SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Under Section 13
of the Securities Exchange Act of 1934
For the quarter ended July 31, 2000
Commission file number 0-24083
AMERICAN QUANTUM CYCLES, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-2651232
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(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification number)
731 Washburn Road
Melbourne, Florida 32934
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 752-0008
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Common stock outstanding at July 31, 2000 was 9,087,058 shares.
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
July 31, 2000 April 30, 2000
(unaudited)
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 141,035 $ 341,348
Accounts receivable 45,229 55,198
Other current assets 26,864 23,926
Inventories 1,707,727 1,469,873
------------ ------------
Total current assets 1,920,855 1,890,345
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Property and equipment 1,744,399 1,731,726
Less accumulated depreciation 839,584 739,461
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904,815 992,265
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Other assets:
Deposits 47,528 48,028
Licenses and intellectual rights, less accumulated
amortization of $66,899 and $60,862 295,333 301,370
------------ ------------
342,861 349,398
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$ 3,168,531 $ 3,232,008
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 302,289 $ 289,045
Accrued liabilities 901,176 695,270
Current maturities of long-term debt 27,549 30,051
Current capital lease obligations 81,713 81,713
Lines of credit 1,841,360 1,841,360
Notes payable 4,243,250 2,125,000
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Total current liabilities 7,397,337 5,062,439
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Capital lease obligations, less current maturities 37,541 54,716
Long-term debt, less current maturities 0 --
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37,541 54,716
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Stockholders' Equity:
Common stock, par value $.001 per share; authorized
12,500,000 shares, issued and outstanding
9,087,058 and 8,606,210 shares 9,107 8,606
Preferred stock, par value $.001 per share; authorized
2,500,000 shares, no shares issued
Additional paid-in capital 21,534,341 20,913,782
Deficit (25,809,795) (22,807,535)
------------ ------------
Total stockholders' equity/deficit (4,266,347) (1,885,147)
------------ ------------
$ 3,168,531 $ 3,232,008
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Three months ended
July 31, 2000 July 31, 1999
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<S> <C> <C>
Sales $ 782,729 $ 343,700
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Cost and expenses:
Cost of goods sold 853,658 370,151
General and administrative 2,078,777 580,504
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2,932,435 950,655
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Loss from operations (2,149,706) (606,955)
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Other income (expense):
Interest and other income 1,138 154
Interest expense (853,691) (34,768)
----------- -----------
(852,553) (34,614)
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Net loss $(3,002,259) $ (641,569)
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Loss per common share:
Weighted average shares outstanding 8,478,117 2,027,650
=========== ===========
Net loss $ (0.036) $ (0.316)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended Three months ended
July 31, 2000 July 31, 1999
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<S> <C> <C>
Cash flows from operating activities:
Reconciliation of net loss to net cash
used in operating activities:
Net loss $(3,002,259) $ (641,569)
Items not requiring (providing) cash:
Depreciation and amortization 106,160 85,449
Changes in assets and liabilities:
Receivables 9,969 (179,617)
Inventories (237,854) (2,982)
Prepaid expenses
Accounts payable 103,244 63,890
Accrued liabilities 205,906 343,115
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Net cash used in operating activities 181,388 (331,714)
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Cash flows from investing activities:
Capital expenditures (15,611) (43,618)
Investment in licenses and intellectual rights _________ _________
Net cash used in investing activities (15,611) (43,618)
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Cash flows from financing activities:
Proceeds from issuance of notes payable 4,112,371 284,181
Repayment of notes payable (1,493,700)
Repayment of long-term debt (2,502)
Proceeds from issuance of common stock
Proceeds from exercise of options 20,000 127,500
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Net cash provided by financing activities 2,636,169 411,681
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Net increase (decrease) in cash (200,313) 36,286
Cash, beginning of period 341,348 15,397
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Cash, end of year $ 141,035 $ 51,683
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
NOTES TO FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business and organization - American Quantum Cycles, Inc., a Florida
corporation, ("The Company") designs, produces, markets, distributes and sells
American-made, high performance V-twin engine cruiser and touring style
motorcycles. These motorcycle products include stock models and motorcycles
built to customer specified configurations. The Company was originally
incorporated on March 20, 1986 as "Norbern, Inc." and was inactive until March
1997 when it began developing and implementing its business and financing plans.
On May 8, 1997 the Company changed its name to American Quantum Cycles, Inc. and
its fiscal year end to April 30.
Basis of presentation - For years prior to the fiscal year ended April 30, 1999
the Company was considered to be in the development stage. During the current
year the Company commenced planned operations, however, substantial efforts are
still being made to raise capital, enter into dealership agreements and
implement its business plan.
