<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER , 2000
REGISTRATION NO.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
AMERICAN EAGLE MOTORCYCLE COMPANY, INC.
(Name of Small Business Issuer in its Charter)
------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 3751 77-042000
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification
of Incorporation) Classification Code Number) Number)
</TABLE>
------------------------
<TABLE>
<S> <C>
Gregory Spak
2350 Technology Parkway President and Chief Executive Officer
Hollister, California 95023 American Eagle Motorcycle Company, Inc.
(831) 634-4740 2350 Technology Parkway
(Address and Telephone Number of Principal (831) 634-4740
Executive (Name, Address and Telephone Number of Agent for
Officer and Principal Place of Business) Service)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
Robert O. Knutson, Esq. William M. Prifti, Esq.
Attorney at Law Prifti Law Offices
9372 Creekwood Drive Five Market Square, Suite 109
Eden Prairie, MN 55347 Amesbury, MA 01913
(612) 941-0908 (978) 388-4942
Fax (612) 941-2744 Fax (978) 388-4945
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
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
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 the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
If any securities being registered on this form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT PRICE REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one share of Common
Stock, no par value, and one redeemable Class A
Warrant to purchase one share of Common Stock 920,000(2) $ 7.00 $ 6,440,000 $1,701
---------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value 920,000(2) $ 9.80 $ 9,016,000 $2,381
---------------------------------------------------------------------------------------------------------------------------------
Underwriters' warrants and common shares issuable
upon exercise of warrants 80,000 $ 9.80 $ 784,000 $ 207
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Total registration fee -- -- $16,240,000 $4,289
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</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
registration statement also covers such additional securities as may become
issuable upon exercise of the Class A Warrants or underwriters' warrants
through operation of the antidilution provisions thereof.
(2) Includes 120,000 units subject to an option granted to the underwriter to
cover over-allotments, if any.
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
SUBJECT TO COMPLETION, DATED , 2000.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
800,000 UNITS
[AMERICAN EAGLE LOGO]
AMERICAN EAGLE
MOTORCYCLE COMPANY
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE CLASS A WARRANT
We are offering 800,000 units to the public at an initial offering price
expected to be between $6.00 and $7.00 per unit. Each unit consists of one share
of common stock and one redeemable Class A Warrant which is exercisable and
separable from the common stock immediately upon the effectiveness of this
offering. Each Class A Warrant entitles its holder to purchase, at any time
during its three-year term, one share of our common stock at an exercise price
of $9.80 per share, subject to adjustment. We may redeem these warrants for $.01
per warrant at any time on 20 days written notice, provided the closing bid
price of our common stock exceeds $12.00 per share, subject to adjustment, for
20 consecutive trading days. Prior to this offering, there has been no public
market for any of our securities.
INVESTING IN OUR UNITS INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" ON PAGE 8 AND "DILUTION" ON PAGE 12.
<TABLE>
<CAPTION>
PER UNIT TOTAL
-------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts...................................... $ $
Proceeds to us.............................................. $ $
</TABLE>
We have granted the underwriter a 45-day option to purchase a maximum of
120,000 additional units from us at the same price to cover over-allotments, if
any. Delivery of the securities will be made on or about , 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
MERCER PARTNERS, INC.
The date of this prospectus is , 2000.
<PAGE> 3
[INSIDE FRONT COVER -- PHOTOS OF AMERICAN EAGLE MOTORCYCLES]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 8
Forward-Looking Statements.......... 9
Asset Purchase Agreement............ 9
Use of Proceeds..................... 10
Dividend Policy..................... 10
Capitalization...................... 11
Dilution............................ 12
Unaudited Pro Forma Consolidated
Financial Data.................... 13
Management Discussion and Analysis
of Financial Condition and Results
of Operations..................... 18
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business............................ 23
Management.......................... 32
Certain Transactions................ 35
Principal Shareholders.............. 36
Description of Securities........... 37
Shares Eligible for Future Sale..... 39
Underwriting........................ 40
Legal Matters....................... 42
Experts............................. 42
Additional Information.............. 43
Index to Financial Statements....... F-1
</TABLE>
-------------------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
DEALER PROSPECTUS DELIVERY OBLIGATION
Until , 2000 (25 days after the commencement of this
offering), all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealer's obligation to deliver a prospectus when
acting as an underwriter and with respect to unsold allotments or subscriptions.
3
<PAGE> 5
PROSPECTUS SUMMARY
Unless otherwise indicated, all information contained in this prospectus
assumes the underwriters will not exercise their over-allotment option to
purchase additional units, and also reflects the 1-for-7 reverse common stock
split of our outstanding common shares effected by us in October 2000.
AMERICAN EAGLE MOTORCYCLE COMPANY, INC.
We design, develop, manufacture and sell American-styled heavyweight
motorcycles popularly known as "cruisers." Heavyweight motorcycles in our
industry are those having an engine displacement of at least 651 cubic
centimeters (cc). Our motorcycles are marketed and distributed under our
American Eagle brand primarily through our current dealer network of 32 domestic
dealers. Since inception of our commercial production in 1996, we have produced
and sold approximately 800 American Eagle motorcycles. Suggested retail prices
of our cruisers range from $20,900 to $27,900, and they are offered with a
variety of customized options and styling. We believe that our premium
motorcycles represent the finest available American-made, custom-designed
cruisers.
STRATEGIC PROPRIETARY ENGINE ACQUISITION
We are in the process of acquiring complete proprietary engine development
technology and running prototypes for two distinct air-cooled V-Twin engines for
use in our cruisers. These assets are being purchased by us from an unaffiliated
company, and the acquisition is contingent upon the completion of the public
offering of our units. See "Asset Purchase Agreement." One engine has a 92 cubic
inch displacement and is similar in mechanical design and exterior styling to
the traditional V-Twins manufactured by Harley-Davidson and certain independent
engine manufacturers such as S&S Cycle Inc. This 92 cubic inch V-Twin is fully
adaptable to power our premium cruiser models, and the commercial introduction
of this engine is planned to occur in the first half of 2001.
The second proprietary engine we are acquiring is an innovative completely
new-designed powerful V-Twin of 152 cubic inches, which we intend to incorporate
into a top-of-the-line performance cruiser now being developed by us, the TRX
152. We expect to introduce our TRX 152 model commercially in the second half of
2001.
We believe that our engine technology acquisition will accomplish a very
important strategic milestone for our business. Having proprietary engines to
power our cruisers will enable us to reduce our cost of production dramatically
and result in significantly higher gross margins from our production operations,
since an engine is by far the most expensive component we purchase from our
suppliers. We also believe we will generate sales of these V-Twins in the custom
cruiser aftermarket.
OUR STRATEGY
Our goal is to become a leading manufacturer of premium heavyweight custom
cruisers, and certain key elements of our business strategy are as follows:
- continuing an active development and engineering program to enhance the
performance and styling of our current models;
- developing new models of motorcycles;
- integrating our new V-Twin engines in all our cruiser models;
- increasing our domestic market penetration for a greater nationwide
distribution;
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<PAGE> 6
- developing and offering a line of proprietary brand parts, apparel and
other general merchandise, and accessories for the large custom cruiser
aftermarket; and
- continuing preparations to enter foreign motorcycle markets by 2002.
OTHER INFORMATION
We are incorporated in California, our headquarters and production
facilities are located at 2350 Technology Parkway, Hollister, CA 95023, our
telephone number is (831) 634-4740, and our Internet Web site address is
www.americaneagles.com. Information contained on our Web site is not part of
this prospectus.
"American Eagle", "Maverick", "STM-C", "Stinger", "Stalker", "XRT Talon",
"STX 2000", and our logo are some of the trademarks and trade names that we use.
This prospectus also contains trade names and trademarks of other entities.
5
<PAGE> 7
THIS OFFERING
Securities offered by us...... 800,000 units, with each unit consisting of one
share of common stock and one redeemable Class
A Warrant. Each Class A Warrant becomes
exercisable and transferable separate from the
common stock immediately upon the effectiveness
of the offering. Each warrant entitles its
holder to purchase, during its three-year term,
one share of common stock at $9.80 per share.
We may redeem these warrants on 20 days written
notice for $.01 per warrant provided the
closing public bid price of our common stock
exceeds $12.00 per share for 20 consecutive
trading days.
Offering price................ $7.00 per unit.
Common stock outstanding after
offering...................... 3,983,161 shares.
Use of proceeds............... Payment of outstanding and assumed debt,
capital expenditures, development and
engineering expenses, sales and marketing
expansion, purchasing materials and components
for production inventory, enhancing Internet
Web sites, working capital and other general
corporate purposes.
<TABLE>
<CAPTION>
COMMON STOCK CLASS A WARRANTS
------------ ----------------
<S> <C> <C> <C>
Proposed symbols:
Nasdaq SmallCap Market..................
Pacific Stock Exchange (PSE)............
</TABLE>
Unless otherwise indicated, all information in this prospectus:
- assumes an initial offering price of $7.00 per unit, and does not
allocate any separate value to the Class A Warrant;
- assumes no exercise of the underwriter's over-allotment option; and
- gives effect to a one-for-seven reverse common stock split which was
effective October 2000.
The number of our shares of common stock to be outstanding after this offering
includes:
- 1,416,161 shares outstanding as of June 30, 2000;
- 285,714 shares issued incident to the recent conversion of all our
preferred to common shares;
- 162,500 shares issued incident to the September 2000 acquisitions by us
of Yankee Engineuity and certain motorcycle Web sites;
- 31,428 shares issued in September 2000 to satisfy trade accounts payable;
and
- 1,287,358 shares to be issued to Angel Motorcycles Inc. to acquire its
engine technology assets.
The number of our shares of common stock to be outstanding after this offering
excludes:
- 143,714 shares issuable upon exercise of outstanding options and warrants
at a weighted average exercise price of $6.73 per share;
- 235,286 shares issuable upon exercise at $7.00 per share of warrants to
be assumed by us incident to the pending engine technology acquisition;
- 800,000 shares issuable upon the exercise at $9.80 per share of Class A
Warrants included in the units being offered by us; and
- 80,000 shares issuable by us upon the exercise of a warrant to be issued
to the underwriter at an exercise price of $9.80 per share.
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<PAGE> 8
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- -------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 3,315,100 $ 4,980,200 $3,502,400 $ 970,600
Cost of sales.......................... 3,205,800 4,558,000 3,201,800 871,700
----------- ----------- ---------- -----------
Gross profit........................... 109,300 422,200 300,600 98,900
Operating expenses:
Research and development............. 164,700 545,400 224,300 174,200
Sales and marketing.................. 354,600 421,400 224,700 57,500
General and administrative........... 904,900 913,000 471,400 1,034,700
----------- ----------- ---------- -----------
Total operating expenses............... 1,424,200 1,879,800 920,400 1,266,400
----------- ----------- ---------- -----------
Loss from operations................... (1,314,900) (1,457,600) (619,800) (1,167,500)
Other income (expenses)................ (58,100) (80,900) (35,400) 265,100
----------- ----------- ---------- -----------
Net loss............................... (1,373,000) (1,538,500) (655,200) (902,400)
Preferred stock dividend............... (12,600) (24,000) (12,000) (12,000)
----------- ----------- ---------- -----------
Net loss attributed to common
shareholders......................... $(1,385,600) $(1,562,500) $ (667,200) $ (914,400)
=========== =========== ========== ===========
Basic and diluted loss per common
share................................ $ (1.15) $ (1.27) $ (0.55) $ (0.73)
Weighted average common shares
outstanding.......................... 1,205,444 1,225,816 1,218,730 1,249,823
</TABLE>
The following balance sheet data is presented:
- on an actual basis as of June 30, 2000;
- on a pro forma basis to reflect (i) our issuance in September 2000 of
common stock to satisfy accounts payable of $200,000, (ii) our September
2000 acquisitions of motorcycle Web sites and Yankee Engineuity Products
Division, (iii) our pending acquisition of assets from Angel Motorcycles
Inc. as if this acquisition had occurred on June 30, 2000, and (iv) the
October 2000 conversion of our outstanding preferred stock into common
stock on a 2-for-1 basis; and
- on a pro forma as adjusted basis to reflect our receipt of the net
proceeds from our sale of 800,000 units in this offering at an estimated
public offering price of $7.00 per unit, after deducting underwriting
discounts and offering expenses, payment of liabilities being assumed in
our pending acquisition, and satisfaction of approximately $1,200,000 in
bank indebtedness and trade accounts payable.
<TABLE>
<CAPTION>
JUNE 30, 2000
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 5,200 $ 5,200 $ 2,621,700
Working capital (deficiency)....................... (943,700) (1,549,800) 3,150,200
Total assets....................................... 1,341,200 12,762,200 15,378,700
Total liabilities.................................. 2,108,600 2,785,200 701,700
Accumulated deficit................................ (5,595,000) (5,595,000) (5,595,000)
Shareholders' (deficiency) equity.................. (767,400) 9,977,000 14,677,000
</TABLE>
7
<PAGE> 9
RISK FACTORS
An investment in our Units involves a high degree of risk. You should
carefully consider the following risks as well as other information in this
prospectus before you decide to buy our securities in this offering.
WE HAVE A HISTORY OF OPERATING LOSSES WHICH WILL ADVERSELY AFFECT US IF
LOSSES CONTINUE. We have incurred losses every year since our 1995 inception,
and as of June 30, 2000 we had an accumulated deficit of $5,595,000. Our
business and operations will be harmed if we continue to incur losses.
BECAUSE OF OUR SERIOUS LIQUIDITY DEFICIENCY, WE MAY BE UNABLE TO CONTINUE
OUR BUSINESS AS A GOING CONCERN. Our operations require significant levels of
cash to fund the production and distribution of our motorcycles. We have funded
our operations with equity infusions, cash from operations and a bank line of
credit. Our bank lender currently is demanding payment in full of our
outstanding credit facility, and we also are undergoing pressure for additional
payments from certain trade creditors. We must raise substantial new capital to
continue our operations. The report of our Independent Certified Public
Accountant contains an explanatory paragraph expressing substantial doubt about
our ability to continue as a going concern.
WE DEPEND UPON OUR DEALERS FOR OUR REVENUES, AND THEY ARE NOT OBLIGATED TO
PURCHASE ANY MINIMUM REQUIREMENT FROM US. We depend upon our dealers to promote
our products and brand image, and our operations will be adversely affected if
they fail. Our dealer agreements may be terminated anytime upon 60 days notice
by either party. In addition, all dealer orders may be cancelled without
penalty.
WE DEPEND ON A LIMITED SOURCE OF SUPPLIERS FOR OUR KEY MOTORCYCLE
COMPONENTS. We currently purchase key components used in the manufacture of our
motorcycles from single or limited source suppliers. We typically purchase
components and materials through purchase orders without having any guaranteed
supply arrangements with our vendors. Any interruption or substantial delay in
the supply of our outsourced components or materials without our being able to
obtain them from alternate sources timely and at acceptable prices, could
seriously impair our product delivery to dealers and even cause our dealers to
cancel orders.
UNTIL OUR NEW ENGINES REACH COMMERCIAL PRODUCTION, OUR CONTINUED RELIANCE
ON EXISTING ENGINE SUPPLIERS COULD ADVERSELY AFFECT US IF DELIVERY IS
INTERRUPTED. For example, our single engine supplier in 1999 interrupted
delivery for some time that year, which harmed our business significantly.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN GREG SPAK AND OTHER KEY
PERSONNEL. We believe the experience and ability of Greg Spak, our chief
executive officer, is important to our growth and success, and the loss of his
services would harm our business. Our success will also depend on our ability to
hire and retain other qualified management, including competent marketing,
development and engineering personnel. We may be unable to locate and hire these
personnel.
WE MAY ENCOUNTER DIFFICULTIES AND COMPLICATIONS IN ESTABLISHING AND
INTEGRATING OUR NEW ENGINES. We intend to incorporate the two proprietary
engines we are acquiring into our motorcycles promptly. We may encounter
complications and delays in assimilating and integrating these engines and
securing necessary government certifications for them. Any failure by us to
effectively incorporate these engines into our products would adversely affect
our planned future business and operations.
OUR EXPOSURE TO PRODUCT LIABILITY CLAIMS COULD HARM US SERIOUSLY IF OUR
INSURANCE COVERAGE IS INADEQUATE. Given the nature of motorcycle products, we
are subject to potential product liability claims that could, in the absence of
sufficient insurance coverage, have a material adverse impact on our business
and financial condition. Although we believe the insurance we maintain is
adequate, we
8
<PAGE> 10
cannot assure you that it will cover all claims made against us or that it will
fully indemnify us for product liabilities that may be imposed against us.
WE MUST COMPLY WITH MANY GOVERNMENT REGULATIONS WITH RESPECT TO OUR
PRODUCTION OPERATIONS AND OUR MOTORCYCLES, AND ANY FAILURE TO COMPLY MATERIALLY
WITH THESE REGULATIONS WOULD HARM OUR BUSINESS. Our manufacturing operations and
motorcycles must comply with many federal and state requirements governing
environmental, safety and other factors, which generally relate to air, water
and noise pollution and product safety characteristics. Any failure by us to
comply with these regulations or to obtain or maintain necessary certifications
from governmental agencies would harm our business and operations.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the federal securities laws that relate to future events or our future financial
performance and business expansion. These statements involve known and unknown
risks and uncertainties that may cause our actual results and performance to be
materially different from those anticipated or implied by the forward-looking
statements for many reasons, including the risks described under "Risks Factors"
and elsewhere in this prospectus. We use words such as "anticipate", "believe",
"intend", "expect", "estimate" and similar expressions to identify such
forward-looking statements. These forward-looking statements include anticipated
development and release of new products, anticipated business expansion, and
anticipated increased expenditures for manufacturing, sales and marketing, and
general and administrative expenses. These statements are only predictions of
ours which apply only as of the date of this prospectus, and you should not
place undue reliance on them. Although we believe that the expectations
reflected in our forward-looking statements are reasonable, we cannot guarantee
our future results or performance, nor can we assure you that our future
business expansion will unfold as projected by us.
ASSET PURCHASE AGREEMENT
In July 2000, we entered into an asset purchase agreement (the "Agreement")
with Angel Motorcycles Inc., a Minnesota corporation ("Angel") to acquire all of
Angel's motorcycle development and technology assets, consisting primarily of
the design and development of two distinct V-Twin engines, one of 92 cubic
inches and the other of 152 cubic inches. Development of these engines has been
completed and running prototypes of both engines have been subjected
satisfactorily to substantial operational testing. We are currently adapting the
frameworks, drivetrains and other components of our motorcycles to fit these
engines being acquired from Angel. As soon as practicable, we intend to offer
these proprietary V-Twin engines to power all models of American Eagle cruisers.
See "Business -- Products Under Development."
Both of these proprietary engines were developed for Angel in England by
Melling Consultancy Design ("MCD"), a leading engine design firm owned by Al
Melling. MCD designed both engines specifically to power premium high
performance V-Twin heavyweight motorcycles. Doing business as MCD, Mr. Melling
has been active continuously in engine design and development for over 30 years.
He has designed, enhanced or improved numerous automobile, motorcycle, and other
motorsport engines of many types while working for various internationally
well-known firms including General Motors, Ferrari, Porsche, Lamborghini, Alfa
Romeo, Ducati, and various leading Japanese motorcycle manufacturers. In recent
years, he has achieved considerable prominence in the engine design industry for
his development of modern innovative engines including a Formula 1 racing V-10
engine
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<PAGE> 11
for Lola, a British developer of high performance motorsport vehicles, and both
a V-8 engine and an inline-6 engine for TVR, a British high performance engine
and specialty vehicle manufacturer.
Closing of the Agreement is conditional upon the completion of this
offering, and upon its closing we will issue to Angel 1,287,358 shares of our
common stock plus stock purchase warrants for an additional 235,286 shares of
our common stock. We also will assume liabilities of Angel specified in the
Agreement and consisting of accounts and notes payable of $300,000 and
convertible debentures of $583,500. In addition, we will be obligated to make
royalty payments to MCD of 2.5% in respect to any sales of these engines or of
motorcycles using these engines.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $4,700,000 from this
offering, or approximately $5,400,000 if the underwriters exercise their
over-allotment option in full, after deducting underwriting discounts and
estimated offering expenses payable by us, and assuming an initial public
offering price of $7.00 per share.
Of these net proceeds, we intend to use approximately $1,200,000 to satisfy
certain trade accounts payable and bank indebtedness now in default and bearing
interest at the bank's prime rate plus 3% (10% as of June 30, 2000),
approximately $883,500 for payment of liabilities we will assume incident to our
acquisition of V-Twin engine technology from Angel Motorcycles Inc.,
approximately $200,000 for capital expenditures to purchase production and
computer equipment and software, and approximately $600,000 for production
inventories of raw materials, engines and other components. The balance of
estimated proceeds will be used for general corporate purposes including
expansion of sales and marketing efforts, new product and engine development and
certification, integration and expansion of our recently acquired Yankee
Engineuity aftermarket sales business, enhancement of our e-commerce motorcycle
Web sites, and general working capital needs. Until we apply the proceeds for
these uses, we intend to invest them in short-term, interest-bearing securities.
