As filed with the Securities and Exchange Commission on ________, 1999
Registration Statement No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
AMERICAN QUANTUM CYCLES, INC.
(Name of Small Business Issuer in Its Charter)
----------
Florida 3751 59-2651232
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
-------------------------
Richard Hagen, President and Chief Executive Officer
American Quantum Cycles Incorporated
731 Washburn Road
Melbourne, Florida 32934
(407) 752-0008
(Name, Address and Telephone Number of Agent For Service)
------------------------------
731 Washburn Road
Melbourne, Florida 32934
(407) 752-0008
(Address and Telephone Number of Principal Executive Offices)
------------------------------
Copies of all communications to:
James M. Schneider, Esq. Bert L. Gusrae, Esq.
Robert J. Burnett, Esq. David A. Carter, P.A.
Atlas, Pearlman, Trop & Borkson, P.A. 2300 Glades Road
200 East Las Olas Boulevard, Suite 1900 Suite 210, West Tower
Fort Lauderdale, FL 33301 Boca Raton, FL 33431
Telephone: (954) 763-1200 Telephone: (561) 750-6999
Facsimile No. (954) 766-7800 Facsimile No. (561) 367-0960
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration
Statement.
----------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement number of the earlier effective registration statement for the same
offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. |_|
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
Title of Each Shares Proposed Maximum Proposed Maximum Amount Of
Class of Securities To Be Offering Price Aggregate Offering Registration
To Be Registered Registered Per Share Price Fee
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock,
$.001 par value 1,840,000(1) $ 5.00(2) $ 9,200,000(2) $2,556.60
=========== ========== ============= ==========
Representative's Warrants
each to purchase one share
of Common Stock, $.001
par value 160,000 $ .001 $ 150 (3)
Common Stock,
$.001 par value 160,000(4) $ 8.25(2) $ 1,320,000(2) $ 366.96
Common Stock,
$.001 par value 678,000(5) $ 1.14(6) $ 779,920 $ 214.87
Common Stock,
$.001 par value 250,000(7) $ 4.00 $ 1,000,000 $ 278.00
- ---------------------------------------------------------------------------------------------------------------------------------
Amount Due........................................................................................... $3,416.43
==========
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Assumes the Underwriter's over-allotment option to purchase 240,000
additional shares of Common Stock is exercised in full.
(2) Estimated solely for purposes of calculating the registration fee.
(3) No Registration Fee required pursuant to Rule 457(g).
(4) Issuable upon the exercise of the Underwriter's Warrants together with
an indeterminate number of shares of Common Stock that may be issuable
by reason of the anti-dilution provisions contained therein.
(5) Includes 678,000 shares of the Company's Common Stock being offered by
Selling Security Holders pursuant to the Alternate Prospectus.
See "Concurrent Offering."
(6) Calculated pursuant to rule 457(c).
(7) Includes 250,000 shares of the Company's Common Stock issuable upon the
exercise of options exercisable at $4.00 per share being offered by the
Selling Securityholders pursuant to the Alternate Prospectus. See
"Concurrent Offering."
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
EXPLANATORY NOTE
This Registration Statement covers the primary offering of Shares of
Common Stock by American Quantum Cycles, Inc. (the "Company") and the offering
of securities by certain selling securityholders (the "Selling
Securityholders"). The Company is registering, under the primary prospectus
("Primary Prospectus"), 1,600,000 shares of Common Stock (excluding shares of
Common Stock issuable upon exercise of the Underwriter's Over-Allotment Option).
The Company is registering, on behalf of the Selling Securityholders, under an
alternate prospectus ("Alternate Prospectus"), 928,000 shares of Common Stock of
the Company including 250,000 shares of common stock issuable upon exercise of
warrants and options. The Alternate Prospectus pages, which follow the Primary
Prospectus, contain certain sections which are to be combined with all of the
sections contained in the Primary Prospectus, with the following exceptions: the
front and back cover pages, and the sections entitled "The Offering" and
"Selling Securityholders". In addition, the sections entitled "Concurrent
Offering" and "Plan of Distribution" will be added to the Alternate Prospectus.
Furthermore, all references contained in the Alternate Prospectus to the
"offering" shall refer to the Company's Offering under the Primary Prospectus.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
- --------------------------------------------------------------------------------
Prospectus
AMERICAN QUANTUM CYCLES, INC.
1,600,000 SHARES OF COMMON STOCK
$________ PER SHARE
American Quantum Cycles, Inc. We are a development stage company attempting
731 Washburn Road to manufacture and mass market custom made motorcycles
Melbourne, FL 71934 and motorcycle accessories. We plan to sell our
motorcycles and accessories primarily through a
network of authorized dealers.
Per Share Total
--------- ----- We are offering 1,600,000 shares of our Common
Stock through Barron Chase Securities, Inc., our
Offering Price $_______ $_______ underwriter. The chart to the immediate left shows
Underwriting discounts $_______ $_______ the basic terms of the Offering. The Offering price
Proceeds to American may be more than the market price of our Common Stock
Quantum Cycles, Inc. $_______ $_______ after the Offering.
Our Common Stock currently trades
on the OTC Bulletin Board under the
Trading Symbol "AMQC"
On March 8, 1999, the Closing Bid Price for our Common Stock was $1.14.
We are attempting to register our Common Stock
for trading on the American Stock Exchange under
the symbol ________.
-------------------
This Investment Involves A High Degree of Risk. You Should Purchase Shares Only
If You Can Afford A Complete Loss. See "High Risk Factors" Beginning On Page 6.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
BARRON CHASE SECURITIES, INC.
[DATE]
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................................................................ 3
High Risk Factors......................................................................................... 6
Use of Proceeds........................................................................................... 12
Dividend Policy .......................................................................................... 13
Capitalization............................................................................................ 14
Selected Financial Information............................................................................ 15
Management's Discussion and Analysis
and Plan of Operation ................................................................................... 16
Business.................................................................................................. 19
Management................................................................................................ 27
Principal Shareholders.................................................................................... 33
Certain Relationships and Related Transactions............................................................ 34
Concurrent Offering....................................................................................... 35
Description of Securities................................................................................. 35
Shares Eligible for Future Sale........................................................................... 36
Underwriting.............................................................................................. 37
Legal Matters............................................................................................. 39
Experts................................................................................................... 39
Additional Information ................................................................................... 39
Index to Financial Statements............................................................................. F-1
2
PROSPECTUS SUMMARY
THIS PROSPECTUS SUMMARY ONLY HIGHLIGHTS CERTAIN INFORMATION CONTAINED
IN THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE
INFORMATION THAT IS IMPORTANT TO YOU IN MAKING A DECISION OF WHETHER OR NOT TO
INVEST. TO FULLY UNDERSTAND OUR COMPANY AND THIS OFFERING, YOU SHOULD READ THE
ENTIRE PROSPECTUS. MOST IMPORTANTLY, YOU SHOULD READ THE "HIGH RISK FACTORS"
BEGINNING ON PAGE 6.
THE COMPANY
We are a development stage company attempting to manufacture and mass
market American-made, high performance, custom made, V-twin engine cruisers and
touring style motorcycles. We believe that ordering the parts we require to make
our motorcycles on an as-needed basis, instead of carrying a large inventory,
will allow us to minimize our production costs and enable us to mass produce
high quality motorcycles. Our executive offices are located at 731 Washburn
Road, Melbourne, Florida 32934. Our telephone number is (407) 752-0008 and our
facsimile number is (407) 752-0550.
MANUFACTURING. Since May 1997, when we began our motorcycle
manufacturing operations, we have manufactured 36 motorcycles 22, of which were
sold, 11 of which are being used for marketing and promotion and 3 of which are
being used for testing purposes. During the next 12 months, we anticipate our
motorcycle production capacity will increase and we will be capable of producing
an additional 1,000 motorcycles.
GOVERNMENT REGULATIONS. The motorcycle manufacturing industry is
subject to a great deal of government regulation. Our motorcycles have been
tested by state and federal authorities to determine if they meet environmental
standards and have received EPA certification for 49 states (not including
California).
MARKETING AND SALES. We intend to sell our motorcycles primarily
through independently-owned full-service dealerships whom we authorize. We also
intend to sell directly to consumers through various media including the
Internet in those areas in which we have no authorized Company dealerships.
COMPETITION. We will compete directly with Harley-Davidson, Honda,
Suzuki, Kawasaki, Yamaha and Excelsior Henderson. Harley-Davidson, with a market
share of approximately 48% of new U.S. cruiser type motorcycle registrations,
will most likely be our primary competitor. The U.S. and worldwide motorcycle
markets are highly competitive and all of our existing competitors have
resources and sales histories that are substantially greater than ours.
3
THE OFFERING
Common Stock outstanding prior to the Offering................ 9,166,235
Common Stock offered ......................................... 1,600,000 shares
Common Stock outstanding after the Offering................... 10,766,235 shares *
Use of Proceeds............................................... We intend to use the net proceeds from
the Offering for (i) the repayment of
an aggregate of $2,260,313
indebtedness; (ii) the purchase of
various hardware and software which
will manage all internal operating
facets of the Company including
financial information, computer
hardware and materials handling
equipment; and (iii) costs of goods and
operating expenses. See "Use of
Proceeds" beginning on page 12.
High Risk Factors............................................. The Offering involves a high degree of
risk and immediate substantial dilution.
See "High Risk Factors" beginning on
page 6.
- ---------------------
* Assumes that the Underwriters over-allotment option is not exercised. See the section entitled
"Underwriting" on page 37 of this Prospectus. Includes an aggregate of 678,000 shares of
Common Stock being offered by the Selling Securityholders pursuant to the Alternative
Prospectus. See "Concurrent Offering." Does not include (i) 150,000 shares of Common Stock
issuable upon the exercise of the Representatives Warrants; and (ii) an aggregate of 4,025,000
shares of Common Stock issuable upon the exercise of outstanding options of which 250,000 are
being registered pursuant to the Alternative Prospectus. See the sections of this Prospectus
entitled "Management - Stock Options" "Description of Securities" and "Underwriting."
4
SUMMARY FINANCIAL INFORMATION
For the year ended For the six months ended
April 30 October 31
1998 1997 1998 1997
---- ---- ---- ----
(unaudited)
STATEMENT OF
OPERATIONS DATA:
Revenues $ 192,856 $ 0 $ 475,714 $ 23,676
Total costs and expenses 2,824,567 2,634 3,190,835 595,206
-------------- -------------- ------------- ------------
Net loss $ (2,631,711) $ (2,634) $ (2,715,121) $ (571,530)
============== ============== ============= ============
Weighted average
shares outstanding 2,007,844 591,716 3,706,908 3,502,009
============== ============== ============= ============
Net loss per common
share outstanding $ (1.311) $ ( 0.004) $ (0.732) $ ( 0.163)
============== ============== ============= ============
As of As of
April 30, 1998 October 31, 1998 Adjusted (1)
-------------- ---------------- ------------
(unaudited)
Balance Sheet Data:
Current assets $ 886,836 $ 6,071,411 $ 10,442,598
Working capital $ (2,162,614) $ (4,109,524) $ 3,932,916
Total assets $ 1,864,216 $ 7,517,866 $ 11,989,053
Total liabilities $ 3,167,426 $ 10,312,698 $ 6,641,445
Shareholders' equity (deficit) $ (1,303,210) $ (2,794,832) $ 5,347,608
- --------------------------
(1) Adjusted to show the effect of the sale of 1,600,000 shares of common
stock we are offering to you at a price of $5.00 per share. See "Use
of Proceeds."
5
HIGH RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE AND
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED
IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED
HEREBY. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY; CONTINUED OPERATING LOSSES
Although we were incorporated in 1986, we did not begin manufacturing
motorcycles until May 1997. To date, we have only manufactured 36 motorcycles of
which 22 were sold. Due to our short operating history and limited number of
motorcycle sales, we do not have any significant revenues. Investors in this
Offering therefore will have little, if any, meaningful information about us
which may help you evaluate whether we will ever be able to successfully
manufacture and market our motorcycles or whether an investment in us will be
profitable or unprofitable.
Because we have such a short operating history and such limited sales,
we will face all the risks and problems associated with a new developmental
stage business including the existence of operating losses. For example, between
the time of our incorporation through October 31, 1998, we incurred cumulative
losses of $5,349,466 and an accumulated deficit of $2,794,832. We anticipate our
losses will continue in the future unless we are able to produce revenue from
sales of our motorcycles.
PRODUCT PROTECTION, EXPIRATION OF PATENTS AND PATENTS PENDING AND INFRINGEMENT
RISKS
Our success depends upon our motorcycle-related proprietary technology.