Cash and cash equivalents - For purposes of the statement of cash flows, the
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Inventories - Inventories are carried at the lower of cost or market, with cost
principally determined under the average cost method.
Property and equipment - Property and equipment are carried at cost.
Depreciation is recorded principally on the straight-line method at rates based
on the estimated useful lives of the assets that range from three to seven
years. The book value of obsolete assets is charged to depreciation expense when
they are scrapped. Profits or losses from the sale of assets are included in
other income. Repairs and maintenance are charged to expense as incurred.
Intangible Assets - Intangible assets consist of licenses and intellectual
rights and are amortized on the straight-line method over fifteen years.
Income taxes - Deferred taxes are recognized for temporary differences between
the basis of assets and liabilities for financial statements and income tax
purposes. The differences relate primarily to depreciable assets (using
accelerated depreciation methods for income tax purposes), the allowance for
doubtful accounts (deductible for financial statement purposes but not for
income tax purposes), stock-based compensation, and net operating loss
carryforward.
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.
<PAGE>
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Sales returns and warranty allowances - The Company establishes an allowance for
product warranties and sales returns based on experience with customers' claims
arising from the sale of defective merchandise and a study of the experiences of
other companies engaged in the sale of similar products. Changes in the
allowance are charged to selling expense.
2 INVENTORIES
Inventories at July 31, 2000 and April 30, 2000 are comprised as follows:
<TABLE>
<CAPTION>
Description July 31, 2000 April 30, 2000
----------- ------------- --------------
<S> <C> <C>
Finished goods $ 0 $ 100,702
Work in process 315,079 348,653
Purchased raw materials 1,392,648 1,020,518
=============== =============
Total inventory $1,707,727 $1,469,873
============== ============
</TABLE>
3 NOTES PAYABLE AND LINES OF CREDIT
Notes Payable - Since April 30, 2000 the company has issued notes payable
through a short-term 10% note program and a longer term 6% note program for cash
flow purposes and to help cover the costs of ramp-up of production and the labor
costs of training for both the Melbourne factory ramp-up and the new program at
the Southbay facility in conjunction with Wackenhut and the State of Florida.
Through these programs the company has issued notes during the quarter of
$4,112,371. The company has paid back $1,493,700 of a combination of the notes
existing at April 30, 2000 and the new short-term notes. The balance of notes
payable at July 31, 2000 is $4,243,250.
Lines of Credit at July 31, 2000 -
Investor Group Line of Credit - In March 2000 the Company contracted
with a group of individuals for an unsecured line of credit in the aggregate
amount of $1,500,000. The loans bear interest at 10% per annum. Principal and
interest are payable on December 27, 2000.
Institutional Line of Credit - During 2000, the Company entered into a
$750,000 line of credit. The loan is secured by inventory and accounts
receivable. Borrowing under the agreement is based on firm purchase orders for
motorcycles received by the Company. As of July 31, 2000, the Company had drawn
$341,360 on this line of credit.
<PAGE>
4 CONTINGENCIES
The Company has suffered recurring losses since its inception and at
April 30, 2000 has an accumulated deficit of $25,809,795. The Company has
negotiated with its lenders to convert certain loans to common stock and stock
warrants. A proposed stock offering of shares of the Company's common stock is
expected to provide sufficient net proceeds to repay all obligations and provide
working capital to sustain operations until such time as positive cash flow and
profits can be generated.
Results of operations in the future will be influenced by numerous
factors including technological developments, competition, regulation, increases
in expenses associated with sales growth, market acceptance of the products of
the Company, the capacity of the Company to expand and maintain the quality of
its motorcycles and related services, continued development of the dealer
organization, favorable sourcing of supplies, recruitment of highly skilled
employees and integration of such persons into a cohesive organization, and the
ability of the Company to raise funds and control costs.
Management believes that it will be successful in completing a stock
offering and achieving profitable operations, however, there is no assurance
that such efforts will be successful.
5 PREFERRED STOCK
The Company is authorized to issue up to 2,500,000 shares of $.001 par
value Preferred Stock. Preferred Stock is designated as the "Series A 7%
Convertible Preferred Stock" and has a stated value of $6.00 per share.
Dividends of 7% of the stated value accrue and are payable semi-annually. Each
share of Preferred Stock is convertible into one share of common stock at the
option of the shareholder. No preferred shares have been issued.
6 INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting For Income Taxes" ( "SFAS No. 109 "). SFAS No. 109 requires
that the Company use the liability method that attempts to recognize the future
tax consequences of temporary differences between the book and tax bases of
assets and liabilities.