The foregoing description represents our present intentions based upon
current plans and business conditions, which may change or vary significantly
due to many factors including the amount of our future revenues, prevailing
general economic or industry conditions, changes in the competitive environment
of our industry, and strategic acquisition or other opportunities that may
arise. Accordingly, our management will retain broad discretion in the
allocation of the net proceeds of this offering. Depending upon future events,
we may determine to apply these proceeds for different purposes and in different
amounts than described above.
Although we cannot assure you that the net proceeds of this offering will
satisfy our requirements for any particular period of time, we currently expect
that the proceeds from this offering along with cash generated from our
operations will be adequate to satisfy our operational and capital requirements
for at least one year from the date of this prospectus. After that, to the
extent our capital resources are insufficient to meet out future requirements,
we will need to raise additional funds in order to continue our operations and
planned expansion effectively. We cannot assure you that any such funds will be
available to us on favorable terms, or at all.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock and we
do not anticipate declaring or paying any cash dividends for the foreseeable
future. We currently expect to retain all earnings, if any, for investment in
our business.
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CAPITALIZATION
The following table shows:
- our actual capitalization on June 30, 2000;
- our pro forma capitalization on June 30, 2000 reflecting (i) our
September 2000 issuance of a total of 162,500 shares of common stock for
our recent acquisition of Yankee Engineuity Products Division and the
purchase of motorcycle Web sites from Net Media Technologies, Inc., (ii)
the October 2000 conversion of our outstanding preferred stock into
common stock on a 2-for-1 basis; (iii) our September 2000 issuance of
31,428 shares of common stock to satisfy accounts payable of $200,000,
and (iv) the issuance of 1,287,358 shares of our common stock to Angel
Motorcycles Inc. for its intangible engine technology assets, assuming
this pending acquisition occurred on June 30, 2000; and
- our pro forma as adjusted capitalization on June 30, 2000, assuming the
completion of this offering at an assumed public offering price of $7.00,
payment of all outstanding convertible debentures we will assume incident
to our acquisition of assets from Angel Motorcycles Inc., and payment of
our outstanding bank debt.
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Bank line of credit................................ $ 500,000 $ 500,000 $ --
Long-term debt, including current portion of
$339,900......................................... 351,200 351,200 --
Capital lease obligations, including current
portion.......................................... 55,100 55,100 55,100
Notes payable...................................... -- 128,700 28,700
10% convertible debentures......................... -- 583,500 --
Shareholders' (deficiency) equity:
Preferred stock, no par value, 5,000,000 shares
authorized; 142,857 shares issued and
outstanding actual; no shares issued and
outstanding pro forma and pro forma as
adjusted...................................... 1,525,000 -- --
Common stock, no par value, 10,000,000 shares
authorized; 1,416,161 shares issued and
outstanding actual; 3,183,161 shares issued
and outstanding pro forma; 3,983,161 shares
issued and outstanding pro forma as
adjusted...................................... 3,302,600 15,572,000 20,272,000
----------- ----------- -----------
Accumulated deficit.............................. (5,595,000) (5,595,000) (5,595,000)
----------- ----------- -----------
Total shareholders (deficiency) equity... (767,400) 9,977,000 14,677,000
----------- ----------- -----------
Total capitalization..................... $ 138,900 $11,595,500 $14,760,800
=========== =========== ===========
</TABLE>
11
<PAGE> 13
DILUTION
If you invest in our securities, your investment will be diluted to the
extent of the difference between the initial public offering price per unit and
the pro forma net tangible book value per share of common stock after this
offering, assuming no value is allocated to the Class A Warrant portion of a
unit. Our pro forma net tangible book value deficit as of June 30, 2000 was
$(1,370,200) or $(.43) per share. Pro forma net tangible book value per share
was determined by dividing our tangible net worth, which consists of tangible
assets less liabilities, by the total number of common shares outstanding after
adjusting for all common stock transactions which transpired after June 30, 2000
(including our purchase of engine technology assets which will be closed
simultaneous with this offering). After giving effect to the sale of the 800,000
units offered hereby at an assumed initial public offering price of $7.00 per
unit, our pro forma net tangible book value as of June 30, 2000 would have been
$3,329,800 or $.84 per share. This represents an immediate increase in net
tangible book value of $1.27 per share to existing shareholders and an immediate
dilution in net tangible book value of $6.16 per share to new investors, or
approximately 88% of the assumed offering price of $7.00 per share. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $7.00
Pro forma net tangible book value per share before
offering............................................... $(.43)
Increase in net tangible book value from this offering.... 1.27
-----
Pro forma net tangible book value per share after
offering.................................................. .84
-----
Dilution in net tangible book value per share to new
investors................................................. $6.16
=====
</TABLE>
The following table shows on a pro forma basis as of the date of this
prospectus and after giving effect to this offering at an assumed offering price
of $7.00 per unit, the differences between our existing holders of common stock
and the new investors in this offering with respect to the number of shares of
common stock purchased from us, the total consideration paid to us and the
average price paid per share, before deducting underwriting discounts and
estimated offering expenses. For purposes of this table, no value has been
allocated to the Class A Warrant portion of the units being offered. The
information on existing shareholders includes Angel Motorcycles Inc. and the
common shares to be issued to that company for its engine technology assets, and
also the common shares issued to acquire motorcycle web sites and Yankee
Engineuity. This information also reflects the conversion of all our preferred
shares into common shares.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 3,183,161 79.9% $15,572,000 73.5% $4.89
New investors................ 800,000 20.1 5,600,000 26.5 7.00
--------- ---- ----------- ----
3,983,161 100% $21,172,000 100%
========= ==== =========== ====
</TABLE>
The foregoing information is based on the number of shares of our common
stock to be outstanding after this offering and excludes the following:
- 379,000 shares issuable upon exercise of outstanding warrants and stock
options with a weighted average exercise price of $6.90 per share
(including warrants being issued incident to our purchase of engine
technology assets);
- 80,000 shares issuable upon exercise of underwriters' warrants being
granted by us incident to this offering and exercisable at $9.80 per
share; and
- 120,000 additional shares that may be purchased from us by the
underwriters pursuant to an option to cover over-allotments in connection
with this offering.
12
<PAGE> 14
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Set forth below are our unaudited pro forma condensed consolidated
financial statements. The pro forma condensed consolidated financial statements
have been prepared giving effect to (1) the acquisition of Yankee Engineuity
Products Division, a California sole proprietorship; (2) the acquisition of
certain motorcycle Web sites from Net Media Technologies, Inc.; and (3) the
acquisition of engine technology from Angel Motorcycles, Inc. net of liabilities
assumed.
The unaudited pro forma condensed consolidated balance sheet as of June 30,
2000 is based on the historical balance sheets of American Eagle Motorcycle
Company, Inc., Yankee Engineuity Products Division, and Angel Motorcycles, Inc.,
as of June 30, 2000, respectively. The unaudited pro forma condensed
consolidated balance sheet assumes the transactions occurred on June 30, 2000.
The unaudited pro forma condensed consolidated statements of operations for
the twelve months ended December 31, 1999 and the six months ended June 30, 2000
are based on the historical statements of operations of American Eagle
Motorcycle Company, Inc., Yankee Engineuity Products Division, and Angel
Motorcycles, Inc. for the periods then ended, respectively. The unaudited pro
forma condensed consolidated statement of operations assumes the transactions
occurred on January 1, 1999.
The unaudited pro forma condensed consolidated statements of operations may
not be indicative of the actual results which would have been obtained if the
transactions had occurred on the dates indicated nor are they indicative of
future operating results. In particular, the unaudited pro forma condensed
consolidated financial statements are based on estimates of purchase price
allocation, which may differ from the actual allocation.
The accompanying unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the historical financial
statements of American Eagle Motorcycle Company, Inc. and Angel Motorcycles,
Inc. and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this prospectus.
13
<PAGE> 15
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 2000
---------------------------------------------------------------------------------------------------
PREVIOUS ACQUISITIONS
AMERICAN -----------------------------------------
EAGLE YANKEE PRO FORMA ANGEL PRO FORMA
MOTORCYCLE ENGINEUITY ADJUSTMENTS PRO FORMA MOTORCYCLES ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT:
Cash and cash
equivalents............. $5,200...... $19,700 $ -- $ 24,900 $ -- $ -- $ 24,900
Accounts receivable, net
of allowance for
doubtful accounts....... 86,700..... 29,300 -- 116,000 -- -- 116,000
Advances to related
parties................. 96,900..... -- -- 96,900 -- -- 96,900
Inventories............... 822,600.... 21,500 -- 844,100 -- -- 844,100
Prepaid expenses and other
assets.................. 106,100.... -- -- 106,100 59,900 (59,900)(c) 106,100
----------- ------- ---------- ----------- ----------- ---------- -----------
Total Current
Assets............. 1,117,500.. 70,500 -- 1,188,000 59,900 (59,900) 1,188,000
Intangible Assets........... --......... -- 1,105,400(a,b) 1,105,400 -- 10,241,800(d) 11,347,200
Notes Receivable............ --......... -- -- -- 273,000 (273,000)(c) --
Property and Equipment,
net....................... 223,700.... 3,300 -- 227,000 -- -- 227,000
----------- ------- ---------- ----------- ----------- ---------- -----------
$1,341,200.. $73,800 $1,105,400 $ 2,520,400 $ 332,900 $9,908,900 $12,762,200
=========== ======= ========== =========== =========== ========== ===========
LIABILITIES AND
SHAREHOLDERS' (DEFICIENCY)
EQUITY
CURRENT LIABILITIES:
Bank overdraft............ $8,300...... $ -- $ -- $ 8,300 $ 5,900 $ (5,900)(c) $ 8,300
Line of credit............ 500,000.... -- -- 500,000 -- -- 500,000
Accounts payable.......... 784,200.... 9,600 -- 793,800 95,000 105,000(c) 993,800
Accrued expenses.......... 409,800.... 3,400 -- 413,200 1,200 (1,200)(c) 413,200
Current portion,
long-term............... 339,900.... -- -- 339,900 -- -- 339,900
Current portion,
obligations............. 19,000..... -- -- 19,000 -- -- 19,000
Notes payable............. --......... 28,700 -- 28,700 106,900 (6,900)(c) 128,700
Convertible debentures.... --......... -- -- -- 240,500 343,000(c) 583,500
----------- ------- ---------- ----------- ----------- ---------- -----------
Total Current
Liabilities........ 2,061,200.. 41,700 -- 2,102,904 449,500 434,000 2,986,400
----------- ------- ---------- ----------- ----------- ---------- -----------
LONG-TERM LIABILITIES:
Long-term debt, less
current portion......... 11,300..... -- -- 11,300 -- -- 11,300
Obligations under capital
lease, less current
portion................. 36,100..... -- -- 36,100 -- -- 36,100
----------- ------- ---------- ----------- ----------- ---------- -----------
Total Liabilities..... 2,108,600.. 41,700 -- 2,150,300 449,500 434,000 3,033,800
SHAREHOLDERS' (DEFICIENCY)
EQUITY:
Series A preferred
stock................... 1,525,000.. -- -- 1,525,000 -- -- 1,525,000
Common stock.............. 3,302,600.. -- 1,137,500(a,b) 4,440,109 998,500 8,359,800(c,d) 13,798,400
(Accumulated deficit)
Retained Earnings....... (5,595,000) 32,100 (32,100)(b) (5,595,000) (1,115,100) 1,115,100(c,d) (5,595,000)
----------- ------- ---------- ----------- ----------- ---------- -----------
Total Shareholders'
(Deficiency)
Equity............. (767,400) 32,100 1,105,400 370,100 (116,600) 9,474,900 9,728,400
----------- ------- ---------- ----------- ----------- ---------- -----------
$1,341,200.. $73,800 $1,105,400 $ 2,520,400 $ 332,900 $9,908,900 $12,762,200
=========== ======= ========== =========== =========== ========== ===========
</TABLE>
14
<PAGE> 16
-------------------------
(a) Reflects the value of the 130,000 shares of our common stock issued to
acquire several motorcycle Web sites from Net Media Technologies, Inc.
based on the initial public offering price of our common stock of $7.00.
(b) Reflects the acquisition of Yankee Engineuity, accounted for using the
purchase method of accounting, for 32,500 shares of our common stock at the
initial public offering price of $7.00.
(c) To reflect assets acquired and liabilities assumed from Angel Motorcycles,
Inc.
(d) Reflects the value of the 1,287,358 shares of our common stock, based on
the initial public offering price of our common stock of $7.00, and
warrants to purchase 235,286 shares of our common stock at $7.00 per share,
to be issued to Angel Motorcycles, Inc. to acquire its technology of two
V-Twin engines, net of liabilities assumed.
15
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------
PREVIOUS ACQUISITIONS
AMERICAN -----------------------------------------
EAGLE YANKEE PRO FORMA ANGEL PRO FORMA
MOTORCYCLE ENGINEUITY ADJUSTMENTS PRO FORMA MOTORCYCLES ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales................. $ 4,980,200 $352,600 $ -- $ 5,332,800 $ -- $ -- $ 5,332,800
Cost of Sales............. 4,558,000 272,600 -- 4,830,600 -- -- 4,830,600
----------- -------- --------- ----------- --------- --------- -----------
Gross Profit.............. 422,200 80,000 -- 502,200 -- -- 502,200
Operating Expenses:
Research and
development........... 545,400 -- -- 545,400 238,900 -- 784,300
Sales and marketing..... 421,400 4,700 182,000(a) 608,100 -- -- 608,100
General and
administrative........ 913,000 50,000 9,800(b) 972,800 26,400 512,100(c) 1,511,300
----------- -------- --------- ----------- --------- --------- -----------
Total Operating
Expenses........ 1,879,800 54,700 191,800 2,126,300 265,300 512,100 2,903,700
----------- -------- --------- ----------- --------- --------- -----------
Loss From Operations...... (1,457,600) 25,300 (191,800) (1,624,100) (265,300) (512,100) (2,401,500)
Other Income (Expense):
Interest income......... 26,400 -- -- 26,400 -- -- 26,400
Interest and other
expense............... (106,500) (5,600) -- (112,100) -- (70,400)(d) (182,500)
----------- -------- --------- ----------- --------- --------- -----------
Loss Before Income
Taxes................... (1,537,700) 19,700 (191,800) (1,709,800) (265,300) (582,500) (2,557,600)
Income Taxes.............. (800) -- -- (800) -- -- (800)
----------- -------- --------- ----------- --------- --------- -----------
Net Loss.................. (1,538,500) 19,700 (191,800) (1,710,600) (265,300) (582,500) (2,558,400)
Preferred Stock
Dividends............... (24,000) -- -- (24,000) -- -- (24,000)
----------- -------- --------- ----------- --------- --------- -----------
Net Loss Attributed to
Common Shareholders..... $(1,562,500) $ 19,700 $(191,800) $(1,734,600) $(265,300) $(582,500) $(2,582,400)
=========== ======== ========= =========== ========= ========= ===========
Basic and Diluted Loss Per
Common Share............ $ (1.27) $ (1.25) $ (0.97)
=========== =========== ===========
Weighted-Average Common
Shares Outstanding...... 1,225,816 1,388,316(e) 2,675,674(f)
=========== =========== ===========
</TABLE>
-------------------------
(a) Reflects the amortization of intangible assets recorded in the acquisition
of motorcycle Web sites from Net Media Technologies, Inc. using a five year
life.
(b) Reflects the amortization of goodwill recorded in the acquisition of Yankee
Engineuity using a twenty year life.
(c) Reflects the amortization of intangible assets recorded in the acquisition
of technology from Angel Motorcycles, Inc. using a twenty year life.
(d) To reflect interest expense on notes payable at 12% and convertible
debentures at 10% assumed from Angel Motorcycles, Inc.
(e) Includes 130,000 shares to acquire motorcycle Web sites from Net Media
Technologies, Inc. and 32,500 shares to acquire Yankee Engineuity.
(f) Includes 1,287,358 shares to be issued to Angel Motorcycles, Inc. for its
V-Twin engine technology.
16
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
-----------------------------------------------------------------------------------------------
PREVIOUS ACQUISITIONS
AMERICAN -------------------------
EAGLE YANKEE PRO FORMA ANGEL PRO FORMA
MOTORCYCLE ENGINEUITY ADJUSTMENTS PRO FORMA MOTORCYCLES ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales.............. $ 970,600 $165,400 $ -- $1,136,000 $ -- $ -- $ 1,136,000
Cost of Sales.......... 871,700 74,600 -- 946,300 -- -- 946,300
----------- -------- -------- ----------- --------- --------- -----------
Gross Profit........... 98,900 90,800 -- 189,700 -- -- 189,700
Operating Expenses:
Research and
development........ 174,200 -- -- 174,200 624,800 (330,000)(c) 469,000
Sales and
marketing.......... 57,500 300 91,000(a) 148,800 -- -- 148,800
General and
administrative..... 1,034,700 19,000 4,900(b) 1,058,600 160,600 256,000(d) 1,475,200
----------- -------- -------- ----------- --------- --------- -----------
TOTAL OPERATING
EXPENSES............. 1,266,400 19,300 95,900 1,381,600 785,400 (74,000) 2,093,000
----------- -------- -------- ----------- --------- --------- -----------
LOSS FROM OPERATIONS... (1,167,500) 71,500 (95,900) (1,191,900) (785,400) 74,000 (1,903,300)
OTHER INCOME (EXPENSE):
Interest income...... 18,300 -- -- 18,300 -- -- 18,300
Other income......... 330,000 -- -- 330,000 -- (330,000)(c) --
Interest and other
expense............ (83,200) -- -- (83,200) (8,800) (26,400)(e) (118,400)
----------- -------- -------- ----------- --------- --------- -----------
LOSS BEFORE INCOME
TAXES................ (902,400) 71,500 (95,900) (926,800) (794,200) (282,400) (2,003,400)
Income Taxes........... -- -- -- -- -- --
----------- -------- -------- ----------- --------- --------- -----------
Net Loss............... (902,400) 71,500 (95,900) (926,800) (794,200) (282,400) (2,003,400)
Preferred Stock
Dividends............ (12,000) -- -- (12,000) -- -- (12,000)
----------- -------- -------- ----------- --------- --------- -----------
NET LOSS ATTRIBUTED TO
COMMON SHAREHOLDERS.. $ (914,400) $ 71,500 $(95,900) $ (938,800) $(794,200) $(282,400) $(2,015,400)
=========== ======== ======== =========== ========= ========= ===========
BASIC AND DILUTED LOSS
PER COMMON SHARE..... $ (0.73) $ (0.66) $ (0.75)
=========== =========== ===========
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING... 1,249,823 1,412,323(f) 2,699,681(g)
=========== =========== ===========
</TABLE>
-------------------------
(a) Reflects the amortization of intangible assets recorded in the acquisition
of motorcycle Web sites from Net Media Technologies, Inc. using a five year
life.
(b) Reflects the amortization of goodwill recorded in the acquisition of Yankee
Engineuity using a twenty year life.
(c) Reflects the elimination of other income paid to American Eagle Motorcycle
by Angel Motorcycles.
(d) Reflects the amortization of intellectual property recorded in the
acquisition of technology from Angel Motorcycle, Inc. using a twenty year
life.
(e) To reflect interest expense on notes payable at 12% and convertible
debentures at 10% assumed from Angel Motorcycles, Inc.
(f) Includes 130,000 shares to acquire motorcycle Web sites from Net Media
Technologies, Inc. and 32,500 shares to acquire Yankee Engineuity.
(g) Includes 1,287,358 shares to be issued to Angel Motorcycles, Inc. for its
V-Twin engine technology.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the financial statements and related
notes that are included later in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under "Risk
Factors" or in other parts of this prospectus.
OVERVIEW
We develop, manufacture and market heavyweight V-Twin motorcycles popularly
known as cruisers, which are sold to consumers through our distribution network
of American Eagle authorized dealers. Development of our first cruiser commenced
at the time of our incorporation in California in late 1995, and we now offer
three different types of cruiser models including our new STX 2000 sport
cruiser. Commercial sales of our motorcycles began in the second half of 1996,
and since then we have sold approximately 800 American Eagle motorcycles.
We offer only premium-priced motorcycle products, and accordingly all our
development and marketing efforts and activities are positioned in and directed
toward the upscale segment of the heavyweight motorcycle market. To date, our
revenues have consisted primarily of wholesale distribution of our motorcycles
to our independent dealers, all of which are located in the United States.
Our cost of sales consists primarily of raw materials and off-the-shelf
parts and components, salaries and related personnel expenses for employees
engaged in assembly and quality control operations, and manufacturing overhead.
In addition, we rely on contract manufacturers for some of our components, which
are included in our cost of sales.
Research and development expenses consist primarily of employee
compensation related to engineering and development, outsourced contract
engineering expenses, equipment and material costs associated with design and
development activities, and costs for obtaining regulatory certification for
commercial sale and use of our motorcycles. All research and development costs
are expensed as incurred.
Sales and marketing expenses consist primarily of salaries and personnel
expenses for our marketing and sales support employees, general advertising and
promotional activities including participation in trade shows and motorcycle
rallies, publication of sales brochures and other marketing materials, Web site
expenses, and costs of public relations efforts.
General and administrative expenses consist primarily of salaries and
related personnel expenses for executive, accounting and administrative
employees, administrative overhead expenses, and professional fees.