We rely on a combination of contractual rights, patents, trade secrets,
know-how, trademarks, non-disclosure agreements and technical measures to
establish and protect our rights, most of which we license from third parties
pursuant to an exclusive licensing agreement. We cannot assure you that we can
protect our rights to prevent third parties from using or copying our
technology.
We believe that we independently developed our technology and that it
does not infringe on the proprietary rights or trade secrets of others. However,
we cannot assure you that we have not infringed on the technologies of third
parties or that third parties will not make infringement violation claims
against us. Any infringement claims may have a negative effect on our ability to
manufacture motorcycles.
GOVERNMENT REGULATION
We are subject to direct regulation by the Department of
Transportation, Environmental Protection Agency and Federal Trade Commission as
well as other local, state and federal agencies. Compliance with the regulations
established by these agencies is very costly and affects our manufacturing
process. Any changes in the laws or regulations imposed on us by these agencies
could significantly increase our motorcycle production costs and could have a
very negative effect on our business.
DISCRETIONARY PRODUCT
Purchases of motorcycles, such as the premium heavyweight motorcycles
that we are attempting to mass produce, are considered discretionary for
consumers. Our success will therefore be influenced by a
6
number of economic factors affecting discretionary consumer spending, such as
employment levels, business conditions, interest rates and taxation rates, all
of which are not under our control. Adverse economic changes affecting these
factors may restrict consumer spending and thereby adversely affect our growth
and profitability.
RISK OF DEFECTS; PRODUCT LIABILITY RISK
Our motorcycles may have unanticipated defects which could require us
to recall them. A product recall could delay or even halt production until we
are able to correct any such defects. Recalls may also have a materially
negative effect on the brand image and public perception of our motorcycles and
any other products we develop and thereby adversely effect our future sales.
Such recalls or other defects would also require substantial expenditures to
correct.
Given the nature of our products, we expect that we will be subject to
potential product liability claims that could, in the absence of sufficient
insurance coverage, have a material adverse impact on our business. Although we
intend to obtain adequate insurance coverage prior to commencing mass
production, there can be no assurance that we will be able to secure or maintain
adequate liability insurance to cover all product liability claims. As a new
market entrant, any large product liability suits occurring early in our mass
marketing operations may significantly adversely affect our ability to market
our motorcycles.
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES
Our business operations and facilities are subject to a number of
federal, state and local environmental laws and regulations. Although our
management believes that our operations and facilities are in material
compliance with such laws and regulations, the risk of environmental liabilities
cannot be completely eliminated. There can be no assurance that future changes
in such laws, regulations or the nature of our operations will not require us to
make significant additional capital expenditures to ensure compliance in the
future. Our failure to comply with environmental laws could result in the
termination of our operations, impositions of fines, or liabilities in excess of
our capital resources. We do not maintain environmental liability insurance, and
if we are required to pay the expenses related to any environmental liabilities,
such expenses could have a material adverse effect on our operations.
REGULATORY APPROVAL RISKS
We will be required to obtain approvals and make certifications
regarding compliance with federal, state and local regulations regarding the
noise, emissions and safety characteristics of our motorcycles. In addition, our
manufacturing facility will be required to comply with environmental and safety
standards. The potential delays and costs that could result from obtaining such
regulatory approvals and complying with, or failing to comply with, such
regulations could result in delays in motorcycle production and adversely affect
operating results.
COMPETITION
The market for the type of motorcycles we manufacture is extremely
competitive and we expect that competition will increase in the future. Our
competitors include many large companies that have substantially greater market
presence and financial resources than we do. For example, we will compete with
Harley- Davidson, Honda, Kawasaki, Yamaha, Excelsior Henderson and other
national, regional and local companies.
We believe that our ability to compete successfully depends on a number
of factors including:
o design of high performance and quality motorcycles;
o market presence;
7
o timely delivery of our motorcycles;
o competitive pricing policies;
o the timing and introduction of our products and services into
the market; and
o our ability to keep up with existing and emerging industry
trends.
Current or increased competition may either prevent us from entering
or maintaining a place in the motorcycle manufacturing market. We cannot
guarantee that we will have the financial resources or marketing and
manufacturing capabilities to compete successfully. If we cannot successfully
compete, we probably will be forced to terminate our operations. See "Business
Competition"
DISTRIBUTION NETWORK; ABILITY TO SUPPORT DEALERS
We expect to derive substantially all of our revenue from sales through
independent dealers. As of February 1999, we executed agreements with 23
dealers. The agreements may be terminated by either party at any time. We do not
yet know how successful these dealers will be in selling our motorcycles.
Furthermore, we do not have any history or experience in establishing or
maintaining such dealer support, and there can be no assurance that we will be
able to successfully support our dealer network. If we are unable to provide
such support, we may lose dealers and, consequently, distribution of our
products would be adversely affected. In addition, most of our dealers will
offer competitive products manufactured by third parties. There can be no
assurance that our dealers will give priority to our products as compared to
competitors' products. Finally, we will need to attract additional or
replacement dealers to sell our products. There can be no assurance that we will
be able to convince a sufficient number of additional or replacement dealers
that our products will be a successful and profitable line, or that such
additional or replacement dealers will be successful in selling our products.
Any reduction or delay in sales of our products by our dealers would have a
material adverse effect on our business, operating results or financial
condition.
RISKS OF DEVELOPMENT IN GENERAL
We cannot assure you that we will ever be able to successfully
manufacture and sell our motorcycles on a large enough scale to produce revenues
that will enable us to continue our operations or provide you with a return on
your investment. Results of our operations in the future will be influenced by
many factors including:
o technological developments
o competition
o regulation
o increases in expenses associated with sales growth
o market acceptance of our products
o the capacity to expand and maintain the quality of our
motorcycles and related services
o development of a dealer organization
o favorable sourcing of supplies
o recruitment of highly skilled employees and integration of
such persons into a cohesive organization
o our ability to control costs; and
o recruitment and retention of experienced dealers
You should be aware that newly developing and/or expanding businesses such as
ours often encounter unforeseen expenses and problems, including competition
from substantially larger and more experienced companies which may prevent us
from continuing our operations.
8
RISKS AND CONTINUED LOSSES ASSOCIATED WITH EXPANSION
We must increase our motorcycle manufacturing capacity and expand our
dealer network, which will sell our motorcycles, before we will have even a
chance to compete in the marketplace. Increasing our manufacturing and marketing
capacity will involve hiring additional personnel, purchasing additional
manufacturing equipment and spending significant funds on advertising. The
foregoing will require significant capital expenditures which will most likely
increase our operating losses for an indefinite period of time. Our expansion
plans will also place a great deal of strain on our management team most of whom
have not had experience managing large complex business operations. We cannot
guarantee that we will be able to expand our motorcycle manufacturing and
marketing capabilities as planned. If any of these obstacles prevent us from
expanding our motorcycle manufacturing and marketing business, we may be forced
to terminate our operations.
SIGNIFICANT CAPITAL REQUIREMENTS; DEPENDENCE ON THE PROCEEDS OF THIS OFFERING;
NEED FOR ADDITIONAL FINANCING
Manufacturing and marketing motorcycles and our plans for expansion, as
mentioned above, will require significant amounts of capital. Since we have no
significant internal revenues to finance our continuing operations and plans for
expansion, we depend on proceeds from sales of our securities to satisfy our
capital requirements. We believe that the proceeds we receive from this Offering
will satisfy our capital requirements until February 2000. At that time, we will
have to arrange for additional financing unless we are receiving revenues from
sales of our motorcycles to finance our manufacturing and marketing operations
at a sufficient level. If we are unable to obtain additional financing on
satisfactory terms when needed, we may have to suspend our operations or
terminate our operations altogether.
DEPENDENCE ON SUPPLIERS
We rely on third party suppliers to produce the parts and materials we
use to manufacture our motorcycles. If our suppliers are unable or unwilling to
provide us with the parts and supplies, we will be unable to produce our
motorcycles. We cannot guarantee that we will be able to purchase the parts we
need at reasonable prices or in a timely fashion. If we are unable to purchase
the supplies and parts we need to manufacture our motorcycles, we will
experience severe production problems which may possibly result in the
termination of our operations.
RISKS INVOLVED WITH SERVICE DEVELOPMENT AND TECHNOLOGICAL CHANGE
Our success depends on our ability to develop new motorcycle models and
motorcycle related products that meet changing customer demands. The motorcycle
manufacturing industry is subject to rapidly changing technology and emerging
competition. We cannot assure you that we will be able to successfully identify
new opportunities and develop and bring new products to market in a timely
manner, nor can we guarantee you that products developed by our competitors will
not make our products noncompetitive or obsolete. Also, we cannot assure you
that we will have the capital resources or the ability to implement any new
technology.
DEPENDENCE ON COMPUTER INFRASTRUCTURE; IMPACT OF THE YEAR 2000 ON COMPUTER
SYSTEMS
Our future success will depend, in part, on our computer network
infrastructure which will be used by our Dealers to place sales orders and for
general and administrative purposes. We must continue to expand and improve our
computer infrastructure as the number of dealers and motorcycles ordered
increase. We cannot assure you that we will be able to develop our network
infrastructure to meet additional demand or our dealers' changing requirements
on a timely basis and at a reasonable cost. If we cannot develop our computer
infrastructure on a timely basis, we may not be able to efficiently manufacture
and market our bikes and other products which could have a negative effect on
our business and financial condition.
9
Our computer infrastructure is also vulnerable to computer viruses or
similar disruptive problems. Computer viruses or problems caused by third
parties could lead to interruptions, delays or termination in production and
delivery of our motorcycles to our dealers which could also negatively affect
our business.
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the year 2000. Some older
computer systems store dates with only a two-digit year with an assumed prefix
of "19" which limits those older systems to dates between 1900 and 1999. If not
corrected, many computer systems and applications could fail or create erroneous
results by or at the year 2000.
Because we will rely heavily on computers to conduct our business we
are subject to all the risks associated with the Year 2000. We have assessed the
scope of our risks related to problems these computer systems may have related
to the year 2000, and we believe such risks are not significant. In addition, we
are in the process of questioning our vendors and business partners about their
progress in identifying and addressing problems related to the year 2000.
However, no assurance can be given that all of these third party systems or our
computer systems will be year 2000 compliant. Since we started the business
using a paper based workflow process, we will revert to the paper form process
to run the Company on a contingency basis should we experience Year 2000
problems.
DEPENDENCE ON KEY PERSONNEL
Our success depends on the efforts of our management team, including
Richard Hagen, our Chairman and Chief Executive Officer, Gary Irving, our Chief
Operating Officer, Michael Smith, our Vice President of Sales, Frank Aliano, our
Vice President of Production and Jeff Starke, our Vice President of Research and
Development. We cannot guarantee that these persons will continue their
employment with us. The loss of services of one or more of these key people
would have a negative effect on our ability to conduct our operations. Our
success also depends on our ability to hire and retain additional qualified
executive, computer programming, engineering, production, investor management
and marketing personnel. We cannot assure that we will be able to hire or retain
necessary personnel.
IMMEDIATE DILUTION TO PURCHASERS IN OFFERING; ISSUANCE OF ADDITIONAL SHARES
Dilution is the difference between the amount you pay for a share of
Common Stock in this Offering and the net tangible book value per share of such
Common Stock immediately after the Offering. If you invest in this offering, you
will incur an immediate and substantial dilution of your investment. In
addition, we may issue a substantial number of shares of common stock or
preferred stock without your approval. Any such issuance of our securities in
the future could reduce your ownership percentage and voting rights in us and
further dilute the value of your investment.
MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
Our success will be substantially dependent on our management team with
respect to how the Offering proceeds will be used. We believe net proceeds from
this Offering will be used for the purposes described under "Use of Proceeds"
section of this Prospectus. However, we reserve the right to use the Offering
proceeds for purposes other than those described in the "Use of Proceeds"
section if we determine that such use is in our best interests. You will be
entrusting your funds to our management team with only limited information
concerning their specific intentions.
10
LIMITED MARKET FOR THE COMPANY'S SECURITIES
There is currently only a limited trading market for our Common Stock.
Our Common Stock trades on the OTC Bulletin Board under the symbol "AMQC," which
is a limited market in comparison to the NASDAQ System or the American Stock
Exchange ("AmEx"). Simultaneously with this Offering, we intend to apply for
inclusion of our Common Stock on the AmEx, however, we cannot assure you that
our Common Stock will ever qualify for inclusion on the AmEx or that more than a
limited market will ever develop for our Common Stock.
PENNY STOCK RULES
Our Common Stock currently trades on the OTC Bulletin Board at a price
of less than $5.00 per share and is subject to the Penny Stock Rules under the
Securities Exchange Act of 1934. These rules regulate broker-dealer practices
for transactions in "penny stocks." Penny stocks generally are equity securities
with a price of less than $5.00. The Penny Stock Rules require broker-dealers,
to deliver a standardized risk disclosure document prepared by the Commission
that provides information about penny stocks and the nature and level of risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
completing the transaction and must be given to the customer in writing before
or with the customer's confirmation.