At April 30, 2000, the Company has net operating loss carryforward
totaling approximately $22,800,000 that may be offset against future taxable
income through 2013. No tax benefit has been reported in the accompanying
financial statements, however, because the Company believes there is at least a
50% chance that the carryforward will expire unused. Accordingly, a $9,120,000
tax benefit of the loss carryforward has been offset by a valuation allowance of
the same amount. During the years ended April 30, 2000 and 1999, the valuation
allowance increased by $5,360,000and $2,720,000, respectively.
The expected tax benefit that would result from applying federal
statutory tax rates to the pretax loss differs from amounts reported in the
financial statements primarily because of the increase in the valuation
allowance. The company paid no income taxes since its inception.
7 LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during the period.
All share and per share data, except shares authorized, have been retroactively
adjusted to reflect a 1,000 for 1 stock split effective March 25, 1997 and a 4
for 1 reverse stock split effective June 3, 1999.
<PAGE>
8 STOCK OPTIONS
On May 9, 1997 (and as amended June 3, 1997) the Company entered into a
consulting agreement with Greenstone Financial Corp. ("GFC") to assist the
Company with corporate development and strategic business planning. Under terms
of the agreement, the Company granted GFC an option to purchase up to 62,500
shares of Company common stock based upon the successful completion of a private
placement of Company common stock, with each option exercisable at $16.00 per
share. Also under the terms of the agreement, as amended, the Company granted
GFC an option to purchase 75,000 shares of Company common stock at an exercise
price of $0.40 per share. GFC exercised this option in October, 1998.
On June 15, 1998, the Company adopted the "1997 Stock Option Plan" (the
"Plan"). Under the Plan, 750,000 shares of common stock are reserved for
issuance upon exercise of options granted to management, key employees and
consultants. The plan provides for the granting of either "incentive stock
options" or "non-qualified stock options", as defined under the Internal Revenue
Code. Options may be granted at prices not less than 100 percent of the fair
market value at the date of grant and may be exercisable with a term not
exceeding ten years. As of April 30, 1999, the Company has granted common stock
options to plan participants as follows:
Exercise Price Number of Options
$ .40 37,500
$ 1.00 142.500
$ 2.00 146,250
$ 2.32 75,000
$ 2.80 105,000
$ 3.20 225,000
$ 4.00 212,500
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Total options granted 943,750
=======
In addition to the 75,000 options exercised by GFC, an additional
324,375 options were exercised during the year ended April 30, 1999. As of April
30, 1999 the following options are exercisable:
Exercise Price Number of Options
$ 2.00 103,125
$ 2.80 101,250
$ 3.20 225,000
$ 4.00 190,000
$16.00 62,500
------
Total options exercisable 681,875
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9 COMPREHENSIVE INCOME
As of May 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this statement had no impact on the
Company's net loss or shareholders' deficit for any of the periods presented in
the accompanying financial statements. SFAS No. 130 requires other comprehensive
income to include foreign currency translation adjustments and minimum pension
liability adjustments, which prior to adoption were reported separately in
shareholders' equity.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
THIS DOCUMENT 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 DOCUMENT, 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. 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
EARLIER IN THIS PROSPECTUS.
Plan of Operation
The Company and American Motorcycle Company (AMC), a Delaware Corporation,
announced an agreement to merge their business operations in late August. The
new organization will operate as American Motorcycle Company, with headquarters
in Washington, DC. The Company will continue listing on the AMEX under its
current symbol, AFV. As part of the agreement, Murray Smith, Chairman & Chief
Executive Officer of AMC, will assume the position of Chairman of merged
American Motorcycle Company with primary responsibility for mergers/acquisitions
and brand development. Richard Hagen, Chief Executive Officer of the Company,
will be the amalgamated company's Chief Executive Officer.
As a result of the merger:
o Gary Irving will continue in his position as Chief Operating Officer
and will take direct responsibility for Strategic Development,
Information Technology/Services and e-commerce initiatives.
o Rick Block will serve as President of American Motorcycle
International. Mr. Block was the court-appointed receiver who
consolidated the global trademark rights to Indian Motorcycle before
selling it to its current owners. Mr. Block's primary responsibility
is the management of global trademark and licensing activity.
o Lionel Mercier will server as Vice President responsible for
motorcycle design, production and sales. Mr. Mercier has over 20 years
of diverse experience in senior management positions, most recently as
Vice President Of Indian Motorcycle where he designed the new Chief
motorcycle and was responsible for establishing Indian's authorized
dealer network.
