENTIALITY
--------------------
"Confidential Information" for the purposes of this Agreement shall include
Company's proprietary and confidential information including, without
limitations, customer lists, business plans, marketing plans, financial
information, designs, drawing, specifications, models, software, source codes
and object codes. During the term of this Agreement, and thereafter for ________
months, Consultant shall not, without the prior written consent of Company,
disclose to anyone any Confidential Information.
VIII. CONTRACTOR STATUS
-----------------------
Consultant is and throughout the term of this Agreement shall be an independent
contractor and not an employee, partner or agent of Company. Consultant shall
not be entitled to nor receive any benefit normally provided to Company's
employees. Company shall not be responsible for withholding income or other
taxes from the payments made to Consultant. Consultant shall be solely
responsible for filing all returns and paying any income, social security or
other tax levied upon or determined with respect to the payments made to
Consultant pursuant to this Agreement. Consultant is solely responsible for the
means, manner, and method of Consultant's work, subject only to the general
objectives and requirements of Exhibit "A."
IX. CONSULTANT'S SUPPLIES
-------------------------
Unless otherwise agreed by Company in advance, Consultant shall be solely
responsible for procuring, paying for, and maintaining any and all equipment,
software, paper, tools or other supplies necessary or appropriate for the
performance of Consultant's services hereunder.
X. CONTROLLING LAW
------------------
This Agreement shall be governed by and construed in accordance with the laws of
the State of Florida.
XI. ENTIRE AGREEMENT
--------------------
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<PAGE>
This Agreement constitutes the final understanding and agreement between the
parties. This Agreement cannot be amended or changed except in a writing signed
by both of the parties.
XII. NOTICES
------------
Any notice required to be given or otherwise given pursuant to this Agreement
shall be in writing and shall be hand delivered, mailed by certified mail,
return receipt requested:
If to Consultant:
Richard Hagen
_______________
_______________, ______________ ______________
If to Company:
American Quantum Cycles, Inc
731 Washburn Road
Melbourne, Florida 32934
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of the
date first above written.
_______________________________________
Richard Hagen
_______________________________________
American Quantum Cycles, Inc
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