In addition, the Penny Stock Rules require that prior to a transaction,
the broker and/or dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may reduce purchases in this Offering and trading activity in the secondary
market for our Common Stock. As long as our Common Stock is subject to the Penny
Stock Rules, investors in this Offering may find it more difficult to sell their
securities.
MARKET ACCEPTANCE; LIMITED MARKETING EXPERIENCE
Our success depends on whether or not our products are accepted in the
market. You should be aware that development stage companies introducing new
products into the market are subject to a high level of uncertainty and risk.
Because the market for our motorcycles is new and evolving we cannot predict the
size and future growth rate, if any, of the market. We cannot assure you that
the market for our motorcycles will develop or that demand for our motorcycles
will emerge or become economically sustainable. Market acceptance of our
products depends on our ability to establish a brand image and a reputation for
high quality which will differentiate our brand of products from our
competitors. There can be no assurance that our products will be perceived as
being of high quality and differentiated from such other products, or that we
will be successful in establishing our intended brand image. In addition, our
management team has no experience manufacturing or marketing motorcycles on a
large scale. Our management's lack of experience could result in the failure of
our ability to sell our motorcycles.
ARBITRARY OFFERING PRICE
The purchase price for the shares of Common Stock we are offering to
you was determined by the Company and Barron Chase Securities, Inc., the
underwriter for this offering. We calculated the purchase price for the shares
based on our current financial condition and the general condition of the
securities market; however, we cannot assure you that the purchase price we
established accurately reflects the value of our assets or potential earnings.
See the section of this Prospectus entitled "Underwriting."
11
POSSIBLE STOCK PRICE VOLATILITY
The stock markets are subject to significant price fluctuations which
may be unrelated to the operating performance of particular companies; and
therefore, the market price of our Common Stock may frequently change. In
addition, if we, or our competitors, publicly announce new products or
developments, such announcements may have a significant impact on the market
price of our Common Stock.
REPRESENTATIVE'S POTENTIAL CONTINUING INFLUENCE ON THE COMPANY
Barron Chase Securities, Inc., our underwriter, will receive warrants
to purchase a number of shares of our Common Stock equal to 10% of the shares
sold in this offering. At Barron Chase's request, we must register the shares
Barron Chase will receive if it exercises the warrants. If Barron Chase requires
us to register their shares, our ability to arrange future financings and the
market price of our Common Stock may be negatively affected. See the section of
this Prospectus entitled "Underwriting."
NO DIVIDENDS
We do not anticipate generating cash flows from operations in the near
future. If we do generate cash flows from operations we presently intend to use
those cash flows to finance further growth of our business and not to pay
dividends to our shareholders. Accordingly, investors should not purchase the
shares with a view towards receipt of dividends.
AUTHORIZATION OF PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS
Our Board of Directors is authorized to create and issue shares of
preferred stock without the approval of our shareholders. Any preferred stock
that our Board of Directors creates and issues could negatively affect the
voting power or other rights of the holders of our Common Stock. Also, our Board
of Directors may create preferred stock which could be used to prevent a third
party from taking control of our Company. Although we do not plan to issue any
shares of preferred stock, we may choose to in the future. See the section of
this Prospectus entitled "Description of Securities - Preferred Stock."
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Our Articles of Incorporation allow us to reimburse our officers and
directors for damages they may be subject to resulting from a breach of their
fiduciary duties to our shareholders. Our Articles of Incorporation also require
us to advance money to any officer or director if the law does not prevent us
from doing so. We may experience significant cash flow problems if we are
required to either reimburse, or advance money to, our officers or directors for
such purposes. See "Management - Indemnification of Directors and Officers."
USE OF PROCEEDS
The net proceeds we receive from the sale of the common stock we are
offering to you based on a public offering price of $5.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses, will be approximately $6,731,500 (not including an additional
$1,200,000 if the over-
12
allotment option granted to the Underwriters is exercised in full). We intend to
use the net proceeds of the Offering approximately as follows:
Approximate
Approximate Amount Percentage of
Application of Net Proceeds of Net Proceeds
----------- ---------------- ---------------
Repayment of notes(1).............................. $ 2,260,313 33.6%
Equipment Purchase(2).............................. $ 100,000 1.5%
Working Capital(3)................................. $ 4,371,187 64.9%
------------- -----
Total........................................... $ 6,731,500 100%
============= =====
- ----------------------
(1) Includes the repayment of (i) an aggregate of $390,313 (including
interest) to the holders of the Company's 10% Notes, 8% Notes and
7% Notes; and (ii) an aggregate of $870,000 (plus interest) to the
holders of the Company's Senior Promissory Notes issued between
November 1998 and January 1999. "See "Management's Discussion and
Analysis" and "Plan of Operations".
(2) Includes the purchase of ERP Software (which will manage all
internal operating facets of the Company including financial
information), computer hardware and materials handling equipment.
(3) Includes costs of goods required for motorcycle manufacturing and
operating expenses.
The foregoing is our best estimate of how we intend to use the net
proceeds of the Offering during the next approximately 12 months. We reserve the
right to use the proceeds for different purposes if we believe such a change is
in our best interest.
If we receive additional proceeds because the Underwriters' exercise
their over-allotment option, we will use such additional proceeds for working
capital purposes. We may invest the net proceeds of the Offering in short-term,
interest-bearing investments until we use them for the purposes stated above.
MARKET PRICE AND DIVIDENDS OF THE REGISTRANT'S COMMON EQUITY AND OTHER
STOCKHOLDER MATTERS
As of February 5, 1999, there were approximately 208 shareholders of
record of our Common Stock. Our Common Stock is currently listed for trading on
the over-the-counter bulletin board under the symbol "AMQC". The following table
sets forth, the high and low bid prices for our Common Stock as reported by the
OTC Bulletin Board since August 12, 1997.
Common Stock
------------
High Low
---- ---
August 12, 1997 - October 31, 1997 $ 10.00 $ 5.50
November 1, 1997 - January 31, 1998 10.625 6.00
February 1, 1998 - April 30, 1998 8.00 3.375
May 1, 1998 - July 30, 1998 6.50 3.50
August 1, 1998 - October 31, 1998 2.59 1.58
November 1, 1998 - January 31, 1999 2.25 0.58
DIVIDEND POLICY
Our Board of Directors has complete control over whether or not we pay
dividends to our shareholders. We have not paid, and do not believe we will pay,
any dividends on our Common Stock in the near future. We intend to invest future
earnings, if any, in developing and expanding our business.
13
CAPITALIZATION
The following table describes our actual capitalization as of October
31, 1998; our capitalization as adjusted to show the sale of our Common Stock
offered at a public offering price of $5.00 per share; and the receipt of the
estimated net proceeds from the Offering.
October 31, 1998
Actual(1) As Adjusted
--------- -----------
Short term debt:
Notes payable - shareholders $2,479,000 $ -
Note payable - related party 500,000 500,000
Current maturities of long-term debt 20,182 20,182
Current capital lease obligations 24,006 24,006
----------- ------------
$3,023,188 $544,188
=========== ============
Long term debt:
Installment note for vehicle purchase
at 8.75% $ 23,775 $ 23,775
Installment notes for intellectual
property rights from 8% to 10% 31,163 31,163
----------- ------------
54,938 54,938
Capital lease obligations 76,825 76,825
----------- ------------
131,763 131,763
=========== ============
Shareholders' equity:
Preferred Stock, $.001 par value; 2,500,000
shares authorized; no shares outstanding - -
Common Stock, $.001 par value; 50,000,000
shares authorized; 4,361,345 shares issued
(actual); 5,961,345 shares (as adjusted) 4,361 5,961
Additional paid-in capital 2,550,273 10,691,113
Accumulated deficit (5,349,466) (5,349,466)
----------- ------------
(2,794,832) 5,347,608
----------- ------------
Total capitalization $(2,663,069) $5,479,371
=========== ============
- --------------------------------
(1) As of March 1, 1999, there were 9,166,235 shares of Our Common Stock
outstanding.
14
SELECTED FINANCIAL INFORMATION
For the year ended For the six months ended
April 30 October 31
1998 1997 1998 1997
---- ---- ---- ----
(unaudited)
STATEMENT OF
OPERATIONS DATA:
Revenues $ 192,856 $ 0 $ 475,714 $ 23,676
Total costs and expenses 2,824,567 2,634 3,190,835 595,206
-------------- -------------- ------------- ------------
Net loss $ (2,631,711) $ (2,634) $ (2,715,121) $ (571,530)
=============== ============== ============= ============
Weighted average
shares outstanding 2,007,844 591,716 3,706,908 3,502,009
============== ============== ============= ============
Net loss per common
share outstanding $ (1.311) $ ( 0.004) $ (0.732) $ ( 0.163)
============== ============== ============= ============
As of As of
April 30, 1998 October 31, 1998 Adjusted (1)
-------------- ---------------- ------------
(unaudited)
BALANCE SHEET DATA:
Current assets $ 886,836 $ 6,071,411 $ 10,442,598
Working capital $ (2,162,614) $ (4,109,524) $ 3,932,916
Total assets $ 1,864,216 $ 7,517,866 $ 11,989,053
Total liabilities $ 3,167,426 $ 10,312,698 $ 6,641,445
Shareholders' equity (deficit) $ (1,303,210) $ (2,794,832) $ 5,347,608
- --------------------------
(1) Adjusted to show the effect of the sale of 1,600,000 shares of common
stock we are offering to you at a price of $5.00 per share. See "Use
of Proceeds."
15
MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS, OTHER
THAN STATEMENTS OF HISTORICAL FACT, INCLUDED IN OR INCORPORATED BY REFERENCE
INTO THIS PROSPECTUS, ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, WHEN USED IN
THIS DOCUMENT, THE WORDS "ANTICIPATE," "ESTIMATE," "PROJECT" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND
ASSUMPTIONS INCLUDING THOSE RISKS DESCRIBED IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-KSB, AS WELL AS IN THIS REPORT ON PROSPECTUS. SHOULD UNDERLYING
ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE
ANTICIPATED, ESTIMATED OR PROJECTED. ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS WE INCLUDE IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE
CANNOT ASSURE YOU THAT THESE EXPECTATIONS WILL PROVE TO BE CORRECT.
AMONG THE KEY RISKS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM EXPECTATIONS ARE ESTIMATES OF COSTS, PROJECTED RESULTS OR
ANTICIPATED RESULTS.
The following discussion and analysis should be read in conjunction
with the financial statements of the Company and the notes thereto appearing
elsewhere.
PLAN OF OPERATION
The Company has made, and projects significant investments in its
manufacturing plant and people which will support an aggressive ramp-up in
monthly production of motorcycles and engines during the next six months.
Investment in the plant includes manufacturing equipment, material handling
equipment along with computer hardware and software (enterprise resource
planning software including integration with the Company's Dealer oriented
Intranet). During this same period, the Company's headcount (number of full time
employees) is projected to increase from 38 to over 70. Most of the increase in
headcount will be in production and key support functions such as quality
control, procurement and inventory management.
Production ramp-up will be implemented through refinement of the
assembly process and investment in jigs, fixtures and material handling
equipment such as pneumatic hoists, lifts and conveyor belts. The total monthly
production is projected to increase from 40 motorcycles in March to 80
motorcycles per month by June 1999 with the addition of a second assembly line
and starting two shift operations during the late spring of 1999.
The Company also plans to invest in the research and development of two
new product lines during the next six months: a touring motorcycle and a 96
cubic inch engine. The touring motorcycle will be a second product line to the
cruiser model currently manufactured by the Company and will include saddle bags
and windshields/fairings. The touring motorcycle is targeted at one of the
fastest growing market segments. A prototype of the touring product was featured
at the Sturgis Motorcycle Rally in August of 1998. Management of the Company
("Management") believes that the dealer and consumer response was very favorable
due to the number of orders ^for the touring motorcycle that were placed at the
rally. The 96 cubic inch engine will use the same 4-Valve technology as the
Company's present 88 cubic inch engine. The Company put the 96 cubic inch engine
through extensive testing, including over 4,000 miles of road testing and
numerous dynamometer tests. The dynamometer tests established a 10% improvement
in peak foot-pounds of torque ^than ^the 88 cubic inch engine. Management
believes that 4-Valve engine design is one of the industry leaders in high
16
torque at low and mid-range speeds. This torgue gives riders excellent
acceleration for increasing speed to merge into highway traffic from on-ramps
and passing trucks safely. The touring motorcycle and the 96 cubic inch engine
are planned to be introduced in the next twelve months.