PENDING STRATEGIC ACQUISITION
We recently entered into a strategic asset purchase agreement with Angel
Motorcycles Inc. to acquire engine technology and prototypes for two distinct
V-Twin engines developed and owned by Angel Motorcycles Inc. This acquisition
will be consummated simultaneous with the closing of this offering of our units,
and will enable us to incorporate and include proprietary American Eagle engines
in our motorcycles. See "Asset Purchase Agreement."
In consideration for these engine technology assets, we will issue
1,287,358 shares of our common stock to Angel Motorcycles Inc. and stock
purchase warrants to purchase up to 235,286
18
<PAGE> 20
additional shares of our common stock at $7.00 per share until expiration in
2004. We also will assume liabilities of Angel Motorcycles Inc. in the aggregate
amount of $883,500 including $383,500 of convertible debentures, notes payable
of $100,000 and accounts payable of $200,000 as well as future royalties payable
to the engine developer in respect to future sales of these engines.
RECENT ACQUISITIONS
In September 2000, we acquired Yankee Engineuity Products Division, an
established sole proprietor business engaged in selling custom engine parts and
other motorcycle aftermarket components, which currently has annual sales of
approximately $300,000. We acquired Yankee Engineuity Products Division in
consideration for 32,500 shares of our common stock and this acquisition will be
accounted for using the purchase method of accounting.
In September 2000, we also acquired several motorcycle Web sites from Net
Media Technologies, Inc., a company affiliated with our Chief Executive Officer.
These Web sites were acquired in consideration for 130,000 shares of our common
stock. We intend to enhance and use these Web sites for several important
functions including conducting e-commerce business with our dealer network,
promoting our products to the general motorcycle community, providing a periodic
motorcycle e-magazine having a wide range of current motorcycle topics, and
developing an online direct sales outlet offering an American Eagle line of
custom motorcycle parts and components, accessories, apparel and other general
merchandise.
RESULTS OF OPERATIONS
The following table sets forth our Statements of Operations data expressed
as a percentage of total sales:
<TABLE>
<CAPTION>
FISCAL YEAR SIX-MONTH PERIOD
ENDED ENDED
DECEMBER 31, JUNE 30,
----------------- ------------------
1998 1999 1999 2000
----- ----- ----- ------
<S> <C> <C> <C> <C>
Sales........................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 96.7 91.5 91.4 89.8
----- ----- ----- ------
Gross profit.................................... 3.3 8.5 8.6 10.2
----- ----- ----- ------
Operating expenses:
Research and development...................... 5.0 11.0 6.4 18.0
Sales and marketing........................... 10.7 8.4 6.4 5.9
General and administrative.................... 27.3 18.3 13.5 106.6
----- ----- ----- ------
Total operating expenses................. 43.0 37.7 26.3 130.5
----- ----- ----- ------
Loss from operations............................ (39.7) (29.2) (17.7) (120.3)
Interest income................................. 0.8 0.5 0.6 1.9
Other income.................................... -- -- -- 34.0
Interest and other expense...................... (2.5) (2.1) (1.6) (8.6)
----- ----- ----- ------
Loss before income taxes........................ (41.4) (30.8) (18.7) (93.0)
Income taxes.................................... -- -- -- --
----- ----- ----- ------
Net loss........................................ (41.4)% (30.8)% (18.7)% (93.0)%
===== ===== ===== ======
</TABLE>
19
<PAGE> 21
COMPARISON OF SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND 2000
Sales. Sales for the first six months of 2000 decreased $2,531,800 or 72%
to $970,600 in comparison to sales of $3,502,400 for the same six-month period
of 1999. This significant sales decrease was due to capital and personnel
restraints resulting from an ongoing lack of liquidity and working capital to
support our operations effectively, and also because much of our marketing
efforts and resources in early 2000 were directed toward the commercial launch
of our new sport cruiser class of motorcycles. In addition, we encountered
shipping delays in 1999 from our supplier of engines which significantly
impacted production scheduling and the filling of orders.
Cost of Sales. Cost of sales decreased 72.8% to $871,700 for the first six
months of 2000 from $3,201,800 for the same six months of 1999, primarily due to
the corresponding decrease in sales for these periods. Gross margin increased to
10.2% for the first six months of 2000 compared to 8.6% for the same period of
1999, due primarily to sales in 2000 having a larger percentage of higher margin
products.
Research and Development. Research and development expenses decreased from
$224,300 for the first six months of 1999 to $174,200 for the same period of
2000, primarily due to our having limited working capital available during 2000.
Sales and Marketing. Sales and marketing expenses decreased from $224,700
for the first six months of 1999 to $57,500 during the same period of 2000,
primarily due to liquidity and working capital constraints which required us to
reduce or delay our marketing and promotional activities.
General and Administrative. General and administrative expenses were
$471,400 for the first six months of 1999 compared to $1,034,700 for the same
six-month period of 2000. This increase was due primarily to a non-cash
compensation expense of $580,400 related to the beneficial conversion of related
party notes payable into capital stock.
Other Income. Other income of $330,000 during the first six months of 2000
consisted of development, engineering and other activities performed for Angel
Motorcycles Inc. to incorporate their engine technology into a finished
motorcycle product.
Income Taxes. There was no provision for income taxes for the six months
ended June 30, 1999 and 2000, due to our loss position in both periods.
Net Loss. Our net loss was $655,200 for the first six months of 1999
compared to $902,400 for the same period of 2000. This increase in our loss was
primarily due to non-cash compensation expense offset by the receipt of
non-recurring other income in 2000.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1999
Sales. Sales increased 50% to $4,980,200 for the year ended December 31,
1999 from $3,315,100 for the year ended December 31, 1998. This increase was
primarily due to increased motorcycle orders from our expanded dealer network
and increasing market acceptance of our motorcycles.
Cost of Sales. Cost of sales increased 42.2% to $4,558,000 during 1999 from
$3,205,800 in 1998, primarily reflecting our growth in sales. Our gross profit
margin increased to 8.5% in 1999 from 3.3% in 1998, primarily due to economies
of scale in our manufacturing operations.
Research and Development. Research and development expenses increased from
$164,700 in 1998 to $545,400 in 1999, primarily due to increased design and
development activities related to our new sport cruiser class of motorcycle
introduced in late 1999.
Sales and Marketing. Sales and marketing expenses increased from $354,600
in 1998 to $421,400 in 1999, primarily due to increased marketing efforts to
support our growth in sales and in
20
<PAGE> 22
our dealer network. These expenses, however, decreased as a percentage of total
sales from 10.7% in 1998 to 8.4% in 1999 due to economies of scale resulting
from our significant growth in sales in 1999.
General and Administrative. General and administrative expenses increased
slightly from $904,900 in 1998 to $913,000 in 1999. Although there was no
material change in the actual amount of these expenses from 1998 to 1999, they
decreased as a percentage of total sales from 27.3% in 1998 to 18.3% in 1999.
Income Taxes. Other than the payment of minimum state income taxes of $800
annually, there was no provision for income taxes in 1998 or 1999 due to our
loss position.
Net Loss. Net loss was essentially the same in 1998 and 1999, being
$1,373,000 in 1998 and $1,538,500 in 1999, with the increase in loss in 1999 due
primarily to increased expenses for research and development.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations primarily through equity
private placements of capital stock, bank credit facilities, trade credit from
our suppliers, and bridge loans and other advances from our Chief Executive
Officer. As of June 30, 2000, we had only $5,200 in cash and a negative working
capital position of $(943,700). Accordingly, we will not be able to continue our
operations effectively unless we obtain additional capital.
We have experienced recurring operating losses, negative working capital
and shareholders' deficiency. In addition, our bank has demanded full payment of
the credit facility. The report of our independent certified public accountant
contains an explanatory paragraph expressing substantial doubt about our ability
to continue as a going concern.
We believe that the net proceeds from this offering will be sufficient to
satisfy our anticipated needs for working capital, planned product development,
and capital expenditures for at least the next twelve months. If we fail to meet
our operational cash flow needs, we would be required to raise additional
capital through either debt or equity financing. There is no assurance that we
will be able to obtain any material future debt or equity financing when needed,
or that any future financing terms will be acceptable to us. Moreover, the
future sale of equity or convertible debt securities could result in additional
substantial dilution to our shareholders.
Net cash used in operating activities for the years ended December 31, 1998
and 1999 and in the six months ended June 30, 2000 was $846,200, $380,600, and
$224,100, respectively. Cash used for our operations was principally for product
development, expansion of our sales and marketing support and activities, and
expansion of our administrative staff to support our growth.
Net cash used in investing activities for the years ended December 31, 1998
and 1999 and the six months ended June 30, 2000 was $56,100, $76,700, and
$76,100, respectively, and was primarily related to purchase of production and
development equipment.
Net cash provided by financing activities for the years ended December 31,
1998 and 1999 and the six months ended June 30, 2000 was $893,900, $485,200, and
$276,600, respectively. Principal activities providing this cash were (i)
increased borrowings from our bank, loan advances from our Chief Executive
Officer and sales of both preferred and common stock in 1998, (ii) increased
bank borrowings, loan advances from our Chief Executive Officer, and sales of
common stock in 1999, and (iii) loan advances from our Chief Executive Officer
in the six months ended June 30, 2000.
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NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1999, we had net operating loss carryforwards for
federal income tax purposes of approximately $3,462,200, which expire beginning
in 2010. Due to the uncertainty of future profitability, a valuation allowance
equal to the deferred tax asset has been recorded. In addition, changes in our
equity ownership may limit the net operating loss carryforward available to us
in any given year under applicable provisions of the Internal Revenue Code.
SEASONALITY
Due to our current dealer network being primarily from states having warm
or mild winter climate conditions, to date we have not experienced any material
seasonality of dealer orders or revenues. Assuming we accomplish our planned
nationwide expansion of our dealer network, however, we anticipate that future
dealer orders and revenues will be somewhat lower during the colder seasons in
northern and central states.
BACKLOG
As of June 30, 2000, we had a backlog of dealer orders for our motorcycles
of approximately $1,180,000. Over the past year or so, we have not attempted to
increase our backlog of orders because our cash flow difficulties have seriously
constrained our ability to fill new dealer orders on a timely basis.
INFLATION
Since our inception in 1995, inflation has not had a material impact on our
operating results. Any future significant increases in labor, materials, or
development costs, however, could harm our future operating results and
business.
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BUSINESS
We design, develop, manufacture and sell traditional American-styled
heavyweight V-Twin custom motorcycles popularly known as "cruisers." All our
motorcycles are positioned and offered in the premium or upscale market niche of
our industry. They are sold and distributed under our American Eagle brand
through our dealer network of 32 domestic dealers. From inception of our
commercial production in 1996 until the date of this prospectus, we have
produced and sold approximately 800 of our premium motorcycles. Suggested retail
prices of our cruisers currently range from $20,900 to $27,900, and they are
offered with a variety of customized options and styling.
Our primary mission is to establish our American Eagle brand based on the
classic American motorcycling heritage while offering products with performance
and styling that represent a distinct alternative to those of Harley-Davidson
and other manufacturers of traditional heavyweight cruisers.
Our company was founded in 1995 by our President, Greg Spak, who primarily
has been responsible for the development and styling of our motorcycle products.
Since 1998, we have conducted our development, production, marketing and
administrative operations from our facility in Hollister, California, which was
designed specifically for our overall motorcycle business. This modern one-story
facility includes efficient assembly lines designed, equipped and dedicated
solely for motorcycle production, substantial distinct Engineering/Research &
Development spaces, metal-polishing spaces, ample warehousing spaces for
materials and finished products, storage areas for parts/accessories and general
merchandise, and other features designed to suit our particular needs. Hollister
also is the permanent host of a leading annual motorcycle rally.
HEAVYWEIGHT MOTORCYCLE INDUSTRY AND MARKET
In our industry, motorcycles often are characterized as heavyweight,
middleweight or lightweight models, with the heavyweight category having engine
displacements of at least 651cc (cubic centimeters). Within the heavyweight
segment, there are generally four types: (i) standard, which emphasize
simplicity and low cost, (ii) performance, which emphasize handling and speed,
(iii) touring, which emphasize rider comfort amenities for long-distance
traveling, and (iv) cruiser, which are designed to facilitate customization by
owners and feature classic American styling like the popular Harley-Davidson
streetbikes. From the outset, our motorcycles were designed and developed for
the cruiser segment of the market. Although we have not conducted any formal
market research, we believe that most potential customers in our targeted
upscale market are seeking premium motorcycles with a brand and "biker"
lifestyle appeal associated with the classic American motorcycling tradition.
Based on industry information, for many years the heavyweight segment has
represented, and now represents, a majority of U.S. market sales including all
on- and off-highway motorcycles. Moreover, we believe that V-Twin cruisers have
constituted the largest part of the heavyweight market. Throughout the 1990s,
the U.S. market for heavyweight motorcycles has experienced healthy and growing
conditions, and we believe favorable market conditions will continue well into
the present decade. U.S. registrations of new heavyweight motorcycles increased
from 104,200 to 165,700 units over the 1992-96 period, an average annual growth
rate of approximately 15%. Such registrations continued to increase to 275,600
units over the 1997-99 period, an even better average annual growth rate of 22%.
Moreover, in the first five months of 2000, the growth rate of new U.S.
heavyweight registrations has accelerated to approximately 25% in comparison to
the same five-month period of 1999. The Motorcycle Industry Council is the
source of data included in this paragraph.
Based on general industry information and our past sales experience, we
believe that our primary customer base comes from experienced male motorcyclists
of 35 years or older, with relatively high
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incomes, who purchase motorcycles for recreational and lifestyle image purposes.
This customer base has expanded considerably over recent years, and we expect it
to continue expanding over the coming years due to the increasing popularity of
motorcycling as well as the continuing maturity of the population bulge caused
by the post-World War II baby boom. The baby boom generation now constitutes
45-50% of our national population, and many males of this generation are
entering their peak income earning years and thus are prime prospects for
purchasing luxury recreational motorsport products such as our premium cruisers.
We believe that the 35-55 year old age group leads all age groups in annual
spending per consumer on premium recreational products and also generally has
greater disposable income than other age groups.
OUR MOTORCYCLES
All American Eagle motorcycles are equipped with standard high performance
features and components, including a powerful hand-polished V-Twin engine, a
durable drivetrain with a 5-speed close ratio transmission, a rugged and
smooth-riding chassis and suspension system, a state-of-the-art brake system,
solid state electrical components, modern electronics including a dual fire
ignition, a premium chromed exhaust system, a comfortable custom seat, polished
wire spoke wheels, a wide 180mm rear tire, a stretched custom teardrop gas tank,
considerable chrome and billet parts and controls, and a custom high-gloss paint
pattern. We also offer various optional custom packages depending upon the
chosen cruiser model, such as a higher-powered engine, a 6-speed transmission,
higher-performance engine parts, a custom two-rider seat with billet passenger
pegs, one-piece billet aluminum or mag wheels, and certain individualized
high-gloss paint schemes.
Our full line of American Eagle cruisers includes three basic models:
- our top-seller "Maverick" brand with its classic American custom styling
along with its high performance riding features;
- our premium "chopper" cruisers which merge traditional cruiser styling
with the distinct stretched and front-end raked look favored by chopper
enthusiasts; and
- our new innovative STX 2000 "sport cruiser" currently being introduced
into our market.
Maverick Cruisers -- Our leading premium cruisers feature classic styling
similar to traditional custom cruisers offered by Harley-Davidson and others,
and we sell them primarily under our Maverick trade name. Our standard Maverick
model, the STM Maverick-S, is powered by a 100 cubic inch (1675cc) V-Twin engine
and has a prominent chrome inverted frontend fork and a full suspension Softail
rearend. We also offer a more upscale version, the STM Maverick-RS, which has a
more powerful V-Twin engine of 113 cubic inches (1825cc) and custom mag wheels.
We also offer certain variations of our basic Maverick bike including our
"Stinger" and "Mirage" models. The Stinger, a more affordable bike than the
Maverick, has a smaller 88 cubic inch (1462cc) V-Twin engine and certain other
differences such as dual exhaust pipes and our chopper-style rear fender. The
Mirage is quite similar to the Maverick with its differences being mainly custom
skirted fenders and a smaller front tire, and it is offered with either a 100 or
a 113 cubic inch V-Twin engine.
Chopper Cruisers -- For thirty years or more, the distinctive low-slung,
stretched look of a custom chopper motorcycle, with its characteristic raked
frontend, has maintained a strong appeal to a substantial segment of
motorcyclists who prefer the styling and rebel lifestyle image projected by
chopper streetbikes. Accordingly, a key element of our original business
strategy was to address this market aggressively by designing and offering
American Eagle premium chopper motorcycles. We developed and commenced
commercial production of our first chopper in 1996 almost as early as the
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commercial launch of our original Maverick cruiser model. During much of our
four-year commercial production history, our chopper cruisers have sold in
almost equal numbers to our leading Maverick line, and we estimate that our
choppers have represented approximately 40% of our total motorcycle unit sales.
Our choppers have been designed to be reminiscent of the early traditional
chopper craze popularized by the classic "Easy Rider" movie and other biker
movies and events. For some time, we offered two types of chopper motorcycles,
rigid and full suspension. Our initial rigid model without rear suspension was
sold under our BMC (Big Mike Chopper) trade name until its recent
discontinuance. In order to provide more comfort for chopper riders, in 1997 we
completed developing and commercially introduced the first full suspension
Softail choppers in our industry. Our Softail choppers retain the classic
chopper look and high quality frontend suspension of our original rigid BMC
model while also featuring the softride rear suspension of our Maverick line of
cruisers. From the outset, our pioneering Softail choppers were well received in
our industry, and we soon sold considerably more of our full suspension version
than our rigid version. Because of the favorable reception of our full
suspension chopper, we recently discontinued offering a rigid model. We offer
two models of Softail choppers, our STM-C model which is powered by a 100 cubic
inch V-Twin engine, and our less expensive model powered by an 88 cubic inch
V-Twin engine and sold under our "Stalker" trade name.
We believe we are the industry leader in the chopper segment of the
heavyweight cruiser market, and we anticipate that a healthy demand for chopper
motorcycles will prevail and even increase over the coming years.
STX 2000 Sport Cruisers -- In 1998, we made a strategic decision to develop
and offer a "sport cruiser," a new distinct class of American Eagle cruisers to
join our established Maverick and chopper product lines. Our sport cruiser has
been designed to emphasize and maintain traditional American cruiser styling
while also incorporating certain high quality handling and performance features
characteristic of leading sportbikes. During the past year, we produced and sold
an initial limited edition of our sport cruiser under our "XRT Talon" trade
name, and the XRT Talon experienced a very favorable reception from our dealers
and others in the motorcycle community. This encouraged us to focus on enhancing
and improving our sport cruiser concept beyond the XRT Talon version. Recently
we completed final development of our sport cruiser class, and we have renamed
it the STX 2000 to celebrate its commercial introduction with the new
millennium. During the remainder of 2000 and ongoing into 2001, we intend to
direct a significant percentage of our marketing efforts and resources toward
promoting, selling and securing a strong demand for our new STX 2000.
The STX 2000 retains the key standard features of our traditional Maverick
cruisers. In order to offer superior handling and performance than traditional
cruisers, however, the STX 2000 also incorporates additional high quality
technology advances such as a mono-shock rear suspension, a specialized rubber
engine-mounting system to diminish vibration, and increased front-end fork
suspension travel. Weighing slightly under 500 pounds, the STX 2000 is lighter
and handles better than more traditional heavyweight streetbikes. We also offer
our STX 2000 with dual shock rather than mono-shock rearend suspension. Styling
of the STX 2000 features a streamlined look and a specially re-engineered frame
intended to provide a smooth, sleek and sporty look and attitude. When compared
to other cruisers in our market, we believe our new sport cruiser offers the
motorcycle public a new and exciting dimension in cruiser styling, handling and
performance. The STX 2000 also provides ample power with its 100 cubic inch
engine. And for those desiring even more power, we are offering a
top-of-the-line sport cruiser, the STX-SE, which is powered by a Patrick High
Performance Engine.
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SALES AND MARKETING
We sell our motorcycles directly to our authorized American Eagle dealers
which are well-established independently owned full-service motorcycle retail
outlets carrying one or more motorcycle brands other than our products. All our
dealers are experienced in selling and servicing premium heavyweight
motorcycles. As of September 30, 2000, we had 32 active dealerships, all with
domestic dealers. The following table shows the number and location of dealers
in each state where we currently have dealer representation:
<TABLE>
<CAPTION>
NUMBER OF
STATE DEALERS LOCATION OF DEALERS
----- --------- -------------------
<S> <C> <C>
Arizona....................... 2 Tucson and Scottsdale
California.................... 8 Santa Ana, Woodland, Citrus Heights, Concord,
Pomona, Santa Cruz, Redding and Cloverdale
Colorado...................... 1 Denver
Florida....................... 2 Fort Lauderdale and Sarasota
Idaho......................... 1 Couer d'Alene
Indiana....................... 1 Merrillville
New York...................... 3 Centereach, Binghampton, and West Babalon
Michigan...................... 2 Mount Clemens and Burton
New Jersey.................... 1 Egg Harbor Township
North Carolina................ 2 Charlotte and Washington
Oklahoma...................... 1 Tulsa
Oregon........................ 2 Hillsboro and Bend
Tennessee..................... 1 Nashville
Texas......................... 1 Houston
Utah.......................... 1 Salt Lake City
Virginia...................... 2 Danville and Richmond
Washington.................... 1 Wenatchee
</TABLE>
Our current effective dealers are located primarily in East and West Coast
states, Texas and Arizona. We have minimal presence in Midwestern and South
Central states. Upon completion of this offering, we intend to aggressively seek
additional dealers in regions of the country without effective representation. A
large base of motorcycle dealers is available from which we can solicit
additional American Eagle dealers, since a substantial percentage of motorcycle
dealers carry more than one line of motorcycles. We believe we can add dealers
in the future to attain our planned nationwide commercial presence.