<PAGE>
The American Motorcycle brand name was first established in 1902. The original
corporate logo is what ties the new American Motorcycle Company to 100 years of
American motorcycle history. The Company has initiated a brand development and
licensing program aimed at leveraging historical trademarks, icons and other
intellectual property from the original American Motorcycle Company. The Company
has also launched a new product development strategy leveraging its original
4-Valve engine in a number of new motorcycle models.
The Company has invested time and resources during the Quarter (Q1 FY'01) toward
the design and testing of two additional motorcycle models that will be part of
the annual new model release in the Fall of 2000 (FY'01). These are the Hardtail
and ProStreet models. American Motorcycle's HardTail will be targeted at the
entry-level rider, or riders that currently own a large touring bike and want a
small, agile hot-rod for cruising around town. American Motorcycle's HardTail
will sport a very compact chassis, produced using large diameter tubing for a
heavy, tough, industrial look. Wheels will be 21 inches up front and a fat
18-inch tire in the rear. The HardTail will give American Motorcycle an
entry-level model that supports lower pricing and broadens the appeal to the
younger demographic market.
The ProStreet is a stylish, racy version of the Cruiser that fills an empty
market niche that today is only supplied by small custom motorcycle makers and
corresponding high prices ($25k - $50k). A ProStreet Cruiser is low and long,
with 18 inch wheels and a monster back tire, a stretched out riding position due
to a stretched frame, and one piece fuel tank. At the present time, if a
customer wanted a ProStreet they would have to build it themselves or contract
with an expensive custom bike builder. The American Motorcycle ProStreet, when
it is introduced in the Fall of 2000 is expected to be the first production Pro
Street in the motorcycle market.
Prototypes of the HardTail and ProStreet have been developed in July and have
entered extensive testing in August of 2000. These two new models are expected
to broaden American Motorcycle's appeal to a wider range of dealers and should
play a key role in expanding Quantum's Dealer network to well over 150 dealers.
American Motorcycle will also invest in developing additional accessories for
its popular Touring motorcycle. Such accessories will include a wider choice of
windshields, a wider choice of "two-up" seats with back rests for the second
rider, a half-fairing, a third saddlebag that would attach to the seat rest (or
"sissybar") and an active cruise-control system.
American Motorcycle has made significant investments in plant and equipment
throughout FY00 and increased staff substantially. American Motorcycle has
accomplished plant production capacity to achieve most of its FY01 production
goal of 1000 motorcycles. Additional investment in equipment will be required to
increase production capacity from the present (September 18, 2000) 100 per month
to the 200 per month required to meet the FY01 objectives. This investment will
be significantly less than that made in FY00. Additional investment in equipment
will be required to bring the Wackenhut facility into full operation. This is a
key to accomplish the targeted reduction in cost-of-goods. 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 to slightly
over 100.
<PAGE>
American Motorcycle had increased staff to 81 at the end of August reflecting
the industry seasonal buying peak from February through August. In early
September, twelve persons were let go, ten of whom were part-time or seasonal
employees as the motorcycle market went into its off-season. This use of
part-time employees and seasonal adjusting of manpower will become part of the
Company's tactic to manage costs through the seasonal peaks and valleys of the
motorcycle market.
American Motorcycle will launch a marketing and advertising campaign in the
second Quarter of FY01 with a focus on direct marketing in Dealer tradezones.
Direct marketing techniques such as direct mail and telesales will be used, but
the primary emphasis will be on Internet advertising through targeted email.
This retail focused advertising campaign is expected to generate the consumer
demand that will buy the products produced by the increased production capacity.
Results of Operation
American Motorcycle has transitioned from a development stage company into a
full production company. 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
Norbern, Inc. changed its name to American Quantum Cycles, Inc. and its fiscal
year end to April 30.
American Quantum Cycles sustained losses during the fiscal year ended April 30,
1999 in the amount of $6,786,791. These losses include $5,706,840 in general and
administrative activities, representing training and development of personnel
and process as necessary in a development stage operation, and $1,079,951 in
accrued interest expense.
Revenues in the fiscal year ended April 30, 2000 of $2,501,208 resulted from the
sale of one hundred and forty six (146) motorcycles. Cost of goods of $2,415,716
produced a gross profit of $85,284. Operating expenses of $3,501,620 produced an
operating loss of ($3,416,128). All three of these financial metrics reflected
significant improvements over the prior fiscal year (FY99): revenue improved by
$1.53 million ($2.501 million for FY00 vs. $.976 million for FY99) or an
improvement of 156%; operating expenses were reduced by $1.64 million ($3.502
million for FY00 vs. $5.145 million for FY99) or an reduction of 32%; and
operating losses were reduced by $2.29 million ($3.416 million for FY00 vs.