RESULTS OF OPERATION
The Company has transitioned from a development stage Company into an
early production Company. The Company was originally incorporated on March 20,
1986 as "Norbern, Inc." and was inactive until March 1977 when it began
developing and implementing its business and financing plans. On May 8, 1997 the
Company changed its name to American Quantum Cycles, Inc. and its fiscal year
end to April 30.
As the Company was inactive prior to March 1997, there was no income
and only incidental supply costs and the accrued interest expense from seven
promissory notes totalling $250,000. The fiscal year ended April 30, 1997 had a
deficit carry forward of $2,634. During the fiscal year ended April 30, 1998,
the Company's efforts have been principally devoted to research, development and
design of products, marketing activities and raising capital, which resulted in
cumulative losses of $2,634,345. These losses have resulted primarily from
expenditures for general and administrative activities, including salaries and
professional fees for outside services in the amount of $1,164,291, travel and
marketing expenses of $457,590, and accrued interest expense of $187,232 from
the bridge loan and convertible debentures issued.
The Company sustained continuing losses in the six months ended October
31, 1998 in the amount of $2,715,121 as compared to sustained losses of $571,530
incurred during the six months ended October 31, 1997. These losses include
$1,977,436 in general and administrative activities, representing significant
increases in personnel and the outside professional services necessary for
production ramp-up, and $569,083 in accrued interest expense. These losses
include $523,972 in general and administrative activities, representing training
and development of personnel and process necessary in a development stage
operation, and $26,246 in accrued interest expense.
Revenues in the fiscal year ended April 30, 1998 of $192,856 resulted
from the sale of the initial ten motorcycles produced plus some after-market
4-Valve engine parts. An additional eight motorcycles were produced, of which
two were used for engineering and regulatory testing, and the remaining six are
used for marketing purposes. An additional 18 motorcycles have been produced
during this fiscal year to date, and an additional 230 motorcycles have been
booked into production slots based on orders from 23 dealers. Eighty-six of
these bikes have been scheduled for delivery during the January-March time frame
of 1999. The Company expects after-market 4-Valve engine and part sales to
increase significantly during the fiscal year 1999/2000.
While the Company anticipates that the current fiscal year ending April
30, 1999 will have deficit earnings, including the aggregate for the 4th
Quarter, the last two months of the FY (March and April of 1999) are expected to
be cash flow positive. Results of operations in the future will be influenced by
numerous factors including technological developments, competition, regulation,
increases in expenses associated with sales growth, market acceptance of the
products of the Company, the capacity of the Company to expand and maintain the
quality of its motorcycles and related services, continued development of the
dealer organization, favorable sourcing of supplies, recruitment of highly
skilled employees and integration of such persons into a cohesive organization,
and the ability of the Company to raise funds and control costs.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company only recently emerged from its development stage, it
has not received any material income from operations. As such, the Company
relies on private sources of financing to support its operations. As part of its
funding and financing, the Company issued two separate series of convertible
notes to investors:
17
Beginning in October 1997, the Company issued an aggregate of forty
(40) 8% Subordinated Notes to 32 investors, in ^the ^aggregate principal amount
of $1,407,000 (the "8% Notes"). The notes matured one year from date of issue.
Nine of the 8% Note holders, representing an aggregate of $240,000 of the
outstanding principal balance of the 8% Notes, agreed to extend the maturity
date of their 8% Notes until the close of this Offering. Sixteen of the 8% Note
holders, representing an aggregate of $624,000 of the aggregate outstanding
principal amount of the 8% Notes agreed to convert the principle balance plus
accrued interest of their respective notes into (i) common stock of the Company
at the a price per share equal to $5.00, (the "8% Note Shares"); and (ii)
warrants to purchase a number of shares of the Company's common stock equal to
the 8% Note Shares at an exercise price of $5.00 per share. The Company redeemed
one of the 8% Notes with a principal balance of $70,000. The remaining six 8%
Note holders have not agreed to either extend the terms of, or convert, their 8%
Notes. As a result, if the remaining six 8% Note holders, representing an
aggregate of $473,000 of the outstanding principal balance of the 8% Notes, send
the Company notice informing the Company that it is in default of its repayment
obligations on the 8% Notes, the Company will be considered in default of such
8% Notes.
Beginning in April 1998, the Company issued an aggregate of
twenty-seven (27) 7% Subordinated Notes to 25 investors, in return for which the
Company received proceeds of $549,500 (the "7% Notes"). The 7% Notes mature one
year from the date of issuance and are convertible into shares of common stock
of the Company at $8.00 per share. Interest is payable in cash or shares of
common stock of the Company, at the discretion of the Company. Six of the 7%
Note holders, representing an aggregate of $70,000 of the outstanding principal
balance of the 7% Notes, agreed to extend the maturity date of their 7% Notes
until the close of this Offering. Thirteen of the 7% Note holders, representing
an aggregate of $292,000 of the aggregate outstanding principal amount of the 7%
Notes agreed to convert the principle balance plus accrued interest of their
respective notes into (i) common stock of the Company at the a price per share
equal to $5.00, (the "7% Note Shares"); and (ii) warrants to purchase a number
of shares of the Company's common stock equal to the 7% Note Shares at an
exercise price of $5.00 per share. The Company redeemed two of the 7% Notes
which had an aggregate principal balance of $32,500. The remaining four 7% Note
holders, representing an aggregate of $155,000 of the outstanding principal
balance of the 7% Notes, have not agreed to either extend the terms of, or
convert, their respective 7% Notes. As a result, if any of the remaining four 7%
Note holders are not repaid, or do not convert or extend the terms of their 7%
Notes by April 1999, and such 7% Note holders send the Company notice informing
the Company that it is in default of its repayment obligations on the 7% Notes,
the Company will be considered in default of the 7% Notes.
In March 1998, the Company received aggregate of $700,000 in connection
with the issuance of nine (9) promissory notes to nine investors which bear
interest annually at a rate of 10% (the "10% Notes"). The 10% Notes mature one
year from the date of issuance and are convertible into shares of common stock
of the Company at $8.00 per share. Interest is payable in cash or shares of
common stock of the Company, at the discretion of the Company. Two of the 10%
Note holders, representing an aggregate of $380,000 of the outstanding principal
balance of the 10% Notes, agreed to extend the maturity date of their 10% Notes
until the close of this Offering. Seven of the 10% Note holders, representing an
aggregate of $320,000 of the aggregate outstanding principal amount of the 10%
Notes agreed to convert the principle balance plus accrued interest of their
respective notes into (i) common stock of the Company at the a price per share
equal to $5.00, (the "10% Note Shares"); and (ii) two warrants to purchase a
number of shares of the Company's common stock equal to the 10% Note Shares at
an exercise price of $5.00 per share. ^
Between November 1998 and January 1999, the Company completed a private
offering of approximately 35 Units of its securities (the "Units") to 11
investors from which the Company received gross proceeds of $870,000. Each Unit
consisted of (i) a Senior Promissory Note in the principal amount of $25,000 and
(ii) the right to receive a number of shares of Common Stock of the Company
determined by dividing $12,500 by the subsequent public offering price per share
of the Company's Common Stock in an underwritten public offering from which the
Company receives at least $5,000,000 gross proceeds.
18
In December 1998, the Company contracted for a secured line of credit
in the amount of $755,000 to use for operating expenses. The line of credit
accrues interest at a rate of 10% per annum. Principal and interest on the line
of credit must be repaid to the line of credit provider upon demand. In February
1999, the Company contracted with six individuals for an unsecured line of
credit in the aggregate amount of $650,000 use for operating expenses. The
Company is currently arranging for a $3,000,000 secured line of credit to use
for inventory and production expenses. However, there is no guarantee this line
of credit will be obtained. In addition to the bridge funding, these lines of
credit will cover expenses of the Company through to the completion of the
secondary offering.
Between ^March and May 1999, American Quantum expects to deliver and
collect monies on 75-125 motorcycles. Money from the sale and delivery of
motorcycles is expected to allow American Quantum to become cash flow positive
before the completion of the secondary offering. However, no assurances can be
given that the secondary offering will be completed. In the event the secondary
offering is not completed, American Quantum will need to arrange alternative
financing sources.
The proceeds from the Company's fund raising efforts have been used for
investment in inventory, equipment, licenses and intellectual rights for an
aggregate out-lay during the fiscal year ended April 30, 1998 of $978,182 and to
supply working capital for the Company's operations to date.
Year 2000 Disclosure
Computers, software and other equipment using microprocessors have been
utilized that will accurately process date-based information, and are "Year
2000" compliant. Specifically, our operating systems are Windows NT 4.0 based
and our manufacturing software (MfgPro) and engineering software (ProE) are all
"Year 2000" compliant. Our usage of "Year 2000" compliant applications enables
us to perform necessary business operations without possible adverse impact that
non-compliant software could cause.
BUSINESS
INTRODUCTION
American Quantum Cycles, Inc. (the "Company" or "AQC") designs,
manufactures and distributes American-made, high performance V-twin engine
cruiser and touring style motorcycles. These motorcycle products include stock
models and motorcycles built to customer specifications. We make use of a "just
in time" approach (i.e. ordering parts on an as-needed basis) in manufacturing,
and we believe we can manufacture a high quality product using mass production
methods. AQC further believes that this made-to-order approach helps produce
greater customer satisfaction and reduces the need for added cash flow. AQC
expects that its motorcycles will be lower in price compared to the other major
sources of high performance, customer-specified motorcycles, which are primarily
small customization shops and small manufacturers.
We are initially focusing on manufacturing and selling heavyweight
motorcycles and have begun small- scale production of our initial heavyweight
cruiser, the Liberty. We unveiled this model at the Sturgis Motorcycle Rally in
Sturgis, South Dakota, in August 1997. AQC has produced 36 motorcycles since
that time, 22 of which have been sold to dealers and/or consumers. The remaining
14 motorcycles are being used for regulatory compliance testing, marketing and
long term testing. AQC will also take bikes to rallies and conferences including
the Indianapolis Dealers Conference, Daytona Beach Bike Week, Laconia Bike Week
and many others. We have signed letters of intent with 23 prospective dealers
and have received orders for 230 motorcycles including 86 for immediate
delivery.
We intend to make investments in plant and people to support a ramp-up
in monthly production of motorcycles and engines during the next twelve months.
Investment in plant will include manufacturing
19
equipment, materials handling equipment and computer hardware and software.
During this same period, our headcount (number of full time employees) will need
to increase. Most of the increase in headcount will be in production and key
support functions such as quality control, procurement and inventory management.
AQC was originally incorporated as a Florida corporation on March 20,
1986 as "Norbern, Inc." On May 8, 1997, the Company changed its name to
"American Quantum Cycles, Inc." The Company had no operations prior to May 9,
1997, when it issued shares of its common stock in exchange for management,
equipment and other assets. This enabled us to manufacture, distribute and sell
American-made motorcycles, motorcycle parts and related products. The Company's
fiscal year end is April 30. Our executive offices are at 731 Washburn Road,
Melbourne, Florida 32934; Telephone (407) 752-0008.
THE INDUSTRY AND MARKET
Our management believes that the motorcycle market has been extremely
robust, the healthiest segment being the cruiser market. Data from the
Motorcycle Industry Council shows the cruiser market segment has enjoyed eight
years of unbroken market growth averaging roughly 12% per year over this period.
Industry experts are highly confident in the continuation of this growth pattern
well into 2005 due to favorable demographics. The prime buyer for the
heavyweight cruiser is middle-aged and middle class which means that the baby
boomer segment of the population which is now reaching their peak earning years
with growing discretionary income will be motorcycle prospects for the next 7-10
years.
Five different companies currently have about 95% of the market share
and therefore dominate the motorcycle industry in the United States. Those
companies are Harley-Davidson (HD), Honda Motorcycle, Yamaha, Suzuki and
Kawasaki. In spite of this array of able competitors, the market for cruiser
motorcycles is unfulfilled due to a strong demand for American made product and
a shortage of production capacity on the part of HD which has existed for the
last five years. Our management believes that this product shortage has caused
unusual market distortions to exist for a number of years which include:
o HD buyers having to wait from 3-12 months for product delivery
o HD Dealers adding a large number of accessories on their product to
raise prices and margins
o Many HD buyers being required to add $5-10k of aftermarket parts to
new motorcycles to get a high performance product
o High demand and high prices for used HD motorcycles
o HD Dealers taking on second product line in order to fulfill demand
Currently, there are over 100 Harley-Davidson dealerships which have
already picked up the Kawasaki, Honda or Suzuki lines in order to fulfill the
unsatisfied demand of bikers who do not want to wait for their motorcycles. We
believe the demographic audience that most dealerships are attempting to reach
would prefer buying an American-made bike. However, the individual buyer has
been limited to the above choices, or an expensive custom motorcycle selling in
excess of $30,000. Now, however, the customer will have an alternative choice -
American Quantum Cycles.