Dealers purchase our motorcycles through floor planning from major
financial institutions, and we receive payment for floored bikes within 2 weeks
of shipment to dealers. We generally provide free flooring for our dealers for
30 days, although during winter months we provide it for up to 3 months for
qualifying dealers. We typically ship our motorcycles to dealers within 2-3
weeks of receipt of dealer orders.
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Our dealerships are offered primarily to established motorcycle dealers
having substantial experience in selling and servicing premium heavyweight
cruisers and established full service departments skilled in V-Twin engine and
drivetrain maintenance and repair as well as custom performance upgrades.
Dealers must enter into a written dealer agreement with us which grants them a
designated territory in which we cannot otherwise sell our products without
compensating our dealer. Dealers have the exclusive right to use and display the
American Eagle trademark in their respective territories in connection with sale
of our products. They also are required to provide warranty and general repair
and maintenance services, and maintain substantial general liability insurance
covering us as an additional insured party. All our dealers retain the right to
carry and sell motorcycles of any brand, including premium cruisers competing
directly with our products. Although our dealers agree to use their best efforts
to market and sell our products, they are not required to purchase any minimum
amount of our motorcycles to obtain a dealership. Our dealer agreements have a
term of one year with an automatic renewal provision, although they can be
terminated by either party for any reason upon 60 days written notice.
We conduct substantial ongoing marketing activities to support our dealers
and promote our products to our targeted upscale customer base and the general
public, including advertising in trade publications and motorcycle magazines,
production of sales brochures and technical product documentation and manuals,
direct mail promotions to potential customers, public relations efforts directed
toward our industry media, and participation in and display of our products at
leading national and regional trade shows, biker rallies and other motorcycle
events such as the well-known Sturgis Rally and Daytona Beach Bike Week.
Due to the explosive growth of the Internet over the past few years for
commercial functions such as promoting product sales and brand awareness and
disseminating general corporate information, we established a proprietary Web
site with the Internet address of www.americaneagles.com. This Web site is an
important feature of our overall marketing strategy, and was designed for us by
professionals to suit our specific needs. We use our Website for multiple
functions including displaying current textual and graphic material on our
motorcycles, general promotion of the American Eagle brand, communication with
current owners and potential buyers of our products, generating leads for our
dealers, and informing both the motorcycle community and the general public
about our business and products. We also intend to add new features to our Web
site in several stages throughout the coming year, including allowing our
customers to purchase American Eagle clothing and accessories directly from us,
referring our Internet customer leads electronically to our dealers, providing
information on our available motorcycle stock to our dealers, and posting
current business and financial information for investors in our common stock, as
well as other features.
PRODUCTS UNDER DEVELOPMENT
We are committed to an ongoing development strategy in order to continually
introduce new American Eagle products and enhancements of, and accessories for,
existing products. We believe our design and development systems and
capabilities allow us to timely design and develop new products as needed to
address any changing needs and tastes of the heavyweight motorcycle community.
Our current development activities consist primarily of completing the
development and regulatory certification of the proprietary V-Twin engine
technology being acquired by us, and of completing development of our
top-of-the-line TRX 152 sport cruiser model.
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Proprietary Engine Technology
Our most important current development project is to complete final
development, operational testing, and regulatory certification of the two
distinct proprietary V-Twin engines being acquired by us from Angel Motorcycles
Inc. Complete running prototypes of both the 92 cubic inch and 152 cubic inch
V-Twins were shipped to us from their developer in England in August 2000, and
since then we have been subjecting them to extensive engineering and operational
evaluation and testing at our Hollister facility, as well as commencing certain
desired re-engineering modifications to the larger 152 cubic inch engine.
Since the 92 cubic inch V-Twin will be used to power our new STX 2000 sport
cruiser as well as other American Eagle cruiser models, our current development
and engineering efforts are being focused primarily on commencing commercial
production of this 92 cubic inch engine as soon as possible. The 92 cubic inch
engine was designed to look and perform similar to traditional V-Twins
manufactured by Harley-Davidson and certain independent V-Twin engine
manufacturers such as S&S Cycle, Inc. Full development of this engine has been
accomplished to our satisfaction, and we now are in the process of undergoing
its extensive operational testing under running conditions and submitting it to
various governmental agencies to obtain regulatory certification for commercial
use and sale. Although we cannot assure you these proprietary V-Twins will
satisfy the numerous government regulations and standards relating to noise and
emissions, we believe that, based on our operational testing, they will pass all
such requirements. We have identified and secured the necessary subcontract
manufacturers in England to produce the various engine components and parts
needed for this 92 cubic inch engine, and we believe such subcontractors are
willing and capable of supplying us with such parts and components in a timely
manner upon their receipt of our purchase orders. We also believe alternative
quality subcontractors are available to us for manufacturing such engine parts
and components.
Upon completion of all testing and certifying of the 92 cubic inch engine
for commercial production, which we anticipate being done during 2001, we will
then concentrate our development and engineering toward completing certain
re-engineering modifications and obtaining regulatory certification for the 152
cubic inch V-Twin, as well as incorporating it into our most expensive and
innovative cruiser, the TRX 152. We believe that this 152 cubic inch V-Twin is
revolutionary both in design and performance, and has engine design technology
which provides optimum horsepower, torque, and acceleration to be especially
suitable for high performance premium cruisers. Design of this 152 cubic inch
engine is based on the look and reliability of air-cooled radial aircraft
engines of the 1940s, and we believe its style will be appealing to upscale
motorcycle enthusiasts. This engine also features considerable use of billet
parts, which are superior to conventional castings in performance, look, and
durability. We believe that this 152 cubic inch V-Twin, with its anticipated 145
horsepower rating, will provide us with the most powerful V-Twin engine in our
industry.
Powering our American Eagle cruisers with proprietary V-Twin engine
technology will represent a landmark event in our commercial history, since we
believe that this capability will separate and distinguish us clearly and
favorably from those of our competitors assemblying heavyweight custom cruisers
without proprietary engines. Moreover, we also believe such proprietary
technology will enhance and improve our name-brand identity within the overall
motorcycle community.
By 2002, we also intend to offer both the 92 cubic inch and 152 cubic inch
V-Twins as upgrade products in the large and steadily growing custom cruiser
motorcycle aftermarket. In particular, the 92 cubic inch engine was designed to
be readily adaptable as a replacement engine upgrade for Harley-Davidson type
motorcycles powered by their "evolution" engine. According to industry data,
over 1,000,000 motorcycles now in use are powered by this well-known popular
Harley-Davidson engine.
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TRX 152 Cruiser
We intend to complete the development of our TRX model by the time we have
completed full development and certification of the 152 cubic inch V-Twin
engine, which we anticipate happening by the second half of 2001. The TRX 152
cruiser is basically an upscale version of our innovative STX 2000 sport
cruiser, modified to accept the 152 cubic inch V-Twin. Accordingly, it will
contain the performance and handling features of the STX 2000 such as
state-of-the-art durable rearend suspension, anti-vibration engine mounts,
increased front suspension travel, and lightweight construction compared to
traditional custom cruisers.
WARRANTY POLICY
We provide a 4-year limited warranty to all purchasers of American Eagle
motorcycles, which covers parts and labor to repair or replace any defective
engine, transmission and certain other key parts, as well as defects in
materials and painting. We self-insure the initial 6 months of the warranty, and
the remaining 3 1/2 years are covered by a standard extended warranty provided
through an independent product warranty company.
RESEARCH AND DEVELOPMENT
We conduct our research and development primarily through our in-house
development and engineering departments. We believe that our future performance
will depend in large part on our ability to maintain and enhance our current
product line, develop new products that achieve material market acceptance,
maintain technological competitiveness, and satisfy a changing or expanding
range of motorcyclist tastes and requirements. We spent $164,700 in 1998 and
$545,400 in 1999 on research and development activities.
MANUFACTURING AND SUPPLIERS
Our manufacturing operations mainly consist of assembly of components,
polishing engines and parts, painting fully assembled motorcycles, and
conducting quality control and performance testing procedures. Our frames,
fenders, gas tanks and certain other parts are outsourced to various local
subcontractors for manufacture to our specifications. We purchase engines,
transmissions, brake and suspension systems, starters, tires and wheels, seats,
lights, electronic parts and other off-the-shelf components from various
independent manufacturers or distributors, most of which are located in the
United States. Components and parts used to build our bikes are normally
available with short order lead times. Multiple suppliers are available for all
components and parts used in our motorcycle production. We have been able to
obtain adequate supplies in a timely manner from our primary sources or, when
necessary, from alternative secondary sources, except for a considerable period
in 1999 when we were unable to obtain engines.
We employ just-in-time (JIT) inventory principles as much as possible in
order to minimize our inventories of raw materials and components and to provide
quick reaction to engineering design changes and varying market demands. Our
production operations also rely heavily upon stringent quality control
procedures and standards, including inspection of incoming materials and
components, adhering strictly to work-in-process quality standards, and
substantial finished product testing. Periodic quality control testing is
employed at different production stages along each assembly line. In particular,
finished motorcycles are subjected to rigorous operational performance and
quality inspection before being released to our dealer network, including
fueling, starting and operating each motorcycle for a final thorough running
inspection by a dedicated test foreman.
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With our current employees and production equipment, we have the capacity
during one shift to produce up to 50 motorcycles per month. If needed, by adding
additional direct labor, we can increase our production up to 150 units per
month.
COMPETITION
The heavyweight motorcycle market is highly competitive, and all of our
major competitors have substantially greater financial, personnel, development,
production, marketing and other resources than those we possess, as well as
having substantially larger sales volumes and being more diversified than our
business. Our main competitor is Harley-Davidson, which dominates the custom
cruiser segment of the heavyweight motorcycle market, and since 1953 has been
the only major domestic manufacturer of heavyweight motorcycles. Recent new
domestic entrants into our market include Polaris, Indian (formerly California
Motorcycle Company), and Excelsior-Henderson. In addition, major foreign
competitors include Kawasaki, Honda, Suzuki, Yamaha, Ducati, BMW, Moto Guzzi and
Aprilia. In recent years, a growing segment of direct competition to our
cruisers also has emerged from several new domestic entrants in our market which
offer heavyweight custom V-Twin cruisers with American styling and built mostly
from non-proprietary components, including Titan, Big Dog, Pure Steel, American
Ironhorse, Ultra and others. Moreover, due to the steady growth of demand for
heavyweight motorcycles in recent years, we expect to encounter additional
competition from other manufacturers entering the market from time to time.
We believe that the principal competitive factors in our industry include
styling and performance, product pricing, reliability and durability, quality,
customer preferences, marketing and distribution, brand awareness, and the
availability of support services. With the exception of brand recognition, we
believe that we compete effectively regarding such competitive factors. We
cannot assure you, however, that we will be able to compete successfully against
current and future competitors, or that the competitive pressures faced by us
will not adversely affect our operations and business.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We believe that we hold the exclusive right to use our American Eagle
registered trademark and related designs in the United States in connection with
the manufacture and sale of motorcycles and related parts and accessories. We
also regard our development technology and know-how as being valuable and
proprietary, but we do not currently have any patent protection, nor have we
applied for any patents. We rely primarily upon a combination of trade secrets
and confidentiality agreements to protect our proprietary rights and property,
and on established trademark law to protect our trademarks. We cannot assure
you, however, that any measures taken by us to protect our intellectual property
will be sufficient or that such property will provide us with any competitive
advantage. Moreover, it may be possible for competitors to copy valuable
features of our products or technology, or to obtain information we regard as a
trade secret. Although we may apply for certain patents and seek registration of
new trademarks from time to time, we cannot assure you that we will ever obtain
any significant protection from such efforts. We believe, however, that our
current trademarks and proprietary trade secrets and intellectual know-how
rights will be substantially more important to our business and operations than
any future patent or new trademark protection we may acquire.
We are not aware of any claims of infringement against us regarding our
products or proprietary rights, nor have we made any claims against anyone
asserting a violation of our intellectual property rights. Any future claims
against us relating to infringement of third-party proprietary rights, even if
not meritorious, could result in our expenditure of significant financial and
managerial resources or even in injunctions preventing us from distributing our
products unless we can obtain license
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agreements, which we may not be able to secure if necessary. In any event, such
claims could adversely affect our financial condition and operations.
GOVERNMENT REGULATION
We must comply with numerous federal, state and local government
regulations regarding the noise, emissions and safety characteristics of our
motorcycles, and incident thereto we must obtain certain approvals and
certifications from various government agencies. In addition, our manufacturing
facility must comply with environmental and safety standards. We believe that
our facilities, operations and products currently satisfy applicable government
regulations. The many regulations governing our motorcycles generally relate to
air, water, and noise pollution as well as various safety matters. Any failure
by us to obtain necessary approvals or certifications, or to maintain them,
would materially harm our business and operations.
Our motorcycles are subject to rigorous regulation under the emissions and
noise standards of the Environmental Protection Agency (EPA) on the federal
level, and the even more stringent emissions standards of the State of
California Air Resources Board (CARB). Concerning safety matters, our
motorcycles are subject to the provisions of the National Traffic and Motor
Vehicle Safety Act and the rules promulgated thereunder by the National Highway
Traffic Safety Administration (NHTSA). If we fail to comply with such EPA or
CARB or NHTSA rules and standards, we could be subject to administrative or
judicially imposed sanctions including civil penalties, injunctions, product
seizure or detention, product recalls, or even total or partial suspension of
our production.
Our production and marketing operations and our facility conditions are
subject to regulation under various federal, state and local regulations related
to, among other things, occupational safety, environmental protection, hazardous
substance control, noise conditions, and product advertising and promotion.
EMPLOYEES
We currently employ 26 persons including 14 in production and quality
control operations, 2 in development and engineering, 5 in marketing and sales
support, and 5 in management and administration. None of our employees belongs
to a labor union, and we consider our employee relations to be satisfactory.
FACILITIES
Our production, engineering and development, warehousing, and marketing and
administrative offices and facilities are located in Hollister, California in a
modern one-story building of approximately 40,000 square feet, which was
specifically designed and built for our requirements in 1997. We lease these
facilities from an affiliated party under a lease expiring in June 2003 and
requiring monthly lease payments of $20,000. We believe that our current
facilities provide sufficient production and office spaces for our anticipated
business and growth for the foreseeable future.
For our motorcycle painting operations, we lease a building of
approximately 3,000 square feet in Santa Clara, California on a month-to-month
basis for $2,650 monthly.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings or litigation, nor are
we aware of any material litigation or proceedings threatened against us by
anyone.
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<PAGE> 33
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our Board of Directors is responsible for the management of our business,
and our directors are elected by our shareholders to serve until the next annual
meeting of shareholders or until their successors are elected and shall qualify.
Our executive officers are elected by, and serve at the discretion of, the Board
of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Gregory Spak.................................... 56 Chief Executive Officer and Director
Maurice Taylor.................................. 54 Chairman of the Board of Directors
David Maginnis.................................. 51 Chief Financial Officer
Kenneth MacLennan............................... 61 Director
Clifford E. Fenske.............................. 52 Director
KEY EMPLOYEES:
Duncan Keller................................... 50 Director of Research and Development
Donald Logan.................................... 38 Director of Internet Systems
</TABLE>
GREGORY SPAK is our principal founder and has been a director since our
inception in August 1995. Prior to our founding, he founded, managed and owned
several electronic products sales and distribution companies including QCI
Associates, Summit Components, and Carrera Sales with aggregate annual revenues
of approximately $200 million and doing significant international business in
Europe and Asia. Mr. Spak has over thirty years experience in engineering,
manufacturing and sales management, and holds a business administration degree
from Arizona State University and an engineering technologies degree from
Moraine Valley College.
MAURICE TAYLOR has been since July 2000 the Chairman of the Board and Chief
Executive Officer of MEDgenesis Inc., a developer and distributor of medical
diagnostic products with current annual revenues in excess of $30 million.
MEDgenesis is a wholly owned subsidiary of Chronimed Inc., a pharmaceutical
products and chronic disease services company with revenues in its latest fiscal
year of approximately $250 million. He has been one of our directors since
October 2000. Mr. Taylor was a founder of Chronimed and its Chief Executive
Officer and a director from July 1985 until his recent fulltime employment with
MEDgenesis. Prior to Chronimed, he held various management positions in
companies whose principal activities were manufacturing, distribution and
international trade. Mr. Taylor also is Chairman of the Scripps Institute for
Diabetes.
DAVID MAGINNIS, a Certified Public Accountant(CPA), has been our Chief
Financial Officer since July 2000, and he devotes approximately 20% of his time
to our business. He also currently is, and since February 1995 has been, Chief
Financial Officer of August Supply, Inc., an electronic components distributor
in Burlingame, California. Mr. Maginnis has been an independent financial
management and litigation consultant since January 1986, during which he has
gained extensive experience while serving in key financial and management
positions with established and startup companies of all sizes, including
hands-on implementation of a number of Chapter 11 reorganizations and other
turnaround situations, as well as substantial experience with public company SEC
reporting. Prior to becoming an independent consultant, Mr. Maginnis had been
Controller of Memorex-DIC of Santa Clara, California, and of Printex, Inc. of
Mountain View, California, while being in charge of accounting departments of
15-20 personnel. He also holds a MBA degree from Santa Clara University.
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<PAGE> 34
KENNETH MACLENNAN is one of our founders and has been one of our directors
since our inception in August 1995. Since September 1980, he has owned and been
Chief Executive Officer of CTM Magnetics, an electronic products manufacturer
with current annual revenues exceeding $8 million. Prior thereto, Mr. MacLennan
served for many years in various significant supervisory and management
positions with Rogers Corporation, a large developer and manufacturer of
electronic components, where he established a Mexican maquilladora subsidiary
having over 1,000 employees. He is a member of the executive committee and past
chairman of the Arizona Association of Industries, and he holds a degree in
chemical engineering from Rensselaer Polytechnic Institute.
CLIFFORD E. FENSKE, a Certified Public Accountant with professional offices
in San Martin, California, has been one of our directors since October 2000. His
current CPA business primarily provides tax and financial planning services for
certain small businesses and individuals. Mr. Fenske was a founder of California
Motorcycle Company, Inc. (CMC) of Gilroy, California, and he served as the Chief
Executive and Chief Financial Officer of CMC from its inception in November 1996
until its recent sale to Indian Motorcycle Company, Inc. in January 1999. Under
his management, CMC grew in three years to 300 employees generating annual
heavyweight cruiser motorcycle sales of approximately $20 million, while
maintaining profitable operations during this growth. Prior to establishing his
independent accounting practice, Mr. Fenske held key financial management
positions with certain leading industry corporations including being the
District Administration Manager of the San Jose branch of Control Data
Corporation, which branch had sales of approximately $100 million annually.
DUNCAN KELLER has been our Director of Research and Development since
September 2000 when we acquired his Yankee Engineuity motorcycle aftermarket
business, and he has worked exclusively in motorcycle development for 30 years.
He founded Yankee Engineuity in March 1985 to provide high performance
motorcycle service and maintenance throughout Northern California, and he soon
began selling considerable aftermarket engine parts and other motorcycle
components. By May 1989, Mr. Keller had developed a line of proprietary custom
motorcycle parts which are marketed under the Yankee Engineuity brand name. He
has served as a key development consultant for leading aftermarket firms
including S&S Cycle, Custom Chrome, Corbin Motors, Rivera Products, Allen
Engineering and others. He also has extensive experience in racing engine
development while working on racing programs ranging from Bonneville to drag
racing. Racing engines built by him include various Bonneville Racers such as
the Vance and Hines Unlimited Streamliner, AHRA and NHRA drag bikes, and engines
for other road-racing classes. Mr. Keller holds an Associate Degree in
Automotive Technology from De Anza College and a Bachelor's Degree in Industrial
Arts from East Carolina University.
DONALD LOGAN became our Director of Internet Systems in September 2000 when
we acquired several motorcycle Web sites from Net Media Technologies, Inc. Mr.
Logan developed these Web sites while employed since November 1998 as a
principal executive officer of Net Media Technologies, Inc., of which he also is
a principal shareholder. His extensive experience in computer programming and
Internet streaming and video capture development includes over 10 years as a
program developer of numerous CD-ROM and video streaming or capture programs for
Creative Labs, ATI, Sega Soft, AutoDesk, Atari, SGI and others. From January
1995 through October 1997, Mr. Logan developed the first fully digital and
interactive NFL video CD-ROM (for the San Francisco 49ers), the first fulltime
24/7 streaming video application for commercial use, and the first controllable
streaming Web site. Prior thereto, he created over 200 video CD-ROM titles for
various Hollywood entertainment companies. He also holds a Microsoft MCSE
certification and has developed excellent working relationships with certain key
development employees of Microsoft, and he is a member of most Microsoft Windows
beta teams.