$5.709 million for FY99) or an improvement in reducing operating losses by 40%.
Revenues in the Quarter ending July 31, 2000 (Q1 FY'01) of $782,729 resulted
from the sale of 43 motorcycles. Cost of goods of $853,658 produced a gross
profit of ($69,791). Operating expenses of $2,078,777 produced an operating loss
<PAGE>
of ($2,149,706). Comparing these financial metrics to Q1 of the prior fiscal
year (FY'00) reflects the evolution of the Company from small volume production
to American Motorcycle's rampup for full volume production: revenue improved by
$439,029 ($782,729 for Q1 FY01 vs. $343,700 for Q1 FY00) or an improvement of
128%; operating expenses increased by $1,498,273 ($2,078,777 for Q1 FY01 vs.
$580,504 for Q1 FY00); and operating losses increased by $1,541,751 ($2,149,706
for Q1 FY01 vs. $606,955 for Q1 FY00). An increase in cost-of-goods by $483,507
($853,658 for Q1 FY01 vs. $370,151 for Q1 FY00) was largely the result an
increase in direct labor from a larger production staff that had been hired and
trained for larger production volumes. This staff has been trimmed as American
Quantum entered the off-season in September of 2000. The increase in operating
expenses reflect a number of one-time expenses such as the cost of planning,
negotiating and executing the merger with American Motorcycle Company. A one
time, non-cash interest expense of $853,691 was recognized for shares and
exercised warrants/options that had been awarded as incentives for notes paid
back during the period. This contributed to a net loss before taxes of
($3,002,259).
We began the FY'00 with 28 Dealers and closed the fiscal year with 65 Dealers in
34 states. Each Dealer signs an agreement committing them to buy a minimum of 10
motorcycles the first year, 20 the second and 30 for each year thereafter. There
were 59 Dealers as of September 12, 2000 reflecting a trim of a number of small
Dealers in small markets and Dealers who failed to purchase their minimum number
of motorcycles.
In order to successfully deliver the motorcycles that have been ordered by the
Dealers, American Motorcycle 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 controls. 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 that could prevent successful
delivery of motorcycles include:
o Not recruiting adequate production staff,
o Insufficient training of production staff,
o Not ordering parts 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.
Liquidity and Capital Resources
American Motorcycle has been investing heavily in plant, equipment and parts
inventory. As part of its funding and financing during FY00, American Motorcycle
<PAGE>
issued a number of notes and secured two lines of credit. These are expected to
be paid back during FY01 and are presently carried on the balance sheet (as of
July 31, 2000) as current liabilities. American Quantum's note program offered 8
- 10% interest with premiums depending upon the amount loaned and the length of
term of the loan. Lengths of terms of notes issued have varied from 60 to 180
days. As of July 31 2000, American Quantum was carrying $4,243,250 in unpaid
notes from this program.
During the fiscal year, American Quantum signed a secured line of credit for
$750,000 with Goodbody International for the procurement of motorcycle parts.
Draws on this line of credit are based on purchase orders from Dealers.
Principal and interest are to be paid from funds received from the sale of
motorcycles. The Goodbody line of credit was drawn down upon in full and then
partially repaid with interest during FY00. An additional line of credit from
Goodbody was signed for a maximum draw down of $600,000 at any point in time.
This maximum can be drawn down for parts purchases for slightly over 3 times for
a total LOC value of $1.9 million. As of September 1, 2000, the first $600,000
had been drawn down.
In order to meet its financial needs, the Company is pursuing a private
financing. There is not assurance that the Company will be successful in
obtaining the financing.
Part II
Item 1 - Legal Proceedings
A lawsuit had been entered in the State of Maryland against the Company by
Anchor Capital for repayment of monies from a Line of Credit and fulfillment on
registration of stock incentives. All principal and interest have been repaid to
Anchor Capital as of January 2000. A settlement has been negotiated and is
expected to be executed in September 2000. All court proceedings have been
stayed as a result of the pending settlement. A non-material settlement and
resolution is expected by the management of American Motorcycle before the end
of October 2000.
Item 2 - Change in Securities - none
Item 3 - Defaults in Senior Securities - none
Item 4 - Submission of Matters to a Vote of Security Holders - none
Item 5 - Other Information - none
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - Data Sheet
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ending
July 31, 2000.
<PAGE>
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned as both a duly authorized officer and as the principal financial
officer by the Registrant.
AMERICAN QUANTUM CYCLES, INC.
Date: September 19, 2000 By: /s/ Richard K. Hagen
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Richard K. Hagen
Chief Executive Officer,
Chief Financial Officer and President
Officer of Registrant