An estimated 346,966 new motorcycles were sold in 1997 with 67% of
these being in the on-highway classification. New motorcycle sales equaled a
retail value of $2.7 billion in 1997. The overall motorcycle industry in the
U.S. generated an estimated $8.7 billion consumer sales and services, state
taxes and licenses. Included in this overall industry value are retail sales of
motorcycles (new and used), parts and accessories, dealer servicing, product
advertising, vehicle financing charges, insurance premium, dealer personnel
salaries, state tax and licensing fees. There were 12,113 retail outlets which
sold motorcycles and related products in the U.S. in 1997. Roughly one-third
(34%) of these were authorized to sell new motorcycles while the remainder
specialized in related parts, accessories, riding apparel, used vehicles or
service.
20
In 1996, there were $5.6 billion in retails sales generated by all
franchised (authorized by a major brand manufacturer to sell new motorcycles,
parts, accessories or clothing) and non-franchised motorcycle retail outlets
according to the 1996 Retail Outlet Profit Survey from the Motorcycle Industry
Council. Sales by franchised outlets accounted for $4.4 billion of the total
retail sales volume, compared to $1.2 billion for non- franchised outlets. The
estimated average motorcycle related sales and service for a franchised
motorcycle outlet was $1.606 million compared to $159,000 for a non-franchised
outlet. These sales for the franchised outlets were broken down, on average, at
57% for new motorcycles, 14.7% for used motorcycles, 22% for parts, accessories
and riding apparel, 5.7% for service labor and 0.6% for miscellaneous.
The 3.16 million motorcycles in use in 1996 were owned by 2.77 million
owners according to the 1997 Motorcycle Statistical Annual from the Motorcycle
Industry Council. Motorcycle owners have grown steadily in age and income over
the past two decades (see Table below):
Year Median Age Median Income
---- ---------- -------------
1980 24 years $17,500
1985 27.1 years $25,600
1990 32 years $33,100
The most rapidly growing income segment for motorcycle owners was the
"over $50,000 per year" bracket growing from 2.4% in 1980 to 6.1% in 1985 to
19.9% in 1990. The fastest growing education segment for motorcycle owners was
"some college education" which grew from 17% in 1980 to 25.2% in 1990. The
percentage of motorcycle owners who are married has grown steadily from 44.3% in
1980 to 56.6% in 1990.
In 1996, U.S. registrations of new heavyweight motorcycles increased by
approximately 9.6% over 1995 registrations, and U.S. registrations of new
heavyweight motorcycles have increased 59% from 1992 through 1996. AMQC has
carried out detailed demographic surveys through motorcycle registration data
bases, telephone surveys and face-to-face surveys to determine those demographic
groups which are owners of heavyweight cruisers. As a result of this market
research, AMQC has determined the characteristics of their target market groups
and correspondingly, where they live by ZIP code, Census block and trade zone.
The international market for heavyweight motorcycles has seen strong
growth in the last few years. The European market grew at a 7.2% rate during
1997 according to AQC's international export manager, Ferrex International, Inc.
("Ferrex") with Germany being the largest purchaser of American manufactured
heavyweight motorcycles with $76.6 million in sales for 1996, followed by Canada
($67.9 million), Japan ($46.8 million), Australia ($31.1 million), and the
Netherlands ($21.8 million).
Motorcycle buyers today have three choices in buying a high performance
cruiser or touring motorcycle:
(1) to buy new American made products from small manufacturers
(e.g.: Titan, Big Dog, CMC, etc.);
(2) to buy a foreign made product; or
(3) to buy a new Harley-Davidson product and pay a large premium
in order to upgrade the performance characteristics of
Harley-Davidson motorcycles.
AQC intends to fill this market gap by providing an American-made and
styled motorcycle with advanced engineering and high performance technology.
Since its initial promotional event at the Sturgis Motorcycle Rally in Sturgis,
South Dakota, we have received more than 443 dealer inquiries to sell our
motorcycles and motorcycle parts.
21
STRATEGY
Our goal is to continue to produce what we believe is a superior
U.S.-made V-twin motorcycle using quality materials and workmanship. We will
seek market share, both domestically and internationally, by offering high
performance custom-built motorcycles and motorcycle products and through the
development of a proprietary Intranet/Extranet system (designed to continually
track and control inventory and production) for use by dealers, customers and
the Company . See "The Company-Intranet/Extranet System."
To increase our motorcycle production capacity, we recently completed a
modification to our production facility which we believe has increased our
production floor space by 200%. This provided space for a second motorcycle
production line which we believe will more than double our motorcycle production
capabilities.
PRODUCTS
The Company's first model, a heavyweight cruiser motorcycle (the
Liberty), has been designed to achieve major product goals including:
(1) American styling;
(2) handling;
(3) durability; and
(4) performance.
o American Styling -- The Company believes the dimensions,
angles, components and selection of materials (including the
use of polished aluminum as opposed to chrome) used in the
Liberty embodies the heritage of American styled motorcycles
from the 1950's and, at the same time, integrates technologies
of the late 1990's. For example, the painting process used by
AQC on its motorcycle frames prevents paint from chipping,
since the paint is electrically charged and baked at extremely
high temperatures for a glossy, durable finish. AQC also
believes this makes the motorcycle frame more durable.
Additionally, there is a variety of customized colors and
designs available through this powder coating process.
o Handling -- A number of factors contribute to the ease of
handling of the Liberty. The Liberty is designed to be
completely balanced so that the center of gravity is in line
with its rider. The inverted front forks of the Liberty model,
typical on racing motorcycles, absorb shock and provide steady
contact with the road. This delivers ease of handling under
high performance conditions. The engine and transmission are
rubber mounted to minimize vibration for smooth and easy
handling. Many of the materials in the Liberty are selected
for high strength-to- weight ratios.
o Durability -- AQC believes that while competitive products in
the Liberty's price class require annual repairs and continual
upgrades, these repairs and upgrades are not necessary with
the Liberty model. We believe that the Liberty's frame wears
well through all environmental and use conditions. We polish
the aluminum parts to a soft gleam and we believe that they
will resist corroding or peeling. The balanced components and
engine/transmission triple isolation mounts greatly reduce
vibration, which adds to durability and longevity.
Additionally, we make a number of components (including the
oil tanks), from stainless steel which also adds to corrosion
resistance and durability. Aluminum parts dissipate heat
better than the low-grade steel used by competitors, further
increasing long-term durability.
22
o Performance -- The single most outstanding feature of the
American Quantum product line is its engine. The four stroke,
four valve V-twin promises to deliver the greatest
acceleration at low and mid-range speeds in its model class
(heavyweight cruisers) on the road today. The engine, designed
by American Quantum Cycles, includes designs for heads under
exclusive license from Fueling Advanced Technologies. The two
pistons are arranged vertically at a 45 degree angle to each
other. The bore of 3 and 5/8 inches combined with a stroke of
4 and 1/4 inches provides 88 cubic inches or 1462 cc of
capacity - near the top of the range for this class of
motorcycle and larger than most of its competitors. Capacity,
however, is only one factor in delivering power. The 4-valve
technology produces greater airflow through the engine than
the more common 2-valve. Quantum has designed a unique
manifold which manages the flow of air more efficiently
resulting in a more complete burn cycle with less wasted fuel.
The 4- value heads are equipped with two 1.575" intake valves
and two 1.275" exhaust valves for 3.150" and 2.550" intake and
exhaust capacity respectively. The spark plug is located in
the middle of the head between the four valves in the
combustion chamber which has a semi- hemispherical pent roof
design. The cam is ground to Quantum's specifications. The
resulting engine design delivers greater power, less
pollutants, cooler operating temperatures and greater mileage
all at the same time.
The Quantum 4-valve also gets increased power from operating
at higher compression ratios than its competitors. The engine
is expected to be the industry leader in ft-lbs. of torque per
cubic inch of capacity. The Quantum 4-Valve 88 cubic inch
passed 49 state EPA tests and certification has been received.
The power achieved by Quantum's 4-Value engine accomplishes
what the motorcycle industry heretofore has failed to deliver
an engine with excellent low-to-mid range (rpm) torque without
sacrificing upper range power. In conclusion, the design of
the Liberty Cruiser motorcycle has accomplished all four
product goals and has created a product which will be
extremely competitive in the motorcycle industry.
We believe we have close and efficient relationships with all of our
suppliers. Approximately 50% of our motorcycle components are manufactured to
our specifications by manufacturers located throughout the United States but
predominantly in Florida. We purchase the remaining 50% of the components needed
to complete our motorcycle from parts manufacturers and catalog distributors
(e.g. tires, wheels, seats, lights, batteries, and other off-the-shelf parts).
The Company will invest in the research and development of two new
product lines during the next twelve months: a touring motorcycle and a 96 cubic
inch engine.
The touring motorcycle will be a second product line to the existing
Cruiser model and will include saddlebags and windshields/fairing. The 96 cubic
inch engine will use the same 4-valve technology as the Company's present 88
cubic inch engine. With the larger displacement, the Company projects an
increase in peak torque in the 10-20% range.
MANUFACTURING
AQC has designed and produced 36 motorcycles since May 1997. Of these,
22 have been sold, 11 are used for marketing purposes, and 3 for engineering and
regulatory testing. During the remainder of the calendar year 1999, we
anticipate producing 700 additional motorcycles. This projection is based on a
plan to ramp production through refinement of the assembly process. This
involves investing in jigs, fixtures and material handling equipment such as
pneumatic hoists, lifts, and conveyor belts.
We project total monthly production to increase from 20 motorcycles to
80 motorcycles in June 1999 with the addition of a second assembly line and
starting two shift operations. We project that we will increase
23
production to 160 motorcycles per month from July 1999 through April 2000.
Currently, AQC's existing manufacturing process consists of outsourcing all
manufacturing of parts to subcontractors. We carry out only research and
development, final assembly, testing and quality control at our facilities. AQC
has long-term contracts with major subcontractors, vendors and backup suppliers
to insure the flow of parts to our plant in Melbourne, Florida.
INTRANET/EXTRANET SYSTEM
One of our goals is to provide our customers with an efficient way of
selecting an exact product design as well as to provide a method to continually
track the progress of production of any specific product. We have developed a
PC-based kiosk Intranet/Extranet System (the "Dealernet") for this purpose. The
Dealernet uses an interactive CD-ROM (or DVD) storing two and three-dimensional
images of our products. A prototype was reviewed by dealers and consumers for
ease-of-use and effectiveness at the Sturgis and Daytona Beach Motorcycle shows.
Management of the company believes that both dealers and customers have
responded favorably to the Internet software. We sent a mailer of the completed
Dealernet library of bike selections (on CD) to 2,000 prospective dealers during
the week of July 24, 1998 as a promotional tool and as an invitation to visit
AQC's booth at the Sturgis, South Dakota Rally.
The Dealernet system displays alternate motorcycle choices on a
computer screen allowing, a customer to select a precise motorcycle design with
options tailored to the customer's requirements. The customer will also know the
cost of each option, and have a graphic image of the bike which he can easily
modify. Once a customer agrees to purchase our motorcycle, we will assign a
unique bar code to each order. This serves as an order and tracking number for
the dealer, the customer and AQC's production plant. This also allows everyone
to monitor the progress of the production of product. We have completed the
Dealernet system and intend to install it at our Dealer locations beginning in
Spring 1999.
MARKETING
Our marketing program will focus on two major objectives:
(1) corporate/product name identification; and
(2) lead generation for the sales and distribution channels.
o Corporate product name and product identification will use
advertising, promotions, public relations and participation in major motorcycle
events (such as the Sturgis Race and Rally in Sturgis, SD and the Daytona Beach
Bike Week). We also will sponsor racing activities and special promotional
events and participate in most major motorcycle consumer shows and rallies. To
establish our brand name among the motorcycling public, we first unveiled our
prototype, the Q2 at the Sturgis Rally in August 1997. We also intend to
eventually license certain of our trademarks on a broad range of consumer items
to increase public exposure of our brand name.
o Lead generation activities will support each product line including
motorcycles, engines/parts, accessories. They also will be matched to each sales
channel, including dealers, the Internet, third party distribution partners and
others. Our primary effort will be generating leads so dealers can sell
motorcycles and engines. We will enter and track all leads at a local level by a
corporate lead tracking and management system. This will provide sales
management support to dealers. The lead management and tracking system also
allows us to monitor sales progress of our dealers. We will identify geographic
regions of unusually low sales productivity (with high densities) and target
them for special promotional efforts.