33
<PAGE> 35
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established an audit and a compensation
committee. Messrs. Taylor and Fenske are members of the audit committee, which
is responsible for recommending the appointment of our auditors, analyzing
reports and recommendations from our auditors, and reviewing internal controls
and audit procedures. Messrs. Taylor and MacLennan are members of the
compensation committee, which is responsible for reviewing and evaluating our
general compensation policies, and recommending the compensation and benefits of
all our officers including any grants of stock options.
MANAGEMENT COMPENSATION
Our directors have not received any compensation for services performed in
their capacity as a director. We will reimburse our non-employee directors for
any reasonable expenses incurred in performing their activities as a director.
In the future, we may compensate outside directors with reasonable fixed fee
payments for attending official board of director or committee meetings, and
from time to time we most likely will grant them certain reasonable stock
options.
No cash compensation has been paid to any of our executive officers from
our inception to the date of this prospectus. Other than consulting fees to be
paid to our Chief Financial Officer, we also will not pay any executive
compensation through the remainder of 2000. Regarding future compensation to our
Chief Executive Officer, who devotes full time to our business, we have entered
into an employment agreement to compensate him commencing January 1, 2001. This
agreement has a two-year term and provides for him to receive an annual salary
of $96,000 plus family health insurance benefits and a monthly car allowance of
$350. The agreement also contains certain confidentiality and restrictive terms
which prohibit his disclosure of any of our confidential or proprietary
information, restricts his ability to compete with us during and after his
employment, and prohibits his solicitation of any of our customers or employees
for a period of three years following his employment with us.
MANAGEMENT STOCK OPTIONS
In October 2000, we granted management stock options for the purchase of a
total of 80,000 shares of our common stock, of which Mr. Taylor received an
option for 50,000 shares and Messrs. MacLennan, Fenske and Maginnis each
received an option for 10,000 shares. These stock options are exercisable
anytime during their five-year terms at $7.00 per share.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our bylaws limit personal liability for breach of the fiduciary duty of our
directors to the fullest extent allowed by California law, and also provide that
we will indemnify our directors, officers and employees in the manner and to the
fullest extent permitted by law. Insofar as indemnification for any liabilities
arising under the federal Securities Act is concerned, however, we have been
informed 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.
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<PAGE> 36
CERTAIN TRANSACTIONS
In October 2000, we offered our preferred shareholders the opportunity to
convert their preferred shares into our common stock on the basis of two common
shares for each preferred share, in consideration for their agreement to waive
and deem satisfied all accrued preferred stock dividends, to surrender any
preferred stock warrants, and to enter into a "lock-up" agreement in respect to
their common stock as described in "Shares Eligible for Future Sale." All of our
preferred shareholders accepted this conversion offer which resulted in our
issuance of a total of 285,714 shares of common stock after adjusting for our
recent reverse common stock split. Gregory Spak received 150,000 of these common
shares incident to conversion of his preferred shares.
Our principal founder and Chief Executive Officer, Gregory Spak, has
advanced significant working capital loans to us from time to time since our
inception. By December 1997, these loan advances had accumulated to $493,900,
which we then satisfied in full by the issuance to Mr. Spak of 211,675 shares of
our common stock as adjusted for our recent reverse common stock split. After
January 1998, Mr. Spak advanced additional substantial loans to us which
accumulated to an outstanding balance of $1,080,400 by June 30, 2000, which we
also satisfied in full by the issuance to Mr. Spak of 525,000 shares of our
preferred stock and 1,110,800 shares of our common stock before our recent
reverse stock split. After adjusting for our recent reverse stock split and Mr.
Spak's conversion of his preferred shares to common shares, this conversion of
his loan balance of $1,080,400 represents a total of 308,686 shares of our
common stock.
Gregory Spak also has personally guaranteed all bank credit facilities we
have obtained since our inception. As of June 30, 2000, our outstanding bank
debt covered by his guarantees was $851,200. Mr. Spak is under no obligation to
personally guarantee any future debt financing available to us.
From time to time, we have made non-interest loan advances to certain
entities affiliated with Gregory Spak, and the outstanding balances of these
related party loan receivables were $101,400 as of June 30, 2000, $87,900 as of
December 31, 1999 and $60,900 as of December 31, 1998. We will not make any
further loan advances to any entity affiliated with an officer, director or
principal shareholder of our company.
In September 2000, we issued 130,000 shares of our common stock, adjusted
for our recent reverse stock split, to acquire several motorcycle Web sites from
Net Media Technologies, Inc., which conducts its business from our Hollister
facility. Net Media Technologies, Inc. is a Web site developer and e-commerce
services provider, and Gregory Spak owns approximately 30% of Net Media
Technologies, Inc. One of the Web sites we purchased from Net Media
Technologies, Inc. conducted business as a virtual motorcycle dealership and
made sales of motorcycles through online e-commerce transactions, including
American Eagle motorcycles. In 1999 and 1998, our sales to this online
dealership were $81,100 and $37,900, respectively, and we hold accounts
receivable from Net Media Technologies, Inc. of $23,448 as of June 30, 2000 in
respect to these online motorcycle sales.
We lease our production and administrative facilities from a private
corporation which is 30% owned by Gregory Spak. The terms of this lease
currently require us to make monthly lease payments of $20,000 until expiration
of the lease in June 2003. We believe that this lease is on terms no less
favorable to us than if it had been made with an unrelated third party.
All future transactions with our officers, directors or stockholders owning
5% or more of our outstanding common stock, and any of their respective
affiliates, will be on terms no less favorable than could be obtained from
unaffiliated third parties and will be approved by a majority of our independent
directors.
35
<PAGE> 37
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership as of the date of this prospectus of (a) our common stock, and (b) the
common stock of Angel Motorcycles Inc., which will become a principal
shareholder of our common stock upon the effectiveness of this offering. In each
case, the following table describes ownership by (i) each person known to be the
beneficial owner of more than 5% of the outstanding common stock of the
respective issuer, (ii) each director and executive officer of the respective
issuer, and (iii) all executive officers and directors of the respective issuer
as a group. Unless otherwise indicated, all persons listed below have sole
voting power and sole investment power, subject to any applicable community
property laws, with respect to all shares beneficially owned. Beneficial
ownership of each person is determined in accordance with the rules of the
federal Securities and Exchange Commission (SEC), and includes warrants and
options currently exercisable or exercisable within 60 days.
(A) OWNERSHIP OF COMMON STOCK OF AMERICAN EAGLE MOTORCYCLE COMPANY, INC.
(AMERICAN EAGLE)
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT PERCENT
BENEFICIAL OWNER(1) BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Gregory Spak................................. 1,152,447 60.7% 28.9%
Maurice Taylor(2)............................ 50,000 2.6% 1.2%
Kenneth MacLennan(3)......................... 60,000 3.1% 1.5%
Clifford E. Fenske(4)........................ 10,000 * *
David Maginnis(5)............................ 10,000 * *
Angel Motorcycles Inc.(6).................... 1,522,644 -- 36.1%
All directors and officers as a group (5
persons)................................... 1,282,447 64.7% 31.5%
</TABLE>
-------------------------
* Less than 1% of the outstanding shares.
(1) The address for each beneficial owner is c/o American Eagle Motorcycle
Company, Inc., 2350 Technology Parkway, Hollister, California 95023.
(2) Represents 50,000 shares subject to options currently exercisable.
(3) Includes 17,143 shares subject to warrants and options currently
exercisable.
(4) Represents 10,000 shares subject to options currently exercisable.
(5) Represents 10,000 shares subject to options currently exercisable.
(6) Includes 1,287,358 shares to be issued simultaneous with the closing of this
offering and 235,286 shares subject to warrants to be exercisable upon the
closing of this offering.
(B) OWNERSHIP OF COMMON STOCK OF ANGEL MOTORCYCLES INC. (ANGEL)
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF PERCENT OF
NAME AND ADDRESS OF OF ANGEL COMMON STOCK AMERICAN EAGLE
BENEFICIAL OWNER BENEFICIALLY OWNED OF ANGEL AFTER OFFERING
------------------- ------------------ ------------ --------------
<S> <C> <C> <C>
John Lai(1)................................. 1,960,000 23.4% 7.0%
2924 Major Avenue North
Golden Valley, MN 55422
John R. Silseth, Sr.(2)..................... 2,521,356 30.2% 9.0%
5507 Malibu Drive
Edina, MN 55436
John Tastad(3).............................. 761,000 9.1% 2.7%
3430 Winnetka Ave. North
Minneapolis, MN 55427
Donald Shiff................................ 537,000 6.4% 1.9%
20 NE. Second St. - #2001
Minneapolis, MN 55413
All directors and officers as a group (1
person)................................... 1,960,000 23.4% 7.0%
</TABLE>
-------------------------
(1) Represents 1,960,000 shares held of record by Genesis Capital Group, Inc.,
which is owned by Mr. Lai. Mr. Lai is the Chief Executive Officer and sole
director of Angel Motorcycles Inc.
(2) Represents 2,521,356 shares held of record by Minneapple Capital Ltd., which
is owned by Mr. Silseth.
(3) Represents 740,000 shares held of record by NMI Investments, Inc., of which
Mr. Tastad is the principal beneficial owner, and 21,000 shares held of
record by Mr. Tastad.
36
<PAGE> 38
DESCRIPTION OF SECURITIES
Our authorized capital stock of 15,000,000 shares consists of 10,000,000
shares of common stock, no par value, and 5,000,000 shares of preferred stock,
no par value. As of the date of this prospectus, we had issued and outstanding
1,895,803 shares of common stock.
UNITS
Each unit being offered by us consists of one share of common stock and one
redeemable Class A Warrant. Each Class A Warrant becomes exercisable, and may be
transferred separately from the common stock, immediately upon the effectiveness
of this offering. We intend to apply for a listing of both our common stock and
Class A Warrants for public trading on the Pacific Stock Exchange (PSE) and the
Nasdaq SmallCap Market.
COMMON STOCK
Upon completion of this offering, there will be 3,983,161 shares of common
stock outstanding, after giving effect to the closing of our pending acquisition
of assets from Angel Motorcycles Inc. and assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options and
warrants. Holders of shares of our common stock are entitled to one vote for
each share on all matters to be submitted to a vote of our shareholders. Our
shareholders do not have any cumulative voting rights, and accordingly the
owners of a majority of outstanding common stock may elect all of our directors.
Subject to the rights of any future preferred shareholders, our common
shareholders are entitled to share ratably in dividends as and when declared by
our board of directors. In the event of any liquidation, dissolution or winding
up of our company, common shareholders are entitled to share ratably in all
assets remaining after payment of all liabilities and liquidation preferences,
if any. There are no redemption, conversion, subscription or preemptive rights
with respect to our common stock. The outstanding shares of our common stock
are, and the shares of common stock to be issued as part of the units of this
offering will be, validly issued, fully paid and nonassessable. The rights,
preferences and privileges of the holders of our common stock are subject to,
and may be adversely affected by, the rights of any future preferred
shareholders.
CLASS A WARRANTS
The Class A Warrants included as part of the units of this offering will be
issued under and governed by the provisions of a warrant agreement between us
and Interwest Transfer Company, Inc., as warrant agent. Each Class A Warrant
entitles its holder to purchase one share of common stock at any time until
three years after the effectiveness of this offering, subject to earlier
redemption. Each Class A Warrant is exercisable at a price of $9.80 per share,
subject to customary antidilution adjustments in certain events such as stock
splits and dividends, mergers and other business combinations, and
reorganizations.
We may redeem the Class A Warrants on not less than 20 days written notice,
at a price of $.01 per warrant, at any time after a period of 20 consecutive
trading days during which the closing bid price of our common stock exceeds
$12.00 per share, subject to antidilution adjustments. Unless warrantholders
exercise their Class A Warrants before any redemption is completed, they will
forfeit all rights of the warrants except the right to receive the $.01
redemption right per warrant.
Warrantholders are not entitled to vote, receive dividends or exercise any
of the rights of holders of shares of common stock for any purpose. These
warrants are in registered form and may be presented for transfer or exercise at
the office of our warrant agent. Any exercise must be completed
37
<PAGE> 39
prior to the expiration date, or earlier redemption date, by surrendering the
warrant certificate accompanied by payment of the full exercise price.
Unless a current prospectus relating to the common shares underlying the
Class A Warrants is in effect and applicable state law qualifications or
exemptions are satisfied, you may not be able to exercise your Class A Warrants.
We intend to use our best efforts to maintain the effectiveness of such a
current prospectus and to satisfy qualifications or exemptions in states in
which we initially qualify our units for sale in this offering, but we cannot
assure you that we will be able to do so.
PREFERRED STOCK
We have 5,000,000 shares of authorized preferred stock, none of which are
presently outstanding. Our board of directors has the authority, without further
stockholder action or approval, to issue such shares of preferred stock in one
or more series and to fix the designations, preferences, rights, limitations,
restrictions or qualifications of each series, including dividend rights and
rates, voting rights, conversion and redemption rights and prices, liquidation
preferences, and the number of shares in each series. The issuance of any of our
preferred stock may have the effect of delaying, deferring or preventing a
change of control of our company. The anti-takeover effects of our preferred
stock may deny our shareholders the receipt of a premium on our common stock and
may also have a depressive effect on the market price of our common stock. We
have no present plans to issue any shares of preferred stock.
STOCK OPTIONS AND WARRANTS
As of the date of this prospectus, we had outstanding warrants and stock
options to purchase an aggregate of 143,714 shares of our common stock at a
weighted average exercise price of $6.73 per share, and expiring between 2001
and 2005.
Upon the effectiveness of this offering, incident to our pending
acquisition of engine technology assets from Angel Motorcycles Inc., we also
will assume additional warrants to purchase a total of 235,286 shares of our
common stock at $7.00 per share until their expiration in 2004.
TRANSFER AGENT AND REGISTRAR AND WARRANT AGENT
We have appointed Interwest Transfer Company, Inc. as the transfer agent
and registrar for our common stock and also as the warrant agent for our Class A
Warrants.
38
<PAGE> 40
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our securities in the
public market following this offering, the prevailing market price of our
securities could decline. Furthermore, because we do not expect any material
amount of our currently outstanding common stock to be available for sale until
twelve months after this offering as a result of the contractual and legal
restrictions on resale described as follows, sales of substantial amounts of our
common stock after these restrictions lapse or expire could adversely affect the
prevailing market price of our common stock as well as our ability to raise
equity capital in the future.
Upon the closing of this offering and our pending acquisition of engine
technology assets, we will have outstanding an aggregate of 3,983,161 shares of
common stock (including the shares in the units being offered), assuming no
exercise of the underwriters' over-allotment option or any of our outstanding
options or warrants. All common shares and Class A Warrants sold as units in
this offering will be freely tradeable without restriction, and other shares of
our common stock will be eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES NATURE OF SHARES WHEN AVAILABLE FOR SALE
---------------- ---------------- -----------------------
<S> <C> <C>
3,571........... Shares saleable under Rule 144(k) Upon completion of this offering
not subject to lock-up agreements
647,164......... Shares to be issued to Angel One year after completion of
Motorcycles Inc. not subject to offering, these shares are saleable
lock-up agreement under Rule 144
696,928......... Shares subject to 12-month lock-up One year after completion of this
agreement offering, the lock-up will expire
and these shares will be saleable
under Rule 144
1,835,498....... Shares subject to 1-4 year lock-up From 1-4 years after completion of
agreement, including shares to be this offering, these shares will be
issued to Angel Motorcycles Inc. saleable under Rule 144 if the
subject to lock-up agreement public market price has exceeded
175% of the IPO price of this
offering
</TABLE>
Lock-up Agreements. All of our shareholders and all shareholders of Angel
Motorcycles Inc. who will become principal shareholders of us after this
offering are subject to lock-up agreements under which they have agreed not to
sell, transfer or dispose of, directly or indirectly, any shares of our common
stock until one year after the date of this prospectus. In addition, our
officers and directors and principal shareholders (including persons becoming
principal shareholders of us due to their beneficial ownership through Angel
Motorcycles Inc.) have further agreed that for a period of four years after the
date of this prospectus, their lock-up period will not expire until the offering
price of our common stock has traded above 175% of the IPO price of this
offering for 20 consecutive trading days.
Rule 144. In general, under Rule 144 as currently in effect, a person who
has beneficially owned shares of our common stock for at least one year,
including the holding period of prior owners who are not affiliates, is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of:
- 1% of the number of common shares then outstanding, which will equal
approximately 39,831 shares immediately after this offering; or
39
<PAGE> 41
- the average weekly trading volume of our common stock on the Nasdaq
SmallCap Market during the four calendar weeks before a Form 144 notice
of the sale is filed.
Any sales of our common stock under Rule 144 are also subject to
manner of sale provisions, notice requirements and the availability of current
public information about us.
Rule 144(k). Under Rule 144(k), a person who has not been one of our
affiliates during the three months before a sale and who has beneficially owned
our common shares for at least two years, including the holding period of prior
non-affiliates, is entitled to sell the shares without complying with the manner
of sale, public information, volume limitation or notice provisions of Rule 144.
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below regarding the units being offered. Subject to the terms and conditions of
the underwriting agreement, each underwriter has severally agreed to purchase
from us on a firm commitment basis the number of units indicated in the
following table, at the public offering price less the underwriting discount and
3% non-accountable expense allowance. Mercer Partners, Inc. is the
representative of the underwriters. Delivery of the units will be made on
, 2000 in New York, New York against payment in immediately available
funds.
<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER OF UNITS
------------------- ---------------
<S> <C>
Mercer Partners, Inc........................................
-------
Total............................................. 800,000
=======
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the units in this offering are subject to approval of
certain legal matters and certain other conditions. The underwriters are
severally committed to purchase all of the units being offered by us if any
units are purchased, other than those covered by the over-allotment option
described below.
The underwriters propose to offer units directly to the public at the
public offering price on the cover page of this prospectus. The underwriters may
offer the units to securities dealers at that price less a concession not in
excess of $ per unit, and securities dealers may reallow a concession not in
excess of $ per unit to other dealers. After the units are released for sale
to the public, the underwriters may change the offering price and other selling
terms from time to time. The underwriters have advised us that they do not
expect sales to be made to discretionary accounts.
We have agreed to pay the underwriters a non-accountable expense allowance
equal to three percent of the total proceeds of the offering, of which we have
already paid $50,000.
We have granted the underwriters a 45-day option to purchase up to 120,000
additional units, at the public offering price less discounts and the
non-accountable expense allowance, to cover over-allotments, if any.
We also will enter into an agreement retaining Mercer Partners, Inc. as our
investment banking consultant for a two-year period at $3,000 per month, with
the total fee of $72,000 payable in advance in full at the closing of this
offering. In addition, following the completion of this offering, Mercer
Partners, Inc. has the right to nominate one member of our Board of Directors
for a period of two years.
40
<PAGE> 42
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, and to contribute to
payments that the underwriters may be required to make in respect of those
liabilities.
Substantially all our shareholders, including our officers and directors,
have entered into lock-up agreements under which they have agreed that they will
not sell, transfer, or dispose of any of our common stock now held by them for a
period of one year. In addition, the lock-up terms relating to our officers,
directors and principal shareholders, including shareholders of Angel
Motorcycles Inc. who become principal shareholders of us, further provide that
their common shares are locked up for a period of up to four years unless our
common stock has traded publicly above 175% of the IPO price of this offering
for 20 consecutive trading days. See "Shares Eligible for Future Sale."
The following table summarizes the compensation and non-accountable
expenses we will pay in this offering:
<TABLE>
<CAPTION>
PER UNIT TOTAL
--------------------- ---------------------
WITHOUT WITH WITHOUT WITH
OVER- OVER- OVER- OVER-
ALLOTMENT ALLOTMENT ALLOTMENT ALLOTMENT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting discounts payable by us..... $.70 $.70 $560,000 $644,000
Non-accountable expenses payable by us... $.21 $.21 $168,000 $193,200
</TABLE>
We have also agreed to sell to the representative of the underwriter, for
nominal consideration, warrants to purchase that number of shares of our common
stock equal to 10% of the total number of units sold in this offering,
exercisable at a price per share equal to 140% of the unit IPO price of this
offering for a four-year period commencing one year from the date of this
prospectus. The exercise price and number of shares are subject to adjustment to
prevent dilution under certain circumstances. These warrants also permit a
cashless exercise, and we must keep a registration current with respect to them
and their underlying shares. For a period of one year from the date of this
prospectus, the underwriters' warrants will be restricted from transfer except
to officers of the underwriter and members of the syndicate and officers and
partners thereof.
For the period during which the underwriter's warrants are exercisable, the
holder(s) will have the opportunity to profit from a rise in the market value of
our common stock, with a resulting dilution in the interests of other
shareholders of our company. The holder(s) of the underwriters' warrants can be
expected to exercise them at a time when we would, in all likelihood, be able to
obtain any needed capital from an offering of unissued common stock on terms
more favorable to us than those provided for in the underwriters' warrants. Such
facts may adversely affect the terms on which we can obtain additional
financing. To the extent that the underwriters realize any gain from the resale
of the underwriters' warrants or the securities issuable thereunder, such gain
may be deemed additional underwriting compensation under the Securities Act of
1933.