AQC will use print media advertising and direct marketing to generate
leads to support our dealer sales programs. Print media advertising will focus
on national motorcycle magazines (typically with full page, full
24
color ads) and local newspaper ads together with dealers' local promotional
activities. We will evaluate local radio and cable TV ads on a location by
location basis depending on reach, frequency, and cost.
Our management will evaluate the type and amount of marketing to
support each of our local dealers based on our market research program. All
direct marketing campaigns will feature a local focus and will be timed to
support the launch of new dealers. We believe direct mail programs, including
inexpensive give-aways (such as promotional CD's, high quality posters and
merchandise) can be cost-justified if focused on a local basis. Our ad and
promotional campaigns will be available on our Website.
DISTRIBUTION AND SALES
AQC's distribution channels will typically consist of independently
owned full-service dealerships that we will sell to directly. AQC will also sell
directly to consumers through various media, including the Internet, but only in
those geographic regions where we have no authorized Company dealerships. All
other Internet leads will be electronically referred to the nearest AQC dealer.
All of our dealers will carry AQC replacement parts and aftermarket accessories
and perform servicing of our motorcycle products.
We have letters of intent signed by 23 dealers located in 13 states in
the US. Each dealer makes a minimum commitment to buy ten (10) motorcycles upon
signing the dealer agreement. As a result, the 23 dealers represent bookings of
230 motorcycles. Other dealers have expressed a strong interest and their
applications are being evaluated.
Dealership requirements include favorable building locations, display
area size, traffic surveys, local geo-demographics and financial condition. Each
dealer will be expected to provide adequate storefront and service areas. We
anticipate that a minimum of 2,000 square feet will be required and traffic
exposure will need to be at not less than 3,500 cars per day. Dealers will
purchase product and stock parts and engines via our dealer Intranet.
We also have a distribution agreement with Ferrex. Ferrex is presently
doing business in Europe, the Pacific Rim and various countries in Latin
America. Our agreement with Ferrex provides that Ferrex has the opportunity to
sell AQC products in selected countries outside North America. However, Ferrex
must first establish a dealership in a country in order to have the exclusive
rights to that country.
We also intend to enter into distribution agreements for the sale and
delivery of 4-VALVE(R) engine kits. These may include national catalog
distributors or major parts and subassembly suppliers. We will also have a
direct sales staff to promote and sell the 4-VALVE(R) engine to the
Harley-Davidson customization aftermarket.
INTELLECTUAL PROPERTY RIGHTS
AQC believes that it has the exclusive right to use the trademarks
AMERICAN QUANTUM CYCLES, Q, Liberty, and QX, along with certain related word and
design trademarks in the United States and certain foreign countries in
connection with the manufacture and sale of motorcycles and related parts. In
addition, we believe that we have the right to use certain of these marks on
other merchandise and apparel. We believe that we have common law trademark
rights through use of these marks on our prototype motorcycles and ancillary
merchandise independent of U.S. Patent and Trademark Office ("PTO") registration
process. In addition, we have filed for trademark protection for the marks
"American Quantum Cycles", the "Q", "Liberty" and "QX". In some instances, these
rights may depend upon pending applications to register the marks in a foreign
country. If we fail to get this, such registrations could impair our rights to
use a mark in a particular country.
We own no patents and we have not filed or been assigned any patent
applications. We believe, however, that a number of elements of the Liberty
series of motorcycle design have the potential to receive
25
patents. At a future date, we intend to file patent applications for certain of
the patentable elements. AQC will also actively license and/or purchase
additional intellectual property rights to improve the market competitiveness of
our product line.
We are not aware of any claims of infringement against AQC and we have
not been involved in any court proceedings regarding our intellectual property
rights.
In August 1997, we entered into a license agreement (the "Agreement")
with Feuling Advanced Technology, Inc. As a licensee, we have a license to use
certain proprietary technologies, including patents, trade secrets, techniques,
tooling designs, product designs, and trademarks. As part of this Agreement, and
in exchange for a royalty payment of approximately $235,000, if we comply with
certain other provisions, including non-disclosure of the proprietary
technology, we enjoy an exclusive license (for motorcycle applications) in
perpetuity for the 4-Valve technology. This technology is being used in the
manufacture of AQC's motorcycles.
COMPETITION
As of December 31, 1996, Harley-Davidson, Honda, Suzuki, Kawasaki, and
Yamaha had the largest market share of the U.S. heavyweight motorcycle market.
Our primary competitor in the U.S. heavyweight market is expected to be
Harley-Davidson (which, in 1996, had a market share of 48% of new U.S. and 7% of
European heavyweight motorcycle registrations) according to Harley-Davidson's
Annual Report. Harley- Davidson is the only significant American heavyweight
cruiser and touring motorcycle manufacturer since 1953. Several of the major
foreign manufacturers compete against Harley-Davidson in the domestic market by
selling motorcycles with a "nostalgic" American design.
Two new American made motorcycle competitors are scheduled to enter the
marketplace in 1998-1999. Polaris, a one billion-dollar manufacturer of
snowmobiles, jet skis and other recreational vehicles, has announced its
heavyweight cruiser, the Victory, for sale through some of its dealers.
Excelsior-Henderson, a publicly funded start-up, is expected to offer a
heavyweight cruiser in early 1999.
The market for new and customized motorcycles is extremely competitive.
While there are substantial barriers to entry, we believe that competition will
intensify in the future. We believe that our ability to compete successfully
depends on a number of factors:
(1) design and development of high performance and quality
motorcycles
(2) market presence;
(3) timely delivery of made-to-order motorcycles;
(4) the pricing policies of our competitors and suppliers;
(5) the timing and introduction of new products and services by
AQC and others;
(6) our ability to support existing and emerging industry
standards; and
(7) industry and general economic trends.
We cannot guarantee that AQC will be able to successfully compete with
others in the business of manufacturing and marketing customized motorcycles or
motorcycles in general.
26
GOVERNMENT REGULATIONS
Commercial sales of our motorcycles depend upon compliance with certain
government regulations and AQC is designing motorcycles to comply with all such
regulations. Both federal and state authorities have various environmental
control requirements relating to air, water and noise pollution which affect our
business and operations. In particular, our motorcycles are subject to the
emissions and noise standards of the U.S. Environmental Protection Agency and
the more stringent emissions standards of the State of California Air Resources
Board ("CARB"). The 4-VALVE engine has received EPA certification in all 49
states (except California). The proprietary exhaust system on the Quantum
Motorcycle was designed to provide an attractive sound while complying with DOT
noise standards. In Spring 1999, we intend to begin testing of our motorcycles
to meet the emission standards of the CARB for compliance with California
Emissions Standards. We cannot guarantee that our motorcycles will meet these
emission standards. Preliminary results show that the Liberty and its associated
4-VALVE(R) engine will pass all CARB requirements. AQC's motorcycles are also
subject to the National Traffic and Motor Vehicle Safety Act of the National
Highway Traffic Safety Administration.
The State of Florida requires that we be licensed as a manufacturer of
motor vehicles. Each of our dealers must be licensed as a motor vehicle dealer
in the jurisdictions where the businesses are located.
EMPLOYEES
We currently have 38 employees. Of these, 6 are in management and
administration, 3 are in engineering and design, 18 are in production and
manufacturing, 6 are in procurement and inventory management, 5 are in marketing
and sales. We have a number of part and full-time consultants in the areas of
management, engineering drawing maintenance, advertising artwork and Website
maintenance.
REAL PROPERTY
We currently lease approximately 17,030 square feet of warehouse and
production space and an additional 6,016 square feet of office space, for a
total of approximately 23,046 square feet, at 711-731 Washburn Road, Melbourne,
Florida 32934. The current monthly rental amount is $6,189 including Florida
sales tax.
The lease on the property began on May 1, 1997 and continues through
April 1999, with two additional three-year options for renewal at our option. If
we elect to renew our lease after the first two years, the annual rental will be
adjusted by an additional 5% per year, with a four-year lease and an option to
vacate after two years with six months notice.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table includes the names, positions with the Company and
ages of the executive officers and directors of the Company. Directors are
elected at our annual meeting of shareholders and serve for one year or until
their successors are elected. Officers are elected by the Board and their terms
of office are, unless governed by employment contract, at the discretion of the
Board.
27
EXECUTIVE OFFICERS AND DIRECTORS
Name Age Position
---- --- --------
Richard K. Hagen....................... 41 Chief Executive Officer, Chief Financial
Officer, President, and Chairman of the Board and Director
Jim Cheal.............................. 53 Vice President and Director
Robert L. Guess........................ 36 Vice President and Secretary
Michael Smith.......................... 47 Vice President
Jeffrey W. Starke..................... 42 Vice President and Director
Denise O'Brien......................... 45 Director
Gary Irving............................ 55 Executive Vice President, Chief Operating Officer and Director
Linda Condon........................... 50 Director of Finance and Treasurer
Frank Aliano........................... 38 Vice President
Richard K. Hagen has served as our Chief Executive Officer, President
and Chairman of the Board and a Director since November 1, 1997 and our Chief
Financial Officer since September 22, 1998. From March 1994 to November 1997,
Mr. Hagen was the founder and principal of MARKTECH Group, Inc., an
Internet/Extranet consulting company. Between November 1990 and March 1994, Mr.
Hagen was the operating officer and general manager of Syscon Services, an
engineering services and systems integration subsidiary of Harnischfeger
Industries. Mr. Hagen is a 1981 graduate of the U.S. Naval Academy.
Jim Cheal has been employed by us since May 1997 and has served as Vice
President and Director since February 1998. From January 1995 to January 1996,
Mr. Cheal was a director and Vice President of American Motor Works, Inc., a
company which designed and manufactured motorcycles. Mr. Cheal was a
professional photojournalist with Time-Life Publications from 1975 to 1987.
Between 1987 and 1995, Mr.
Cheal operated a photography business which he founded in 1978.
Robert L. Guess has served as our Vice President since November 1,
1997, as our President from May 1997 to November 1, 1997, a member of the Board
of Directors since July 1997 and Secretary since February, 1999. From December
1996 to May 1997, Mr. Guess served as consultant to Messrs. Cheal and Starke
each of whom are Vice Presidents and Directors of the Company, in connection
with the development and implementation of the business plan of the Company from
whom AQC purchased substantially all of its assets. From March 1996 to December
1996, Mr. Guess was the owner of Team Enterprise Miami, Inc., a direct product
marketing company. From July 1995 to March 1996, Mr. Guess was the Southeast
District Manager of marketing of Toast of the Town, Inc. a direct product
marketing company. From March 1980 through September 1994, Mr. Guess served as
an Officer in the United States Navy.
Michael Smith has served as our Vice President since February 22, 1998.
From March 1997 to February 1998, Mr. Smith was a consultant for Carl's Speed
Shop in Daytona Beach, Florida. Between March 1996 and March 1997, Mr. Smith was
a retail sales consultant with Arlen Ness Enterprises, Inc., a producer and
marketer of motorcycle accessories and apparel located in California. From
February 1995 to March 1996, Mr. Smith served as the Customer Relations Manager
for Stone Ridge Motors, an automobile dealership in San Francisco, CA. From
January 1993 to February 1995, Mr. Smith was a sales and leasing consultant with
the Ford Motor Company dealership in Dublin, California.
Jeff Starke has been a Director and Vice President of AQC since
February 1998. Between May 1997 and February 1998, Mr. Starke served as Director
of Engineering, Manufacturing and Design at AQC. From January 1995 to January
1996, Mr. Starke was a Director and Vice President of American Motor Works,
Inc.,
28
which designed and manufactured motorcycles. From March 1992 to January 1995,
Mr. Starke was Vice President of Harley Motor Works, Inc., which designed, built
and sold Harley Davidson motorcycles and motorcycle parts.
Denise O'Brien has served as a Director since July 1997. She has been
the trading manager for Wanger Asset Management since 1992, where she is an
investment advisor. Ms. O'Brien is the sister of Mr. Starke.
Gary W. Irving has served as our acting Chief Operating Officer since
January 5, 1998 and became Chief Operating Officer and was appointed to the
board of directors on October 1, 1998. Between March 1997 and December 1997, Mr.
Irving was Vice President and General Manager for Strategic Product Management
at Litton-PRC, a $1 billion subsidiary of Litton Industries an aerospace design
and commercial electronics company where he was responsible for launching and
managing their electronic commerce group. Between May 1994 to February 1997, Mr.
Irving was Executive Vice President and Chief Operating Officer of the MARTECH
Group, Inc., an Internet/Extranet consulting company. From June 1993 to January
1994, Mr. Irving was Vice President and General Manager at Instant Video
Technologies, Inc. From December 1993 to June 1993, Mr. Irving was director for
imaging system sales at I-Net. From October 1989 to October 1992, Mr. Irving was
a Vice President at PRC. Mr. Irving has an M.S. Degree in systems engineering
and has been awarded a patent in computer systems using CD-ROM storage devices.