Our underwriters may engage in over-allotment, passive market making,
stabilizing transactions, syndicate covering transactions and penalty bids in
accordance with Regulation M under the Securities and Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- In passive market making, market makers in the security who are
underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the security until the time,
if any, at which a stabilizing bid is made.
41
<PAGE> 43
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the security in the
open market after the distribution has been completed in order to cover
syndicate short positions.
- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the security originally sold by the syndicate
member is purchased in a stabilizing transaction or a syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions, and
penalty bids may cause the price of the security to be higher than it would be
in their absence. These transactions may be effected on the Nasdaq SmallCap
Market or otherwise and, if commenced, may be discontinued at any time.
DETERMINATION OF OFFERING PRICE
Before this offering, there has been no public market for any of our
securities. The initial public offering price of these units has been determined
by negotiations between us and the representative of the underwriters and is not
necessarily related to our revenues, assets, net worth or any other established
criteria of value. Among the factors considered in these negotiations were
prevailing market conditions, estimates of our business potential, our revenues,
the conditions of our industry, the present state of our development and other
factors deemed relevant.
LEGAL MATTERS
The validity of the securities being offered by this prospectus and certain
other legal matters related to the offering will be passed upon for us by Robert
O. Knutson, Attorney at Law, Eden Prairie, Minnesota. Mr. Knutson will become
the owner of approximately 20,000 shares of our common stock after this offering
incident to his current ownership of common stock of Angel Motorcycles Inc.
William M. Prifti, Esq., Amesbury, Massachusetts, is acting as counsel for the
underwriters in connection with certain legal matters related to the offering.
EXPERTS
The audited financial statements of American Eagle Motorcycle Company, Inc.
as of December 31 , 1998 and 1999, and for each of the two years in the period
ended December 31, 1999 included in this prospectus have been so included in
reliance on the report of BDO Seidman, LLP, independent certified public
accountants (which contains an explanatory paragraph regarding the Company's
ability to continue as a going concern), given on their authority as experts in
accounting and auditing.
The audited financial statements of Angel Motorcycles Inc. as of December
31, 1998 and 1999, and for the one-year period ended December 31, 1999 and the
period from August 17, 1998 (inception) to December 31, 1998 included in this
prospectus have been so included in reliance on the report of Stirtz Bernards
Boyden Surdel & Larter, P.A., independent certified public accountants, given on
their authority as experts in accounting and auditing.
42
<PAGE> 44
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933 relating to this offering. This prospectus does not
contain all of the information contained in the registration statement and its
exhibits. For further information with respect to us and our securities,
reference is made to the registration statement and its exhibits. You should
read the documents filed as exhibits to the registration statement for a more
complete description of the matter involved. With respect to references made in
this prospectus to any document of our company, such references are not
necessarily complete and you should refer to the exhibits filed with our
registration statement for the complete document.
After this offering, we will be filing annual and quarterly reports, proxy
statements and other information with the SEC. You may read and copy any
documents we file at the public reference facilities of the SEC at Room 1024,
450 Fifth Street N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from the SEC's web site at
http://www.sec.gov.
43
<PAGE> 45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AMERICAN EAGLE MOTORCYCLE COMPANY, INC.:
Report of Independent Certified Public Accountants.......... F-2
Balance Sheets as of December 31, 1998 and 1999 and
June 30, 2000 (unaudited)................................. F-3
Statements of Operations for the years ended December 31,
1998
and 1999 and the six months ended June 30, 1999 and 2000
(unaudited)............................................... F-4
Statements of Shareholders' Deficiency for the years ended
December 31, 1998 and 1999 and the six months ended June
30, 2000
(unaudited)............................................... F-5
Statements of Cash Flows for the years ended December 31,
1998
and 1999 and the six months ended June 30, 1999 and 2000
(unaudited)............................................... F-6
Notes to Financial Statements............................... F-7
ANGEL MOTORCYCLES INC.:
Report of Independent Certified Public Accountants.......... F-21
Balance Sheets as of December 31, 1998 and 1999
and June 30, 2000 (unaudited)............................. F-22
Statements of Operations for the period from August 17, 1998
(inception)
to December 31, 1998, and the year ended December 31,
1999, and the
six months ended June 30, 2000 (unaudited)................ F-23
Statements of Stockholders' Equity (Deficit) for the period
from
August 17, 1998 (inception) to December 31, 1998, and the
year ended
December 31, 1999, and the six months ended June 30, 2000
(unaudited)............................................... F-24
Statements of Cash Flows for the period from August 17, 1998
(inception)
to December 31, 1998, the year ended December 31, 1999,
and the
six months ended June 30, 2000 (unaudited)................ F-25
Notes to Financial Statements............................... F-26
</TABLE>
F-1
<PAGE> 46
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
American Eagle Motorcycle Company, Inc.
We have audited the accompanying balance sheets of American Eagle
Motorcycle Company, Inc. as of December 31, 1998 and 1999, and the related
statements of operations, shareholders' deficiency, and cash flows for the years
then ended. 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 audits 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 Eagle Motorcycle
Company, Inc. as of December 31, 1998 and 1999, and the results of its
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has recurring operating losses, negative working capital and shareholders'
deficiency. In addition, the Company's bank has demanded full payment of the
credit facility. These factors raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regards to this
matter are also discussed in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
San Jose, California
August 10, 2000, except for matters discussed in Note 16
for which the date is September 29, 2000
F-2
<PAGE> 47
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, DEFICIENCY
------------------------- JUNE 30, JUNE 30,
1998 1999 2000 2000
----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (Note 5)
Current:
Cash and cash equivalents (Note 12).............. $900........ $ 28,800 $ 5,200
Accounts receivable, less allowance for doubtful
accounts of $95,000, $235,800, and $373,000,
respectively (Notes 2, 11, and 12)............. 218,100 71,900 86,700
Advances to related parties (Note 2)............. 60,500 87,600 96,900
Inventories (Note 3)............................. 1,442,100 1,145,500 822,600
Prepaid expenses and other assets................ 48,500 72,200 106,100
----------- ----------- -----------
TOTAL CURRENT ASSETS............................... 1,770,100 1,406,000 1,117,500
PROPERTY AND EQUIPMENT, NET (Notes 4, 8, and 13)... 224,700 183,500 223,700
----------- ----------- -----------
$ 1,994,800 $ 1,589,500 $ 1,341,200
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Bank overdraft................................... $ 209,700 $ -- $ 8,300
Line of credit (Note 5).......................... 500,000 500,000 500,000
Accounts payable................................. 693,200 1,182,200 784,200
Accrued expenses (Note 6)........................ 259,100 300,000 409,800
Current portion, long-term debt (Note 7)......... 82,400 307,500 339,900
Current portion, obligations under capital lease
(Note 8)....................................... 19,900 21,100 19,000
----------- ----------- -----------
TOTAL CURRENT LIABILITIES.......................... 1,764,300 2,310,800 2,061,200
----------- ----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, less current portion (Note 7).... 318,100 11,300 11,300
Obligations under capital lease, less current
portion (Notes 8 and 13)....................... 63,200 42,800 36,100
Note payable, related party (Note 2)............. 216,500 788,400 --
----------- ----------- -----------
TOTAL LIABILITIES.................................. 2,362,100 3,153,300 2,108,600
COMMITMENTS AND CONTINGENCIES (Notes 5, 7, 8, 15
and 16)
SHAREHOLDERS' DEFICIENCY (Notes 10, 13, and 16):
Redeemable 5% cumulative, Series A preferred
stock, no par value; 1,000,000 shares
authorized; 67,857, 67,857, and 142,857 shares
issued and outstanding, respectively,
liquidation preference of $487,600 $511,600,
and $1,048,600, respectively
(no shares outstanding pro forma).............. 475,000 475,000 1,525,000 --
Common stock subscribed.......................... 40,000 40,000 --
Common stock, no par value; 10,000,000 shares
authorized; 1,211,618, 1,248,904, and 1,416,161
shares issued and outstanding, respectively
1,701,875 shares outstanding pro forma......... 2,271,800 2,613,800 3,302,600 4,876,200
Accumulated deficit.............................. (3,154,100) (4,692,600) (5,595,000) (5,595,000)
----------- ----------- ----------- -----------
TOTAL SHAREHOLDERS' DEFICIENCY..................... (367,300) (1,563,800) (767,400) $ (718,800)
----------- ----------- ----------- -----------
$ 1,994,800 $ 1,589,500 $ 1,341,200
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 48
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES (Notes 2 and 11)............. $ 3,315,100 $ 4,980,200 $3,502,400 $ 970,600
COST OF SALES.......................... 3,205,800 4,558,000 3,201,800 871,700
----------- ----------- ---------- -----------
GROSS PROFIT........................... 109,300 422,200 300,600 98,900
OPERATING EXPENSES:
Research and development............. 164,700 545,400 224,300 174,200
Sales and marketing.................. 354,600 421,400 224,700 57,500
General and administrative........... 904,900 913,000 471,400 1,034,700
----------- ----------- ---------- -----------
TOTAL OPERATING EXPENSES............... 1,424,200 1,879,800 920,400 1,266,400
----------- ----------- ---------- -----------
LOSS FROM OPERATIONS................... (1,314,900) (1,457,600) (619,800) (1,167,500)
OTHER INCOME (EXPENSE):
Interest income...................... 25,400 26,400 20,600 18,300
Other income (Note 14)............... -- -- -- 330,000
Interest and other expense........... (82,700) (106,500) (56,000) (83,200)
----------- ----------- ---------- -----------
LOSS BEFORE INCOME TAXES............... (1,372,200) (1,537,700) (655,200) (902,400)
INCOME TAXES (Note 9).................. (800) (800) -- --
----------- ----------- ---------- -----------
NET LOSS............................... (1,373,000) (1,538,500) (655,200) (902,400)
PREFERRED STOCK DIVIDENDS.............. (12,600) (24,000) (12,000) (12,000)
----------- ----------- ---------- -----------
NET LOSS ATTRIBUTED TO COMMON
SHAREHOLDERS......................... $(1,385,600) $(1,562,500) $ (667,200) $ (914,400)
=========== =========== ========== ===========
BASIC AND DILUTED LOSS PER COMMON
SHARE................................ $ (1.15) $ (1.27) $ (0.55) $ (0.73)
=========== =========== ========== ===========
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING.......................... 1,205,444 1,225,816 1,218,730 1,249,823
=========== =========== ========== ===========
PRO FORMA BASIC AND DILUTED LOSS PER
COMMON SHARE (UNAUDITED)............. $ (1.13) $ (0.65)
=========== ===========
PRO FORMA WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING (UNAUDITED)....... 1,361,530 1,386,370
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 49
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
REDEEMABLE
PREFERRED STOCK
--------------------
SERIES A COMMON STOCK
-------------------- ---------------------- COMMON STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SUBSCRIBED DEFICIT TOTAL
------- ---------- --------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998............ 28,571 $ 200,000 1,193,761 $2,059,400 $ -- $(1,781,100) $ 478,300
Exercise of warrants to acquire
Preferred Stock Series A.......... 14,286 100,000 -- -- -- -- 100,000
Proceeds from issuance of Preferred
Stock Series A.................... 25,000 175,000 -- -- -- -- 175,000
Proceeds from issuance of common
stock............................. -- -- 17,857 125,000 -- -- 125,000
Common stock subscribed............. -- -- -- -- 40,000 -- 40,000
Contributed services................ -- -- -- 100,000 -- -- 100,000
Preferred stock dividends........... -- -- -- (12,600) -- -- (12,600)
Net loss............................ -- -- -- -- -- (1,373,000) (1,373,000)
------- ---------- --------- ---------- -------- ----------- -----------
Balance, December 31, 1998.......... 67,857 475,000 1,211,618 2,271,800 40,000 (3,154,100) (367,300)
Proceeds from issuance of common
stock............................. -- -- 35,857 251,000 -- -- 251,000
Issuance of common stock for trade
payable........................... -- -- 1,429 15,000 -- -- 15,000
Contributed services................ -- -- -- 100,000 -- -- 100,000
Preferred stock dividends........... -- -- -- (24,000) -- -- (24,000)
Net loss............................ -- -- -- -- -- (1,538,500) (1,538,500)
------- ---------- --------- ---------- -------- ----------- -----------
Balance, December 31, 1999.......... 67,857 475,000 1,248,904 2,613,800 40,000 (4,692,600) (1,563,800)
Balance of information through June
30, 2000 is unaudited.............
Issuance of common stock
subscribed........................ -- -- 8,571 40,000 (40,000) -- --
Conversion of note payable related
party (Note 2).................... 75,000 525,000 158,686 555,400 -- -- 1,080,400
Contributed services................ -- 525,000 -- 105,400 -- -- 630,400
Preferred stock dividends........... -- -- -- (12,000) -- -- (12,000)
Net loss............................ -- -- -- -- -- (902,400) (902,400)
------- ---------- --------- ---------- -------- ----------- -----------
Balance, June 30, 2000.............. 142,857 $1,525,000 1,416,161 $3,302,600 $ -- $(5,595,000) $ (767,400)
======= ========== ========= ========== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 50
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
STATEMENTS OF CASH FLOWS (NOTE 13)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------- -------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss............................... $(1,373,000) $(1,538,500) $(655,200) $(902,400)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Depreciation and amortization....... 60,800 117,900 22,600 33,500
Loss on sale of equipment........... -- -- -- 2,400
Contributed services................ 100,000 100,000 50,000 630,400
Allowance for doubtful accounts..... 138,900 140,800 42,000 137,200
Changes in operating assets and
liabilities:
Accounts receivable............... 598,700 5,400 (164,300) (152,000)
Inventories....................... (947,100) 296,600 479,600 322,900
Prepaid expenses and other
assets......................... 3,100 (23,700) (800) (33,900)
Accounts payable.................. 424,200 504,000 324,000 (360,000)
Accrued expenses.................. 148,200 16,900 (87,100) 97,800
----------- ----------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES............................. (846,200) (380,600) 10,800 (224,100)
----------- ----------- --------- ---------
Cash Flows From Investing Activities:
Proceeds from sale of capital
equipment........................... -- -- -- 12,000
Capital expenditures................... (63,900) (76,700) (37,700) (88,100)
Deposits............................... 7,800 -- -- --
----------- ----------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.... (56,100) (76,700) (37,700) (76,100)
----------- ----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft......................... (38,200) (209,700) (172,400) 8,300
Line of credit......................... 500,000 -- -- --
Proceeds from note payable, related
party............................... 210,500 571,900 240,800 292,000
Advances to related parties............ (45,200) (27,100) 15,700 (9,300)
Proceeds from long-term debt........... 388,100 -- -- --
Payments on long-term debts............ (507,700) (81,700) (46,200) (5,600)
Payments on obligations under capital
lease............................... (13,600) (19,200) (11,500) (8,800)
Proceeds from issuance of preferred
stock............................... 275,000 -- -- --
Proceeds from issuance of common
stock............................... 125,000 251,000 -- --
----------- ----------- --------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................. 893,900 485,200 26,400 276,600
----------- ----------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................ (8,400) 27,900 (500) (23,600)
CASH AND CASH EQUIVALENTS, beginning of
period................................. 9,300 900 900 28,800
----------- ----------- --------- ---------
CASH AND CASH EQUIVALENTS, ending of
period................................. $ 900 $ 28,800 $ 400 $ 5,200
=========== =========== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 51
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
THE COMPANY
American Eagle Motorcycle Company, Inc. (the Company) was incorporated in
the State of California on August 15, 1995 and has headquarters in Hollister,
California. The Company designs and manufactures custom design V-twin
motorcycles and parts and accessories and sells them to authorized dealers or to
the general public throughout the U.S.A.
BASIS OF PRESENTATION/GOING CONCERN UNCERTAINTY
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has recurring
operating losses, negative working capital and a shareholders' deficiency. In
addition, the Company's bank has demanded full payment of the credit facility.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.
The financial statements do not include adjustments relating to the
recoverability and classification of reported asset amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to obtain additional financing or
refinancing as may be required and ultimately to attain profitability. The
Company is actively seeking additional equity and debt financing, and marketing
its existing and new products. Management believes that these factors will
sustain the Company's operations for the next year. No assurance can be given
that the Company will be successful in its efforts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial information as of June 30, 2000 and for the six
months ended June 30, 1999 and 2000 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its financial position at that date and its
results of operations and cash flows for those periods. Operating results for
the six months ended June 30, 2000 are not necessarily indicative of results
that may be expected for any future periods.
F-7
<PAGE> 52
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents.
ACCOUNTS RECEIVABLE AND ALLOWANCES FOR DOUBTFUL ACCOUNTS
The Company grants credit to its customers after undertaking an
investigation of credit risk for all significant amounts. An allowance for
doubtful accounts is provided for estimated credit losses at a level deemed
appropriate to adequately provide for known and inherent risks related to such
amounts. The allowance is based on reviews of losses, adjustment history,
current economic conditions and other factors that deserve recognition in
estimating potential losses. While management uses the best information
available in making its determination, the ultimate recovery of recorded
accounts receivable is also dependent upon future economic and other conditions
that may be beyond management's control.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation is provided on an accelerated method over the
estimated useful lives of the assets, generally ranging from five to seven
years. Leasehold improvements and assets held under capital leases are amortized
using the straight-line method over the shorter of the term of the lease or the
estimated useful lives of the related assets.
LONG-LIVED ASSETS
Long-lived assets are assessed for possible impairment whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable, or whenever management has committed to a plan to dispose of the
assets. Such assets are carried at the lower of book value or fair value as
estimated by management based on appraisals, current market value, comparable
sales value, and undiscounted future cash flows as appropriate. Assets to be
held and used affected by such impairment loss are depreciated or amortized at
their new carrying amount over the remaining estimated life; assets to be sold
or otherwise disposed of are not subject to further depreciation or
amortization.
REVENUE RECOGNITION
The Company's revenue is derived primarily from the sale of custom design
motorcycles. Revenue is recognized at the time of shipment provided no
significant obligations remain and collectibility is probable.
F-8
<PAGE> 53
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
WARRANTY
The Company provides a limited warranty on its motorcycles. The warranty
period is 36 months (3 years) on parts and accessories. Product warranty costs
are charged to operations based upon the estimated product liability using
historical rates.
ADVERTISING COSTS
The cost of advertising is expensed as incurred. Advertising costs for the
years ended December 31, 1998 and 1999 were approximately $125,200 and $100,000,
respectively, and for the six months period ended June 30, 2000, $2,100.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Deferred income taxes are recognized for the tax consequences of temporary
differences by applying the tax rate expected to be in effect in future years to
differences between the financial statements carrying amounts and the tax basis
of existing assets and liabilities. Valuation allowances are established when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Realization is dependent upon future pretax earnings, the reversal of temporary
differences between book and tax income, and the expected tax rates in effect in
future periods.
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirement of FASB Statement No. 128 Earnings Per Share.
Basic earnings per share has been computed using the weighted-average number of
shares of common stock outstanding during the period and excludes any dilutive
effects of options, warrants, and convertible securities.
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of preferred shares not included above that will
automatically convert to common shares upon completion of the Company's initial
public offering, using the if-converted method.
Diluted net loss per share reflects the potential dilution of securities by
adding other common stock equivalents, including stock options, warrants, and
convertible preferred stock, to the weighted-average number of common shares
outstanding for a period, if dilutive. All potentially dilutive securities have
been excluded from the computation, as their effect is antidilutive.
F-9
<PAGE> 54
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents:
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates fair value.
Short term debt:
The fair value of short-term debt approximates cost because of the
short period of time to maturity.
Long-term debt:
The fair value of long-term debt is estimated based on current
interest rates available to the Company for debt instruments with similar
terms and remaining maturities.
As of December 31, 1998 and 1999 and June 30, 2000, the fair values of the
Company's financial instruments approximate their historical carrying amounts.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 138,
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged assets or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. In June 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferred of the Effective date
of FASB Statement No. 133, which amended SFAS No. 133 to be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of the new standard to have a material impact on the
Company's results from operations, financial position or cash flows.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101). SAB 101 provides interpretive guidance on the recognition, presentation
and disclosure of revenue in the financial statements. SAB 101 must be applied
to the financial statements no later than the quarter ending September 30,
F-10
<PAGE> 55
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
2000. The Company does not believe that the adoption of SAB 101 will have a
material affect on the Company's financial results.
2. RELATED PARTY TRANSACTIONS AND BALANCES
As of December 31, 1998 and 1999 and June 30, 2000, the Company held
certain interest-free loans receivable with balances aggregating $60,500,
$87,600, and $96,900, respectively, from certain related partnership and
corporations in which the Company's President serves as a general partner and/or
officer. The Company advances to and from these related parties from time to
time based on their need of cash. In 1998 and 1999, the Company advanced
approximately $45,200 and $27,100 to these parties, respectively.
The President of the Company periodically contributes additional capital to
the Company. The Company accounts for these contributions as related party notes
payable until the Board of Directors authorizes the issuance of additional
shares. As of December 31, 1998 and 1999, the Company had related party notes
payable aggregating $216,500 and $788,400, respectively. In June 2000,
$1,080,400 was converted into 75,000 shares of Series A preferred stock and
158,686 shares of common stock, representing non-cash compensation of $1,080,400
($555,400 relating to common shares and $525,000 relating to preferred shares).