Mr.Irving has developed computer systems for dealer and factory floor
applications and his former clients include Chrysler, Mack Trucks, John Deere
and Boeing.
Frank L. Aliano has served as our Vice President of Production since
May 1998. From October 1993 until May 1998, he was Vice President of Engineering
and Product Development for Big Dog Motorcycles which he helped build as a
co-founder. From January 1992 to October 1993, he was the owner/operator of A&A
Performance, in Wichita, Kansas, which fabricated custom Harley Davidson
Motorcycles. From October 1980 to December 1991, he was the owner/ operator of
Double Services, Phoenix, Arizona which custom builds and services Harley
Davidson and rebuilds and repairs of trucks and heavy equipment. From 1975 to
1980, he was employed by Cummins Southwest as a journeyman mechanic. From 1972
to 1975 he was employed by R.B. Duncan trucking company as a mechanic. From 1971
to 1972, he was employed by Hartford Harley Davidson as a mechanic, which
included servicing and rebuilding Harley Davidson Motorcycles. A native of
Connecticut, he attended the University of Hartford.
Linda Condon has served as our Director of Finance since October 1997
and Treasurer since February 1999. Between April 1994 and July 1997, Ms. Condon
worked as an accountant for K.L. Smith and Associates, a Salt Lake City, Utah
based accounting firm. Between January 1993 and April 1998, Ms. Condon worked as
an accountant for Armstrong and Company, a Salt Lake City, Utah based accounting
firm.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Act permits the indemnification of directors, employees,
officers and agents of Florida corporations. Our Articles of Incorporation
indemnify our directors and officers to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a
director, officer, employee, or other agent of our Company. Insofar as
indemnification for liability arising under the Securities Act may be permitted
to directors, officers, and controlling persons, we are aware that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is unenforceable.
EXECUTIVE COMPENSATION
29
SUMMARY COMPENSATION TABLE
The following table sets forth information relating to the compensation
we paid during the past two fiscal years to: (1) President and Chief Executive
Officer; and (2) each of our executive officers who earned more than $100,000
during the fiscal year ended April 30, 1998 (collectively, the "Named Executive
Officers"):
Grant Date
SUMMARY COMPENSATION TABLE 5% ($) 10%($) Present Value $
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
---------------------------------------------------------------------------------
Awards Payouts
-----------------------------------------
Securities
Other Under-
Annual Restricted Lying All Other
Name and Principal Compen- Stock Options/ LTIP Compen
Position Year Salary Bonus sation Award(s) SARs Payouts -sation
($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Richard Hagen 1996 $-0- $-0- $-0- $-0- -0- $-0- $-0-
Chief Executive Officer
and Chairman of the
Board(1)
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $-0- $-0- $-0- $-0 -0- $-0- $-0-
- ------------------------------------------------------------------------------------------------------------------------------------
1998 $13,462 $-0- $78,577(2) $-0- -0- $-0- $-0-
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Hagen was appointed Chief Financial Officer on September 22, 1998.
(2) Includes (i) $10,500 we provided to Mr. Hagen as a relocation
allowance; and (ii) $68,077 we paid to Mr. Hagen under the terms of a
consulting agreement. Does not include (i) 900,000 shares of common
stock issued to Mr. Hagen in November 1998, and (ii) options to
purchase 50,000 shares of common stock granted to Mr. Hagen in November
1998. See "Principal Shareholders."
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value At
Individual Grants Pssumed Annual Rates Of Stock
Price Appreciation For Option Grant Date
Term Value
- --------------------------------------------------------------------------------------------------------------------------
Percent of
Total
Number Of Options/
Securities SARs Granted
Underlying To Employees Exercise Of Expiration
Name Options/SARs In Fiscal Year Base Price Date
Granted (#) (S/Sh)
- --------------------------------------------------------------------------------------------------------------------------
Richard Hagen N/A
President, Chief Executive
Officer and Chairman (1)
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
30
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- --------------------------------------------------------------------------------------------------------------------------
Number of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
At Fiscal Year-End At Fiscal Year-
Shares Value (#) End ($)
Acquired On Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------------
Richard Hagen
President, Chief Executive
Officer and Chairman(1) N/A
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
(1) Mr. Hagen was appointed Chief Financial Officer on September 22, 1998.
We do not currently have any Long Term Inventive Plans.
EMPLOYMENT AGREEMENTS
RICHARD K. HAGEN, CHIEF EXECUTIVE OFFICER, PRESIDENT, CHIEF FINANCIAL
OFFICER AND CHAIRMAN OF THE BOARD AND DIRECTOR. Pursuant to an employment
agreement between AQC and Mr. Hagen, Mr. Hagen receives an annual base salary of
$200,000. As additional compensation, we have also (i) issued Mr. Hagen 900,000
shares of restricted Common Stock; and (ii) granted Mr. Hagen options to
purchase up to 50,000 shares of Common Stock of the Company, at $1.00 per share
exercisable through February 21, 2003.
JIM CHEAL, VICE PRESIDENT AND DIRECTOR. Pursuant to a verbal employment
agreement between the Company and Mr. Cheal, Mr. Cheal receives an annual base
salary of $75,000. As additional compensation, Mr. Cheal also received options
to purchase 50,000 shares of Common Stock at $1.00 per share exercisable through
December 31, 2003.
ROBERT L. GUESS, VICE PRESIDENT AND SECRETARY.Pursuant to a verbal
agreement between Mr. Guess and AQC, Mr. Guess receives an annual base salary of
$50,000. As additional compensation, Mr. Guess also received 25,000 shares of
Common Stock.
MICHAEL SMITH, VICE PRESIDENT OF SALES AND DIRECTOR. Pursuant to a
verbal employment agreement between AQC and Mr. Smith, Mr. Smith receives an
annual base salary of $80,000 and 10,000 shares of Common Stock.
JEFFREY W. STARKE, VICE PRESIDENT AND DIRECTOR. Pursuant to a verbal
employment agreement between Mr. Starke and AQC, Mr. Starke receives an annual
base salary of $85,000. As additional compensation, Mr. Starke received options
to purchase up to 50,000 shares of Common Stock at $1.00 per exercisable through
December 30, 2003.
GARY W. IRVING, CHIEF OPERATING OFFICER. Pursuant to an employment
agreement between Mr. Irving and AQC, in his capacity as Chief Operating
Officer, Mr. Irving receives an annual base salary of $175,000. Mr. Irving also
received (i) 600,000 shares of common stock; and (ii) options to purchase 50,000
shares of Common Stock exercisable at $1.00 per share through December 30, 2003.
FRANK ALIANO, VICE PRESIDENT OF ENGINEERING AND PRODUCTION. Pursuant to
a verbal agreement between Mr. Aliano and AQC, Mr. Aliano receives an annual
base salary of $90,000. As additional
31
compensation, Mr. Aliano also received 25,000 shares of Common Stock, with
performance options of 25,000 options each year for the subsequent three years.
LINDA CONDON, DIRECTOR OF FINANCE AND TREASURER. Pursuant to verbal
employment agreement between Ms. Condon and the Company, Ms. Condon receives an
annual base salary of $45,000 and 3,490 shares of Common Stock.
STOCK OPTIONS
1997 AMENDED STOCK OPTION PLAN
INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
On June 15, 1997, our Board of Directors and a majority of our
shareholders ("Majority Shareholders") adopted AQC's 1997 Stock Option Plan (the
"Plan"). On February 21, 1998, our Board of Directors and majority shareholders
amended the Plan to increase the number of Plan Options from 500,000 to
3,000,000 shares.
The Plan works to increase the stock interest of employees, consultants
and employee directors in the Company and to align more closely their goals with
our shareholders' interests. The Plan will also help us attract and retain the
services of experienced and highly qualified employees. The Plan allows us to
issue up to 3,000,000 shares of Common Stock to the people who we grant options.
Our Board of Directors or a Committee of our Board of Directors (the
"Committee") administers the Plan. Their responsibility includes the selection
of the persons who will be granted Plan Options, the type of Plan Options to be
granted, the number of shares subject to each Plan Option and the Plan Option
price.
Plan Options may either be options qualifying as incentive stock
options ("Incentive Options") under Section 422 of the Internal Revenue Code of
1986, or options that do not so qualify ("Non-Qualified Options"). In addition,
the Plan also allows for a reload option provision ("Reload Option"). Reload
options permit an eligible person to pay the exercise price of the Plan Option
with shares of Common Stock owned by the eligible person and receive a new Plan
Option to purchase shares equal to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of at least 100% of
the fair market value of the underlying shares on the date of such grant. The
exercise price of any Incentive Option granted to an eligible employee owning
more than 10% of our Common Stock must be at least 110% of such fair market
value on the date of the grant. Our Board of Directors or the Committee
determines the term of each Plan Option and the way in which it may be
exercised. No Plan Option may be exercisable more than 10 years after the date
of its grant. In the case of an Incentive Option granted to an eligible employee
owning more than 10% of our Common Stock, no Plan Option may be exercised more
than five years after the date of the grant. The exercise price of Non-Qualified
Options will be determined by our Board of Directors or the Committee.
All of our officers, directors, key employees and consultants will be
eligible to receive Non-Qualified Options under the Plan. Only officers,
directors and employees who are employed by AQC are eligible to receive
Incentive Options.
All Plan Options are nonassignable and nontransferable, except by will
or by the laws of descent and distribution. If we terminate an employee's
employment for any reason (other than his death or disability or termination for
cause), or if an optionee is not an employee of AQC but is a member of our Board
of Directors and his service as a Director is terminated for any reason (other
than death or disability), the Plan Option will lapse on the earlier of the
expiration date or 30 days following the date of termination. If the optionee
dies during the term of his employment, the Plan Option will lapse on the
earlier of the expiration date of the Plan Option or the date one year following
the date of the optionee's death. If the optionee is permanently and
32
totally disabled within the meaning of Section 22(e)(3) of the Internal Revenue
Code of 1986, the Plan Option will lapse on the earlier of the expiration date
of the option or one year following the date of such disability.
The Plan will terminate 10 years from the date of the Plan's adoption.
Any such termination of the Plan will not affect the validity of any Plan
Options previously granted.
As of February 4, 1999, we granted an aggregate of 200,000 Incentive
Options (all of which have vested) and an aggregate of 2,580,000 Non-Qualified
Options. We also granted 1,245,000 outside of the Plan.
PRINCIPAL SHAREHOLDERS
The following table describes certain information regarding certain
individuals who beneficially owned our Common Stock on March 1, 1999. In
general, a person is considered a "beneficial owner" of a security if that
person has or shares the power to vote or direct the voting of such security, or
the power to dispose of such security. A person is also considered to be a
beneficial owner of any securities of which the person has the right to acquire
beneficial ownership within (60) days.
The individuals included in the following table are:
(1) people who we know beneficially own or exercise voting or
control over 5% or more of our Common Stock,
(2) by each of our directors, and
(3) by all executive officers and directors as a group.
At March 1, 1999, we had 9,166,235 shares of Common Stock outstanding.
Percent of Beneficial Ownership
No. of Shares --------------------------------
Name and Address or of Common Stock Before After
Identity of Group(1) Beneficially Owned Offering Offering
-------------------- ------------------ -------- --------
Richard Hagen, Director, Chairman, President,
CFO and CEO(2) 950,000 10.4% 8.8%
Jim Cheal, Vice President and Director(3) 50,000 * *
Robert Guess, Vice President and Secretary 25,000 * *
Michael Smith, Vice President 10,000 * *
Jeffrey W. Starke, Vice President and Director(4) 50,000 * *
Denise O'Brien, Director 655,195 7.2% 6.1%
Gary Irving, Executive Vice President, COO and Director(5) 650,000 7.1% 6.0%
Frank Aliano, Vice President 25,000 * *
Doreen Cheal(6) 605,195 6.6% 5.6%
Linda Condon, Director of Finance
and Treasurer(7) 4,290 * *
Susquehana Holdings Corp(7) 634,000 6.9% 5.9%
Mathers Associates (8) 520,000 5.7% 4.8%
All Executive Officers and Directors 3,021,680 33.0% 28.1%
as a group (9 persons)
* Denotes less than 1% beneficial ownership.
- --------------
33
(1) Unless otherwise indicated, the address of each of the persons is
711-731 Washburn Road, Melbourne, FL 32934.
(2) Includes 50,000 shares of Common Stock issuable upon the exercise of
options exercisable at $1.00 until December 20, 2003.
(3) Includes (i) 605,195 shares of Common Stock owned by Doreen Cheal, Mr.
Cheal's wife and (ii) 50,000 shares of Common Stock issuable upon the
exercise of options exercisable at $1.00 per share until December 30,
2003.