The President of the Company has not been paid compensation since inception of
the Company. The Company has imputed a compensation expense for contributed
services at the rate of approximately $100,000 per year. In conjunction with the
beneficial conversion of the related party notes payable in June 2000, the
Company recognized additional compensation expense of approximately $580,400,
net of previously imputed compensation of $500,000.
The Company has transactions in the normal course of business with an
affiliated dealership that is partially owned by the President of the Company.
In 1998 and 1999, sales to the affiliated dealership were approximately $37,900
and $81,100, respectively. As of December 31, 1998 and 1999, accounts receivable
from the affiliated dealership were approximately $18,900 and $42,600,
respectively.
In November 1998, the Company entered into a facility lease agreement with
an affiliated partnership that is partially owned by the President of the
Company. In 1998 and 1999, lease payments made to the affiliated partnership
were approximately $28,800 and $224,300, respectively.
F-11
<PAGE> 56
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories, including V-Twin motorcycles and parts, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1998 1999 2000
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Parts........................................... $ 533,300 $ 644,600 $666,400
Work in process................................. 380,100 177,500 83,400
Finished goods.................................. 528,700 323,400 72,800
---------- ---------- --------
$1,442,100 $1,145,500 $822,600
========== ========== ========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment............................ $147,700 $187,500 $247,200
Vehicles........................................... 152,900 160,800 160,800
Leasehold improvements............................. 2,300 28,600 28,100
Furniture and fixtures............................. 15,300 18,000 21,500
-------- -------- --------
318,200 394,900 457,600
Less accumulated depreciation and amortization..... 93,500 211,400 233,900
-------- -------- --------
$224,700 $183,500 $223,700
======== ======== ========
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1998
and 1999 was approximately $60,800 and $117,900, respectively, and for the six
months ended June 30, 2000, $33,500.
Equipment under capital lease obligations aggregated $105,400 as of
December 31, 1998 and 1999, and June 30, 2000, with related accumulated
amortization of $30,000, $58,500, and $72,800, respectively.
5. LINE OF CREDIT
The Company has a $500,000 revolving line of credit with a bank, which is
due upon demand by the bank, bears interest at bank's prime rate plus 3% (9.5%
as of December 31, 1999), and is secured by all assets of the Company and
guaranteed by the President of the Company. The Company's bank has demanded full
payment of the credit facility.
F-12
<PAGE> 57
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and related expenses............. $115,200 $ 72,800 $121,800
Professional expenses............................ 26,700 58,400 76,000
Warranty......................................... 32,600 56,200 66,800
Payroll taxes, penalties and interest............ 31,500 37,100 58,200
Accrued dividends................................ 12,600 36,600 48,600
Property taxes................................... 16,000 31,000 31,000
Other............................................ 24,500 7,900 7,400
-------- -------- --------
$259,100 $300,000 $409,800
======== ======== ========
</TABLE>
7. LONG-TERM DEBT
A summary of long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1998 1999 2000
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Debt financing, with interest at 9.0% maturing
November 24, 2003, secured by vehicle
acquired........................................ $ 17,800 $ 15,300 $ 15,300
Term loan, with interest at 9.5% and 8.76% (bank's
prime rate plus 3%) as of December 31, 1999 and
1998, respectively), due upon demand by the
bank, secured by all assets of the Company and
guaranteed by the President of the Company...... 382,700 303,500 296,900
Note payable, with interest at 10% maturing
November 1, 2000................................ -- -- 39,000
-------- --------- ---------
400,500 318,800 351,200
Less current portion.............................. (82,400) (307,500) (339,900)
-------- --------- ---------
$318,100 $ 11,300 $ 11,300
======== ========= =========
</TABLE>
The Company's bank has demanded full payment of the credit facility.
8. LEASE COMMITMENTS
The Company leases its facilities and certain equipment under operating
leases expiring on various dates through 2003. The facility leases require the
Company to pay certain maintenance and operating expenses such as utilities,
property taxes and insurance costs. Rent expense related to these leases was
$82,700, for the six months ended June 30, 2000, $233,000 and $122,100 for the
years ended December 31, 1999 and 1998, respectively.
F-13
<PAGE> 58
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASE COMMITMENTS (CONTINUED)
A summary of the future minimum lease payments under capitalized leases
together with the present value of such minimum lease payments and future
minimum lease payments required under noncancelable operating leases with terms
in excess of one year follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
<S> <C> <C>
2000........................................................ $ 28,800 $143,600
2001........................................................ 18,400 182,800
2002........................................................ 28,200 240,000
2003........................................................ 1,600 120,000
-------- --------
Future minimum lease payments............................... 77,000 $686,400
========
Less amounts representing interest (8.2% to 20.7%).......... (13,100)
--------
Present value of future minimum lease payments.............. 63,900
Less current portion........................................ (21,100)
--------
$ 42,800
========
</TABLE>
9. INCOME TAXES
The provision for income taxes for the years ended December 31, 1999 and
1998 consisted of minimum state taxes.
The Company's effective tax rate differs from the statutory Federal income
tax principally as a result of Federal and state net operating losses for which
no deferred benefit is recognized due to a full valuation allowance provided on
the resulting deferred tax asset.
Temporary differences and carryforwards which gave rise to significant
portions of deferred tax assets and liabilities as of December 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net operating loss carryforward............................ $ 841,800 $ 1,273,900
Depreciation and amortization.............................. (33,000) (43,300)
Other, net................................................. 245,000 362,200
----------- -----------
Net deferred tax asset..................................... 1,053,800 1,592,800
Valuation allowance........................................ (1,053,800) (1,592,800)
----------- -----------
Reported deferred tax asset................................ $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1999, the Company had a Federal net operating loss
carryforward in the amount of $3,462,200 which may be applied to future taxable
income until these benefits begin to expire in 2010 through 2019. The Company
also had a California net operating loss (NOL) carryforward in the amount of
approximately $1,660,000 which may be applied to future taxable income until
these benefits begin to expire in 2003 through 2004.
F-14
<PAGE> 59
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES (CONTINUED)
The Company's ability to utilize the NOL carryforwards are dependent upon
the Company's ability to generate taxable income in future periods and may be
limited due to restrictions imposed under Federal and state laws upon a change
in ownership.
10. SHAREHOLDER'S EQUITY
STOCK SPLIT
On July 25, 2000, the Board of Directors approved a one-for-seven reverse
stock split of its common and preferred stock. All share and per share data,
except for shares authorized, have been restated for all periods presented to
reflect the reverse stock split on a retroactive basis.
COMMON STOCK
In February 1999, the Company issued 1,429 shares of common stock in a
noncash exchange to offset certain accounts payable in the amount of $15,000. In
connection with this transaction, the Company granted warrants to purchase 2,857
shares of common stock at $5.25 per share. These warrants vested immediately and
expire in January 2002.
In 1999, the Company also issued 35,857 shares of common stock, and granted
warrants to purchase 35,857 shares of common stock at $7.00 per share, in a
private placement for cash proceeds of approximately $251,000. These warrants
vested immediately and expire in January 2002.
In 1998, the Company issued 17,857 shares of common stock, and granted
warrants to purchase 17,857 shares of common stock at $7.00 per share, in a
private placement for cash proceeds of approximately $125,000. These warrants
vested immediately and expire in January 2001.
REDEEMABLE CUMULATIVE SERIES A PREFERRED STOCK
On June 2, 1997, the Company authorized 5,000,000 shares of preferred
stock, 1,000,000 of these shares were designated as redeemable 5% cumulative,
Series A preferred stock (Series A preferred). As of December 31, 1998 and 1999,
the Company had 67,857 shares of Series A preferred stock issued and
outstanding, respectively. In 1998 and 1999, the Company accrued for dividend on
these shares in the amount of $12,600 and $24,000, respectively.
In the six months ended June 30, 2000, the Company issued 75,000 shares of
Series A preferred stock in connection with the conversion of a related party
notes payable. In the six months ended June 30, 2000, the Company also accrued
for dividends on the Series A preferred stock in the amount of $12,000
(unaudited).
The rights and preferences of the Series A preferred stock are as follows:
Dividend Rights:
The holders of the Series A preferred stock are entitled to receive 5%
annual dividends. The dividend rights are cumulative and accrue from the
date of issuance of the shares, whether or
F-15
<PAGE> 60
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREHOLDER'S EQUITY (CONTINUED)
not earned or declared. As of December 31, 1999 accrued but unpaid
dividends aggregated $36,600.
Voting Rights:
The holders of the Series A preferred stock have voting rights and
powers.
Liquidation Preferences:
In the event of a liquidation or dissolution of the Company, the
holders of the Series A preferred stock are entitled to receive a
distribution amount in preference to the common stockholders equal to the
amount of $7.00 per share plus all accrued and unpaid dividends at the date
of liquidation/dissolution. Thereafter, the remaining assets of the Company
shall be distributed pro ratably to the holders of the common and preferred
stock on an as-converted basis.
Conversion Rights:
Each share of Series A preferred is convertible to one share of common
stock (see Note 16), and is convertible at the option of the holder or
automatically upon a merger, consolidation, or other corporate
reorganization, or the closing of a firm commitment underwritten public
offering.
Redemption:
The Company has the right to redeem all or any portion of the
outstanding Series A preferred stock at a price equivalent to $7.00 plus
any unpaid dividends outstanding.
In 1998, the Company issued 14,286 shares of Series A preferred stock
and granted warrants to purchase 14,286 shares of the Company's common
stock at a purchase price of $7.00 per share, in conjunction with the
exercise of warrants to purchase 14,286 Series A preferred stock for $7.00
per share. The value of the warrants issued was determined to be de
minimus.
In 1998, the Company also sold 25,000 shares of Series A preferred
stock for $175,000 in a private placement. In connection with this
transaction, the Company granted warrants to purchase 25,000 shares of the
Company's common stock at a purchase price of $7.00 per share. These
warrants vested immediately and expire in July 2002 and December 2002.
F-16
<PAGE> 61
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREHOLDER'S EQUITY (CONTINUED)
STOCK PURCHASE WARRANTS
A summary of the status of the Company's stock purchase warrants as of
December 31, 1999 and 1998 and changes during the years then ended is presented
in the following table:
<TABLE>
<CAPTION>
WEIGHTED-
RANGE OF AVERAGE
EXERCISE EXERCISE
WARRANTS PRICES PRICE
-------- ---------- ---------
<S> <C> <C> <C>
Outstanding as of December 31, 1997...................... 35,714 $2.31-7.00 $6.06
Granted.................................................. 57,143 7.00 7.00
Exercised................................................ (14,286) 7.00 7.00
------- ---------- -----
Outstanding as of December 31, 1998...................... 78,571 2.31-7.00 6.57
Granted.................................................. 38,714 5.25-7.00 6.87
------- ---------- -----
Outstanding as of December 31, 1999 and June 30, 2000
(unaudited)............................................ 117,285 2.31-7.00 6.67
======= ========== =====
</TABLE>
All of the outstanding warrants as of December 31, 1999 and June 30, 2000
(unaudited) were exercisable.
11. MAJOR CUSTOMERS AND SUPPLIER CONCENTRATION
MAJOR CUSTOMERS
In 1999, two customers accounted for approximately 13% and 11% of total net
sales, respectively, with related accounts receivable as of December 31, 1999 of
$28,500 and $200, respectively.
In 1998, three customers accounted for approximately 29%, 11%, and 10% of
total net sales,
respectively, with related accounts receivable as of December 31, 1998 of
$19,100, $0, and $135,900, respectively.
SUPPLIER CONCENTRATION
Certain parts are critical in order to keep the Company production lines
running without business interruption. Although management has alternative
suppliers for parts identified as critical, there can be no assurance that the
parts will be available at the time and price required. Any prolonged delay in
receipt of critical parts could have a material adverse impact on the Company's
financial positions and results of operations. During 1999 the Company
encountered shipping delays from its supplier of engines which significantly
impacted production scheduling and the filling of orders.
12. OFF BALANCE SHEET RISK
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and cash equivalents
and trade receivables. The Company places its cash
F-17
<PAGE> 62
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. OFF BALANCE SHEET RISK (CONTINUED)
and cash equivalents with high quality financial institutions and, by policy,
limits the amounts of credit exposure to any one financial institution.
A significant portion of the Company's accounts receivable are derived from
network dealerships. The Company believes any risk of accounting loss is
significantly reduced due to provision being made at the date of sale for
returns and allowances, diversity of its products, and geographic sales areas.
The Company performs credit evaluation of its customers' financial condition
whenever necessary. The Company generally does not require cash collateral or
other security to support customer receivables.
ENVIRONMENTAL CONTROLS
The operations of the Company, like those of the other companies engaged in
similar businesses, are subject to various federal, state, and local laws and
regulations intended to protect the public health and the environment, including
regulations related to air and water quality.
13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is supplemental disclosure for the statements of cash flows.
<TABLE>
<CAPTION>
PERIODS ENDED
-------------------------------------------------
DECEMBER 31, JUNE 30,
----------------- -------------------------
1998 1999 1999 2000
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH PAID:
Income taxes......................... $ 800 $ 800 $ -- $ --
Interest............................. $50,900 $94,000 $47,600 $ 56,200
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital expenditures under capital
lease............................. $82,800 $ -- $ -- $ --
Issuance of common stock for related
party note payable................ $ -- $ -- $ -- $555,400
Issuance of Series A Preferred Stock
for related party note payable.... $ -- $ -- $ -- $525,000
Issuance of common stock for trade
payable........................... $ -- $15,000 $15,000 $ --
Debt finance for acquisition of
vehicle........................... $17,900 $ -- $ -- $ --
Equipment received for common stock
subscription...................... $40,000 $ -- $ -- $ --
Accrued dividend for Series A
Preferred Stock................... $12,600 $24,000 $12,000 $ 12,000
Conversion of trade payable into note
payable........................... $ -- $ -- $ -- $ 38,000
</TABLE>
F-18
<PAGE> 63
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. OTHER INCOME
During the six months ended June 30, 2000, the Company received $330,000
from an affiliated company for the performance of certain development
activities. As of June 30, 2000, the Company's obligations for future
development performance have been satisfied and all related monies have been
collected.
15. CONTINGENCIES
PRODUCT LIABILITY INSURANCE
The Company maintains insurance coverage for product liability losses up to
$9 million per occurrence.
LITIGATION
The Company is involved in legal proceedings, claims and litigation arising
in the ordinary course of business. In the opinion of management, the outcome of
such current legal proceeding, claims and litigation will not materially affect
the Company's result from operations.
REPURCHASE
The majority of the Company's customers finance their purchases from the
Company using a third party wholesale financing company. The Company and
wholesale financing company repossesses the motorcycle, and if the motorcycle is
in "like-new" condition, then the Company is obligated to repurchase the
motorcycle. To date, the Company has experienced only insignificant repurchases
under this agreement.
16. SUBSEQUENT EVENTS
MERGER AND ACQUISITIONS
On July 31, 2000, the Company signed an Asset Purchase Agreement under
which it will issue 1,287,358 shares of common stock and grant warrants to
purchase 235,286 shares of common stock, at $7.00 per share, in exchange for
substantially all assets of Angel Motorcycle, Inc., a Minnesota corporation. The
acquisition is contingent on the successful completion of the pending initial
public offering.
On September 15, 2000, the Company issued 130,000 shares of common stock in
exchange for certain motorcycle Web sites developed by Net Media Technologies,
Inc., which is 30% owned by the President of the Company.
On September 15, 2000, the Company completed a business combination in a
single transaction with Yankee Engineuity Products Division, a California sole
proprietorship, by exchanging 32,500 shares of its common stock for all of the
outstanding ownership of Yankee Engineuity Products Division.
F-19
<PAGE> 64
AMERICAN EAGLE MOTORCYCLE
COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
COMMON STOCK
During September 2000, 31,428 shares of common stock was issued to satisfy
accounts payable of approximately $200,000.
CONVERSION OF PREFERRED STOCK
On September 29, 2000, the Board of Directors authorized the Company to
offer all holders of the outstanding preferred shares to convert each share of
preferred stock to two shares of common stock, under the condition that the
holders waive and surrender warrants held to purchase preferred stock and all
accrued or cumulative rights to preferred stock dividends and agree to enter
into lock-up agreement for one year from the Company's initial public offering
regarding the common stock received in this conversion. The Company will
recognize deemed preferred stock dividends of approximately $475,000, net of the
$525,000 recorded as compensation for the six months ended June 30, 2000 (Note
2).
PROPOSED PUBLIC OFFERING
The Company has entered into an agreement to sell shares of its common
stock in an initial public offering. If the offering is consummated, as
presently anticipated, all of the outstanding preferred stock will automatically
convert to common stock. The unaudited pro forma shareholders' deficiency as of
June 30, 2000 gives effect to the two-for-one conversion of all outstanding
shares of preferred stock at that date into 285,714 shares of common stock upon
the completion of the offering.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with the Chief
Executive Officer for a two year term to provide an annual salary of $96,000
plus certain benefits.
F-20
<PAGE> 65
To the Board of Directors
ANGEL MOTORCYCLES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Minneapolis, Minnesota
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Angel Motorcycles, Inc.
(a development stage enterprise) as of December 31, 1999 and 1998, and the
related statements of operations, stockholders' equity (deficit), and cash flows
for the year ended December 31, 1999, and for the periods from August 17, 1998
(inception) to December 31, 1999 and 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 Angel Motorcycles, Inc. (a
development stage enterprise) as of December 31, 1999 and 1998, and the results
of its operations and its cash flows for the year ended December 31, 1999, and
for the periods from August 17, 1998 (inception) to December 31, 1999 and 1998,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company incurred a loss of $265,343 in 1999 and at
December 31, 1999, had an accumulated deficit of $320,809. These conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We have compiled the accompanying balance sheet of Angel Motorcycles, Inc.
(a development stage enterprise) as of June 30, 2000, and the related statements
of operations, stockholders' equity (deficit), and cash flows for the six months
then ended, and for the period from August 17, 1998 (inception) to June 30,
2000, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
/s/ STIRTZ BERNARDS BOYDEN SURDEL & LARTER, P.A.
Edina, Minnesota
August 16, 2000
F-21
<PAGE> 66
ANGEL MOTORCYCLES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1999 1998 2000
--------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 2,750 $ -- $ --
Due from affiliate................................ -- -- 243
Prepaid expense................................... 2,524 -- --
Debt offering costs, net of accumulated
amortization of $7,653......................... -- -- 59,687
--------- -------- -----------
5,274 -- 59,930
Other assets:
Investment in notes receivable -- Norton
Motorcycles, Inc. ............................. 273,000 -- 273,000
Surety bond deposit............................... 250,000 -- --
--------- -------- -----------
$ 528,274 $ -- $ 332,930
========= ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Checks issued in excess of cash in bank........... $ -- $ -- $ 5,945
Accounts payable:
Related party.................................. 4,367 8,719 88,330
Other.......................................... 7,476 -- 6,714
Accrued interest.................................. -- -- 1,154
Advances -- related party......................... 350,000 -- 106,867
Advances -- others................................ 173,000 -- --
Convertible debentures -- stockholders............ -- -- 240,500
--------- -------- -----------
Total current liabilities................. 534,843 8,719 449,510
--------- -------- -----------
Stockholders' equity (deficit):
Common stock, no par value, 25,000,000 shares
authorized; 5,607,105 and 4,674,661 shares
issued and outstanding at December 31, 1999 and
1998. At June 30, 2000, 7,974,405 shares are
issued and outstanding......................... 314,240 46,747 998,470
Deficit accumulated during the development
stage.......................................... (320,809) (55,466) (1,115,050)
--------- -------- -----------
Total stockholders' equity (deficit)...... (6,569) (8,719) (116,580)
--------- -------- -----------
$ 528,274 $ -- $ 332,930
========= ======== ===========
</TABLE>
See Notes to Financial Statements.
F-22
<PAGE> 67
ANGEL MOTORCYCLES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
AUGUST 17, AUGUST 17, AUGUST 17,
1998 1998 SIX MONTHS 1998
YEAR ENDED (INCEPTION) TO (INCEPTION) TO ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1999 1998 1999 2000 2000
------------ -------------- --------------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expenditures:
General and
administrative..... $ 26,381 $ 46,547 $ 72,928 $ 160,656 $ 233,584
Research and
development........ 238,962 8,919 247,881 624,778 872,659
Interest expense...... -- -- -- 8,807 8,807
--------- --------- --------- --------- ----------
265,343 55,466 320,809 794,241 1,115,050
Income taxes............ -- -- -- -- --
--------- --------- --------- --------- ----------
NET LOSS........... $ 265,343 $ 55,466 $ 320,809 $ 794,241 $1,115,050
========= ========= ========= ========= ==========
BASIC LOSS PER SHARE.... $ .052 $ .012 $ .065 $ .113 $ .203
========= ========= ========= ========= ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING........... 5,063,179 4,674,661 4,948,909 6,999,105 5,483,743
========= ========= ========= ========= ==========
</TABLE>
See Notes to Financial Statements.
F-23
<PAGE> 68
ANGEL MOTORCYCLES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM AUGUST 17, 1998
(INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER OF ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, August 17, 1998.................... -- $ -- $ -- $ --
Issuance of common stock on August 25,
1998, for services; $.01 per share..... 3,924,661 39,247 -- 39,247
Issuance of common stock on August 25,
1998, for cash; $.01 per share......... 750,000 7,500 -- 7,500
Net loss.................................. -- -- (55,466) (55,466)
--------- -------- ----------- ---------
BALANCE, December 31, 1998.................. 4,674,661 46,747 (55,466) (8,719)
Issuance of common stock on August 2,
1999, for services; $.29 per share..... 214,556 61,600 -- 61,600
Issuance of common stock on August 2,
1999, for cash; $.29 per share......... 717,888 205,893 -- 205,893
Net loss.................................. -- -- (265,343) (265,343)
--------- -------- ----------- ---------
BALANCE, December 31, 1999.................. 5,607,105 314,240 (320,809) (6,569)
Issuance of common stock on March 2, 2000,
for cash; $.205 per share
(unaudited)............................ 1,220,600 250,000 -- 250,000
Issuance of common stock on March 2, 2000,
for advances related to investment in
notes receivable -- Norton Motorcycles,
Inc.; $.20 per share (unaudited)....... 740,000 148,000 -- 148,000
Issuance of common stock on March 2, 2000,
for services; $.20 per share
(unaudited)............................ 70,000 14,000 -- 14,000
Issuance of warrants on March 2, 2000, for
advances related to investment in notes
receivable -- Norton Motorcycles, Inc.;
$.10 per warrant (unaudited)........... -- 25,000 -- 25,000
Issuance of warrants on March 2, 2000, for
cash; $.10 per warrant (unaudited)..... -- 179,890 -- 179,890
Issuance of common stock on April 28,
2000, related to debentures; $.20 per
share (unaudited)...................... 114,800 22,960 -- 22,960
Issuance of common stock on June 30, 2000,
related to debentures; $.20 per share
(unaudited)............................ 221,900 44,380 -- 44,380
Net loss (unaudited)...................... -- -- (794,241) (794,241)
--------- -------- ----------- ---------
BALANCE, JUNE 30, 2000 (UNAUDITED).......... 7,974,405 $998,470 $(1,115,050) $(116,580)
========= ======== =========== =========
</TABLE>
See Notes to Financial Statements.
F-24
<PAGE> 69
ANGEL MOTORCYCLES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
AUGUST 17, 1998 AUGUST 17, 1998 SIX MONTHS AUGUST 17, 1998
YEAR ENDED (INCEPTION) TO (INCEPTION) TO ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1999 1998 1999 2000 2000
------------ --------------- --------------- ----------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(265,343) $(55,466) $(320,809) $(794,241) $(1,115,050)
Adjustments to reconcile net loss
to net cash flows from
operating activities:
Amortization of debt offering
costs..................... -- -- -- 7,653 7,653
Common stock and warrants
issued for services....... 61,600 39,247 100,847 14,000 114,847
Increase due from
affiliate................. -- -- -- (243) (243)
(Increase) decrease in
prepaid expense........... (2,524) -- (2,524) 2,524 --
Increase (decrease) in
accounts payable:
Related party............. (4,352) 8,719 4,367 83,963 88,330
Other..................... 7,476 -- 7,476 (762) 6,714
Increase in accrued
interest.................. -- -- -- 1,154 1,154
--------- -------- --------- --------- -----------
Net cash flows from
operating
activities.......... (203,143) (7,500) (210,643) (685,952) (896,595)
--------- -------- --------- --------- -----------
Cash flows from financing
activities:
Checks issued in excess of cash
in bank........................ -- -- -- 5,945 5,945
Advances -- related party........ -- -- -- 6,867 6,867
Issuance of debentures........... -- -- -- 240,500 240,500
Issuance of common stock and
warrants....................... 205,893 7,500 213,393 429,890 643,283
--------- -------- --------- --------- -----------
Net cash flows from
financing
activities.......... 205,893 7,500 213,393 683,202 896,595
--------- -------- --------- --------- -----------
Net increase
(decrease) in
cash................ 2,750 -- 2,750 (2,750) --
Cash, beginning of period.......... -- -- (2,750) -- --
--------- -------- --------- --------- -----------
Cash, end of period................ $ 2,750 $ -- $ -- $ (2,750) $ --
========= ======== ========= ========= ===========
NON-CASH INVESTING AND FINANCING
ACTIVITY:
Advance issued for surety bond
deposit........................ $ 250,000 $ -- $ 250,000 $(250,000) $ --
========= ======== ========= ========= ===========
Advance -- related party for
investment in notes
receivable -- Norton
Motorcycle, Inc................ $ 100,000 $ -- $ -- $ -- $ 100,000
========= ======== ========= ========= ===========
Advances -- others for investment
in notes receivable -- Norton
Motorcycles, Inc............... $ 173,000 $ -- $ -- $ -- $ --
========= ======== ========= ========= ===========
</TABLE>
See Notes to Financial Statements.
F-25
<PAGE> 70
ANGEL MOTORCYCLES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND
THE PERIODS FROM AUGUST 17, 1998 (INCEPTION)
TO DECEMBER 31, 1999 AND 1998
(UNAUDITED FOR THE SIX MONTHS ENDED JUNE 30, 2000)
1. GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a
net loss of $265,343 during the year ended December 31, 1999, and as of that
date, the Company has an accumulated deficit of $320,809. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans include raising additional equity capital. However, there can
be no assurance that the Company will raise additional funds to meet its future
financing requirements or that future operations will be successful. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
The Company incurred a net loss of $794,241 during the six months ended
June 30, 2000, and as of that date, the Company's liabilities exceeded its
assets by $116,580, and the Company has an accumulated deficit of $1,115,050.
2. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company was incorporated as a Minnesota corporation on August 17, 1998.
The Company is in the process of developing motorcycle technology for the
American-style cruiser market.
The Company is in the development stage and its efforts through December
31, 1999, have been principally devoted to organizational activities, raising
capital, and research and development efforts. Management anticipates incurring
substantial additional losses as it pursues its research and development
efforts.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Surety Bond Deposit
As part of the litigation to pursue collection on the notes
receivable -- Norton Motorcycles, Inc., the Company was required by the court to
post a $250,000 surety bond. A stockholder of the Company placed $250,000 into
an escrow account with the insurance company on behalf of the Company. This
amount was treated as a non-interest bearing advance to the Company by the
F-26
<PAGE> 71
ANGEL MOTORCYCLES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
stockholder. During 2000, the $250,000 was repaid to the stockholder directly
from the escrow account.
Income Taxes
The Company follows FASB Statement No. 109, "Accounting for Income Taxes,"
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred income tax assets to the amount
expected to be realized. Income tax expense is the tax payable or refundable for
the period plus or minus the change during the deferred tax assets and
liabilities.
Basic Loss Per Common Share
Basic loss per common share was computed by dividing income available to
common stockholders by the weighted averaged number of common shares outstanding
during the year. Diluted earnings per share are not presented because the
effects of the Company's warrants are anti-dilutive.
3. INVESTMENT IN NOTES RECEIVABLE -- NORTON MOTORCYCLES, INC.
During 1999, the Company authorized the purchase of three Norton
Motorcycles, Inc. (Norton) notes receivable. Two of the notes were
collateralized by certain trademarks and technology of Norton. The third note
did not have any collateral attached to it. Following are the details related to
the purchase of the notes:
<TABLE>
<CAPTION>
FACE AMOUNT OF NON-INTEREST
PURCHASED FROM NOTES RECEIVABLE BEARING ADVANCE
-------------- ---------------- ---------------
<S> <C> <C>
Stockholder....................................... $100,000 $100,000
Third Party....................................... 25,000 25,000
Third Party....................................... 740,000* 148,000
--------
$273,000
========
</TABLE>
-------------------------
* Consisting of $720,000 of principal and approximately $20,000 of accrued
interest.
Norton is currently insolvent and has no operations. The Company has
initiated litigation against Norton to obtain rights to certain trademarks. The
litigation is still in its early stages and the Company cannot determine the
outcome of the litigation at this time. The investment in the notes receivable
will be carried as an asset until such time as the litigation is successful, at
which time the amounts will begin being amortized over the estimated useful
lives of the intangible assets acquired, or until the litigation proves
unsuccessful, at which time the amounts will be expensed.
F-27
<PAGE> 72
ANGEL MOTORCYCLES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT IN NOTES RECEIVABLE -- NORTON MOTORCYCLES, INC. (CONTINUED)
Subsequent to year end, the Company issued 250,000 warrants with a fair
value of $.10 per warrant for the $25,000 advance and 740,000 shares of common
stock with a fair value of $.20 per share for the $148,000 advance. A
convertible debenture was issued for the $100,000 advance. This $100,000
debenture incurs interest at the rate of 12%, matures January 1, 2001, and is
convertible into shares of common stock at a conversion price of $1.00 per
share.
4. ACCOUNTS PAYABLE -- RELATED PARTY
Accounts payable -- related party and advances -- related party represent
non-interest bearing advances to the Company by stockholders.
The Company uses Melling Consultancy Design (MCD) to perform all of its
research and development activities related to the process of developing
motorcycle technology. During 1999, the Company issued MCD 214,556 shares of
common stock as consideration for $61,600 of services. No amounts were owed to
MCD as of December 31, 1999 and 1998. As of June 30, 2000, the Company owed MCD
$60,000.
5. CONVERTIBLE DEBENTURES (UNAUDITED)
On April 28, 2000, the Company authorized the issuance of up to $600,000 of
Series A Debenture Units. Each unit is to consist of a $10,000 Series A
Debenture and 14,000 shares of restricted common stock. The debentures incur
interest at the rate of 10% simple interest per annum and mature at the earlier
of six months from the date of the debenture or 30 days after the effective date
of the pending initial public offering of American Eagle Motorcycle Company,
Inc. The debentures are convertible into common stock of the Company at the rate
of one share of common stock for each $.36 of debenture principal.
As of June 30, 2000, the Company has issued $240,500 of Series A
Debentures. The value allocated to the shares of stock issued as part of the
debenture units is being amortized to interest expense over the terms of the
notes.
6. COMMON STOCK WARRANTS (UNAUDITED)
During the first six months of 2000, the Company issued 2,048,900 warrants
to purchase shares of common stock at $1.00 per share (subsequently discounted
to $.33 per share) that may be exercised at any time prior to May 31, 2004.
These warrants were issued at an offering price of $.10 per warrant with
1,798,900 warrants being issued for cash and 250,000 warrants issued for a
Norton note receivable (see Note 3).
7. INCOME TAXES
The Company has operating loss carryforwards for federal and state tax
purposes of approximately $300,000 at December 31, 1999, which expire through
2014. The Internal Revenue Code contains provisions which may limit the loss
carryforwards available if significant changes in stockholder ownership of the
Company occur. A deferred tax asset of approximately $120,000 has
F-28
<PAGE> 73
ANGEL MOTORCYCLES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
been fully offset by a valuation allowance since realization of the asset can
not be reasonably assumed.
8. SUBSEQUENT EVENTS
Subsequent to December 31, 1999, the Company has issued $240,500 of
convertible debentures (see Note 5), 2,367,300 shares of common stock (see
statement of stockholders' equity (deficit)) and 2,048,900 warrants to purchase
shares of common stock (see Note 6).
On April 7, 2000, the Company entered into an agreement with Melling
Consultancy Design (MCD), which formalized their existing relationship on
developing and designing motorcycle engines and a motorcycle prototype. Under
the agreement, the Company is committed to pay MCD $240,000 upon completion of
development of the engines and prototype. The Company has also agreed to pay MCD
an additional $40,000 for all prototype tooling, molds and jigs, and to issue an
additional $40,000 of purchase orders for engines. As part of this agreement,
the Company is obligated to pay a 2.5% royalty to MCD on all sales of
motorcycles, engines and spare parts developed under this agreement.
On April 28, 2000, the Company's sole director authorized the Company to
pursue the sale of the Company's engine technology and other assets to American
Eagle Motorcycle Company, Inc.
F-29
<PAGE> 74
[INSIDE BACK COVER -- PHOTOS OF V-TWIN ENGINES AND
PRODUCTION FACILITIES]
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the corporate articles of registrant and Article 6 of the
bylaws of registrant provide that the registrant shall have the power to
indemnify its officers and directors, as well as other agents, to the fullest
extent permitted by California law. Section 317 of the California Corporations
Code permits indemnification of directors, officers and agents of the registrant
who are made or threatened to be made a party to any civil, criminal or
administrative proceeding by reason of their respective capacities with
registrant, against judgments, settlements, penalties, fines and expenses
(including attorney's fees) incurred by any such person in connection with the
proceeding, provided the person acted in good faith and in a manner the person
reasonably believed to be in the best interests of the registrant, and in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
was unlawful. In addition, Section 204 of the California Corporations Code
prohibits any such indemnification. In the following circumstances: (i) acts or
omissions that involve intentional misconduct or a knowing or culpable violation
of law, (ii) acts or omissions that the person believes to be contrary to the
best interests of the registrant or its shareholders, (iii) any transaction from
which the person derived an improper personal benefit, (iv) acts or omissions
that show a reckless disregard for the person's duty to the registrant or its
shareholders in circumstances in which the person was aware, or should have been
aware, in the ordinary course of performing duties of the person, of a risk of
serious injury to the registrant or its shareholders, and (v) for acts or
omissions that constitute an unexcused pattern of inattention that amounts to
abdication of the person's duty to the registrant or its shareholders.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of registrant pursuant to the foregoing discussion, or otherwise, we
have 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.
The underwriting agreement for this offering contains provisions under
which the registrant, on the one hand, and the underwriters, on the other hand,
have agreed to indemnify each other (including officers and directors or
controlling persons of the registrant or the underwriters) against certain
liabilities, including liabilities under the Securities Act.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities registered hereby, other than underwriting discounts and fees,
are set forth in the following table. Other than the SEC registration fee and
NASD filing fee, all amounts are estimates.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
SEC registration fee........................................ $ 4,289
NASD filing fee............................................. 2,124
Nasdaq and PSE listing fees................................. 20,000
Legal fees and expenses..................................... *
Blue Sky fees and expenses.................................. 25,000
Printing expenses (including Edgar filings)................. *
Accounting fees and expenses................................ *
Transfer Agent fees and expenses............................ 5,000
Miscellaneous expenses...................................... 5,000
-------
Total............................................. *
=======
</TABLE>
-------------------------
* to be filed by amendment
II-1
<PAGE> 76
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following includes all sales of unregistered securities by the
registrant during the past three years, and gives effect to a 1-for-7 reverse
common stock split effected in October 2000.
(a) In December 1997, the registrant issued 211,675 shares of common stock
to Gregory Spak, its Chief Executive Officer, to satisfy outstanding loans
payable to him in the aggregate amount of $493,900.
(b) From December 1997 through December 1998, the registrant issued 475,000
shares of its preferred stock at $1.00 per share, a total of $475,000, to eleven
accredited investors in private transactions with minimum investments of
$25,000. These eleven investors also received three-year warrants to purchase an
equivalent number of additional preferred shares at $1.00 per share. In October
2000, all of these 475,000 preferred shares and related warrants were exchanged
for a total of 135,714 common shares of the registrant.
(c) From May 1998 through November 1999, the registrant issued a total of
53,714 shares of common stock for $7.00 per share, a total of $376,000, to
twelve private investors (most of whom are accredited investors) already known
by officers of the registrant prior to their purchases of this common stock.
They also received three-year warrants to purchase additional common shares at
$7.00 per share in an amount equivalent to the shares purchased by them.
(d) In February 1999, the registrant issued 1,429 shares of common stock to
a consultant as compensation for consulting services of $15,000, accompanied by
a warrant to purchase an additional 2,857 common shares at $5.25 per share.
(e) In June 2000, the registrant issued 8,571 shares of its common stock in
exchange for transportation equipment valued at $40,000 to Oscar Coco.
(f) In June 2000 the registrant issued 158,686 shares of common stock and
525,000 shares of preferred stock to its Chief Executive Officer to satisfy
outstanding loans and advances owed to him in the aggregate amount of
$1,080,400. All of these preferred shares were exchanged by him in October 2000
into 150,000 common shares.
(g) In September 2000, the registrant issued 130,000 shares of common stock
to Net Media Technologies, Inc. to acquire several motorcycle Web sites from
them.
(h) In September 2000 the registrant issued 32,500 shares of common stock
to Duncan Keller to acquire his sole proprietorship motorcycle parts business
known as Yankee Engineuity.
(i) In October 2000 the registrant issued 31,428 shares of its common stock
to a trade creditor to satisfy outstanding trade accounts payable of $200,000.
The sales and issuances of common stock, preferred stock, and warrants in
each of the above transactions were deemed to be exempt from registration in
reliance upon Section 4(2) of the Securities Act of 1933, as amended, as
transactions not involving a public offering. All purchasers in these
transactions represented their intention to acquire the securities for
investment only and not with a view toward their distribution. In addition, all
purchasers in these transactions had adequate access to sufficient information
about the registrant to make an informed investment decision. No general
solicitation or advertising was employed by the registrant in any of these
transactions. None of these securities were sold through an underwriter or
selling agent, and accordingly there were no underwriting or selling discounts
or commissions involved in these transactions.
II-2
<PAGE> 77
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 -- Form of Agreement Among Underwriters
1.2 -- Form of Underwriting Agreement
1.3 -- Form of Selected Dealers Agreement
1.4 -- Form of Underwriters Agreement
1.5 -- Form of Consulting Agreement Between Registrant and
Representative of Underwriter
3.1 -- Articles of Incorporation of registrant, as amended
3.2 -- Bylaws of registrant
*4.1 -- Specimen common stock certificate
*4.2 -- Form of redeemable Class A Warrant and related Warrant
Agreement
*5 -- Opinion of Robert O. Knutson, Attorney at Law
10.1 -- Asset Purchase Agreement between registrant and Angel
Motorcycles Inc.
10.2 -- Acquisition agreement for purchase of motorcycle Web
sites by registrant from Net Media Technologies, Inc.
10.3 -- Acquisition agreement for purchase of Yankee Engineuity
motorcycle parts business by registrant from Duncan
Keller
10.4 -- Authorized dealer agreement for American Eagle dealers
*10.5 -- Employment agreement with Gregory Spak to become
effective January 1, 2000
10.6 -- Lease for American Eagle headquarters/production
facilities
*23.1 -- Consent of Robert O. Knutson, Attorney at Law (included
in Exhibit 5)
23.2 -- Consent of BDO Seidman, LLP
23.3 -- Consent of independent public accountant for Angel
Motorcycles Inc.
*27 -- Financial Data Schedule
</TABLE>
------------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
The registrant will provide to the underwriter at the closing specified in
the underwriting 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 the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC 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 the registrant of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or
II-3
<PAGE> 78
controlling person in connection with the securities being registered, the
registrant 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.
The undersigned Registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a post
effective amendment to this Registration Statement to:
- include any prospectus required by Section 10(a)(3) of the
Securities Act;
- 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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
- 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 statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
For determining any liability under the Securities Act, the registrant 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 the registrant under Rule 424(b)(1), or (4), or 497(h) under
the Securities Act as part of this registration statement as of the time the SEC
declared it effective.
For determining any liability under the Securities Act, the registrant will
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE> 79
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 on Form SB-2 and has authorized the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hollister, State of California on October 30, 2000.
AMERICAN EAGLE MOTORCYCLE COMPANY,
INC.
By /s/ GREGORY SPAK
------------------------------------
Gregory Spak
President, Chief Executive Officer
and Director
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GREGORY SPAK President, Chief Executive Officer October 30, 2000
--------------------------------------------------- and Director (Principal Executive
Gregory Spak Officer)
/s/ DAVID MAGINNIS Chief Financial Officer (Principal October 30, 2000
--------------------------------------------------- Financial and Accounting Officer)
David Maginnis
/s/ MAURICE TAYLOR Director and Chairman of Board October 30, 2000
---------------------------------------------------
Maurice Taylor
/s/ KENNETH MACLENNAN Director October 30, 2000
---------------------------------------------------
Kenneth MacLennan
</TABLE>
II-5
<PAGE> 80
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1 -- Form of Agreement Among Underwriters
1.2 -- Form of Underwriting Agreement
1.3 -- Form of Selected Dealers Agreement
1.4 -- Form of Underwriters Agreement
1.5 -- Form of Consulting Agreement Between Registrant and
Representative of Underwriter
3.1 -- Articles of Incorporation of registrant, as amended
3.2 -- Bylaws of registrant
*4.1 -- Specimen common stock certificate
*4.2 -- Form of redeemable Class A Warrant and related Warrant
Agreement
*5 -- Opinion of Robert O. Knutson, Attorney at Law
10.1 -- Asset Purchase Agreement between registrant and Angel
Motorcycles Inc.
10.2 -- Acquisition agreement for purchase of motorcycle Web
sites by registrant from Net Media Technologies, Inc.
10.3 -- Acquisition agreement for purchase of Yankee Engineuity
motorcycle parts business by registrant from Duncan
Keller
10.4 -- Authorized dealer agreement for American Eagle dealers
*10.5 -- Employment agreement with Gregory Spak to become
effective January 1, 2000
10.6 -- Lease for American Eagle headquarters/production
facilities
*23.1 -- Consent of Robert O. Knutson, Attorney at Law (included
in Exhibit 5)
23.2 -- Consent of BDO Seidman, LLP
23.3 -- Consent of independent public accountant for Angel
Motorcycles Inc.
*27 -- Financial Data Schedule
</TABLE>
------------------------
* To be filed by amendment.