(4) Includes 50,000 shares of Common Stock issuable upon the exercise of
options exercisable at $1.00 per share until December 20, 2003. Jeff
Starke is the brother of Denise O'Brien.
(5) Includes 50,000 shares issuable upon the exercise of options
exercisable at $1.00 per share until December 20, 2003.
(6) Jim Cheal is Doreen Cheal's husband.
(7) Address is 213 Mathers Road, Ambler, PA 19002. Mr. Norbert Zeelander is
the sole shareholder of Susquehana Holdings Corp. As such, Mr.
Zeelander is deemed to beneficially own the 634,000 shares held in the
name of Susquehana Holdings Corp. Does not include (i) 38,000 shares of
Common Stock owned by Mr. Zeelander individually; or (ii) 520,000
shares of Common Stock owned by Mathers Associates, a limited
partnership in which Mr. Zeelander is a general partner.
(8) Address is 213 Mathers Road, Ambler, PA 19002. Mr. Norbert Zeelander is
the general partner of Mathers Associates. As such, Mr. Zeelander is
deemed to beneficially own the 520,000 shares held in the name of
Mathers Associates. Does not include (i) 38,000 shares of Common Stock
owned by Mr. Zeelander individually; or (ii) 634,000 shares of Common
Stock owned by Susquehana Holdings Corp., a corporation in which Mr.
Zeelander is sole shareholder.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 9, 1997, pursuant to the terms of a purchase agreement (the
"Initial Agreement") AQC issued 1,207,142 shares of Common Stock to Doreen Cheal
and 1,207,142 shares of Common Stock to Denise O'Brien in exchange for a
prototype motorcycle and certain equipment required to manufacture and market
the prototype motorcycle. The prototype motorcycle and related equipment was
valued at $116,608. On April 9, 1998, Ms. Cheal and Ms. O'Brien returned an
aggregate of 503,894 shares of Common Stock to us because they were overvalued.
On June 5, 1998, certain members of management returned an aggregate of
700,000 shares of Common Stock to us for the purpose of improving the
capitalization of the Company.
In November 1998, Mr. Richard Hagen, Chairman, CEO, President, CFO and
Director of the Company, and Mr. Gary Irving, Executive Vice President, COO and
Director of the Company, were issued 900,000 and 600,000 shares of the Company's
common stock, respectively.
34
CONCURRENT OFFERING
Concurrent with this offering, we are registering pursuant to an
Alternate Prospectus, for the account of the Selling Security Holders, an
additional 928,000 shares of Common Stock including 250,000 shares of Common
Stock issuable upon the exercise of Options. These securities are not being
underwritten in this Offering and we will not receive any proceeds from the sale
of such shares.
We will pay the expenses of the Concurrent Offering, other than fees
and expenses of counsel to the Selling Security Holders and the selling
commissions. The resale of the securities of the Selling Security Holders is
subject to prospectus delivery and other sales at any time may have an adverse
effect on the market prices of the securities or the potential of such sales at
any time may have an adverse effect on the market prices of the securities
offered hereby.
DESCRIPTION OF SECURITIES
We are authorized to issue 50,000,000 shares of Common Stock, par value
$.001 per Share, and 2,500,000 shares of Preferred Stock, $.001 per Share. As of
March 1, 1998 there were 9,166,235 shares of Common Stock issued and outstanding
and no shares of Preferred Stock issued or outstanding.
COMMON STOCK
The holders of our Common Stock are entitled to dividends, if any are
declared, and are entitled to a pro rata portion of our assets if we liquidate
or dissolve our business, if our assets are not first distributed to our
creditors or preferred stock holders.
Each share of Common Stock entitles the holders thereof, to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of shares voting for the election of Directors can
elect all of the Directors if they choose to do so, and in such event, the
holders of the remaining shares will not be able to elect any Directors. Our
ByLaws require that only a majority of the issued and outstanding shares of our
Common Stock is required to transact business at a shareholders' meeting. The
Common Stock has no preemptive, subscription or conversion rights nor may we
redeem it.
PREFERRED STOCK
The Preferred Stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by our Board of Directors,
without further action by shareholders, and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights, and sinking
fund provisions. The issuance of any such Preferred Stock could adversely affect
the rights of the holders of our Common Stock and, therefore, reduce the value
of the Common Stock. The ability of the Board of Directors to issue Preferred
Stock could discourage, delay, or prevent a takeover of the Company.
CERTAIN FLORIDA LEGISLATION
Florida law includes certain provisions which prevent third parties
from taking over Florida corporations. The Florida Control Share Act generally
provides that shares acquired in excess of certain specified thresholds will not
possess any voting rights unless such voting rights are approved by a majority
of a corporation's disinterested shareholders. The Florida Affiliated
Transactions Act generally requires super majority approval by disinterested
shareholders of certain specified transactions between a public corporation and
holders of more than 10% of the outstanding voting shares of the corporation (or
their affiliates). Florida law and the Company's Articles and Bylaws also
authorize us to indemnify our directors, officers, employees
35
and agents. In addition, our Articles and Florida law presently limit the
personal liability of corporate directors for monetary damages, except where the
directors (i) breach their fiduciary duties and (ii) such breach constitutes or
includes certain violations of criminal law, a transaction from which the
directors derived an improper personal benefit, certain unlawful distributions
or certain other reckless, wanton or willful acts or misconduct.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION AND
BYLAWS
Certain provisions of the articles and bylaws of the Company summarized
in the following paragraphs, and above under the Section entitled "Preferred
Stock", may be deemed to have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt, including attempts that might result
in a premium being paid over the market price for the shares held by
shareholders. The following provisions may not be amended in our Articles or
Bylaws without the affirmative vote of the holders of at least two-thirds of the
outstanding shares of our Common Stock.
The Articles and Bylaws provide that special meetings of shareholders
of the Company may be called only by our Board of Directors, or holders of not
less than 10% of our outstanding voting stock entitled to vote at the Special
Meeting.
Despite the belief of the Company as to the benefits to shareholders of
these provisions of the Company's Articles of Incorporation, these provisions
may also have the effect of discouraging a future takeover attempt which would
not be approved by the Company's Board, but pursuant to which the shareholders
may receive a substantial premium for their shares over then current market
prices. As a result, shareholders who might desire to participate in such a
transaction may not have any opportunity to do so. Such provisions will also
render the removal of the Company's Board of Directors and management more
difficult and may tend to stabilize the Company's stock price, thus limiting
gains which might otherwise be reflected in price increases due to a potential
merger or acquisition. The Board of Directors, however, has concluded that the
potential benefits of these provisions outweigh the possible disadvantages.
Pursuant to applicable regulations, at any annual or special meeting of its
shareholders, the Company may adopt additional Articles of Incorporation
provisions regarding the acquisition of its equity securities that would be
permitted to a Florida corporation.
TRANSFER AGENT
Our transfer agent for our Common Stock is Florida Atlantic Stock
Transfer, Inc., 5701 N. Pine Island Road, Tamarac, Florida 33321.
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after the completion of this Offering, the Company will
have 10,766,235 shares of Common Stock outstanding (the "Outstanding Shares")
not including up to 4,025,000 shares of Common Stock that may be issued upon the
exercise of options. Of the Outstanding Shares (i) 3,709,121 (including 678,000
shares of Common Stock being registered in the Alternate Prospectus) will be
freely tradable without restriction under the Securities Act of 1933, as amended
(the "Act"); (ii) 270,900 are "restricted securities" but were eligible for
resale pursuant to Rule 144 promulgated under the Act beginning in May 1998;
(iii) 2,798,500 are "restricted securities" but will be eligible for resale
pursuant to Rule 144 between October 1999 and January 2000; and (iv) 3,024,680
held by officers and directors of the Company are subject to lock-up agreements
with the Underwriter restricting the transfer of such shares for a period of two
years from the closing date of this Offering (the "Lock-Up Shares"). After the
expiration of the lock-up agreements all Lock-Up Shares will be eligible for
sale under Rule 144.
36
Under Rule 144, a person (or persons whose shares are aggregated) who
has beneficially owned restricted securities for at least one year, including
the holding period of any prior owner except an affiliate, would be generally
entitled to sell within any three month period a number of shares that does not
exceed the greater of (i) 1% of the number of then outstanding shares of the
Common Stock or (ii) the average weekly trading volume of the Common Stock in
the public market during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned shares for at least two years
(including any period of ownership of preceding nonaffiliated holders), would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner-of-sale provisions, public information requirements or
notice requirements.
The availability for sale of substantial amounts of Common Stock
subsequent to this offering could adversely affect the prevailing market price
of the Common Stock and could impair the Company's ability to raise additional
capital through the sale of its equity securities. Prospective investors should
be aware that the possibility of such sales may, in the future, have a
depressive effect on the price of the Company's Common Stock in any market which
may develop and, therefore, the ability of any investor to market his shares may
be dependent directly upon the number of shares that are offered and sold.
Affiliates of the Company may sell their shares during a favorable movement in
the market price of the Company's Common Stock which may have a depressive
effect on its price per share. See "Description of Securities", "Principal
Shareholders," "Concurrent Offering," and "Risk Factors."
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement,
Barron Chase Securities, Inc. (the "Underwriter") has agreed to purchase from
the Company an aggregate of 1,600,000 Shares (the "Securities"). The Securities
are offered by the Underwriter subject to prior sale, when, as and if delivered
to and accepted by the Underwriter and subject to approval of certain legal
matters by counsel and certain other conditions. The Underwriter is committed to
purchase all Securities offered by this Prospectus, if any are purchased (other
than those covered by the Over-Allotment Option described below).
The Company has been advised by the Underwriter that the Underwriter
proposes to offer the Securities to the public at the offering price set forth
on the cover page of this Prospectus. The Underwriter has advised the Company
that the Underwriter proposes to offer the Securities through members of the
National Association of Securities Dealers, Inc. ("NASD"), and may allow
concessions, in its discretion, to certain selected dealers who are members of
the NASD and who agree to sell the Securities in conformity with the NASD's
Conduct Rules. Such concessions will not exceed the amount of the underwriting
discount that the Underwriter is to receive.
The Company has granted to the Underwriter an Over-Allotment Option,
exercisable for 45 days from the Effective Date, to purchase up to an additional
_________ Shares at the public offering price less the Underwriting Discount set
forth on the cover page of this Prospectus. The Underwriter may exercise this
option solely to cover overallotments in the sale of the Securities being
offered by this Prospectus.
Officers and directors of the Company may introduce the Underwriter to
persons to consider this Offering and to purchase Securities either through the
Underwriter or through participating dealers. In this connection, no Securities
have been reserved for those purchases and officers and directors will not
receive any commissions or any other compensation.
37
The Company has agreed to pay to the Underwriter a commission of ten
percent (10%) of the gross proceeds of this Offering (the "Underwriting
Discount"), including the gross proceeds from the sale of the Over-Allotment
Option, if exercised. In addition, the Company has agreed to pay to the
Underwriter a non-accountable expense allowance of three percent (3%) of the
gross proceeds of this Offering, including proceeds from any Securities
purchased pursuant to the Over-Allotment Option. The Underwriter's expenses in
excess of the non-accountable expense allowance will be paid by the Underwriter.
To the extent that the expenses of the Underwriter are less than the amount of
the non-accountable expense allowance received, such excess shall be deemed to
be additional compensation to the Underwriter. The Underwriter has informed the
Company that it does not expect sales to discretionary accounts to exceed five
percent (5%) of the total number of Securities offered by the Company hereby.
The Company has agreed to engage the Underwriter as a financial advisor
at a fee of $108,000, which is payable to the Underwriter on the Closing Date.
Pursuant to the terms of a financial advisory agreement, the Underwriter has
agreed to provide, at the Company's request, advice to the Company concerning
potential merger and acquisition and financing proposals, whether by public
financing or otherwise. The Company has also agreed that if the Company
participates in any transaction which the Underwriter has introduced to the
Company during a period of five years after the Closing (including mergers,
acquisitions, joint ventures and any other business transaction for the Company
introduced by the Underwriter), and which is consummated after the Closing
(including an acquisition of assets or stock for which it pays, in whole or in
part, with shares or other securities of the Company), or if the Company retains
the services of the Underwriter in connection with any such transaction (an
"Introduced Consummated Transaction"), then the Company will pay for the
Underwriter's services an amount equal to 5% of up to one million dollars of
value paid or received in the transaction, 4% of the next million of such value,
3% of the next million of such value, 2% of the next million of such value, and
1% of the next million dollars of such value and of all such value above
$4,000,000.
At the Closing, the Company will issue to the Underwriter and/or
persons related to the Underwriter, for nominal consideration, Common Stock
Underwriter Warrants to purchase up to 160,000 shares of Common Stock (the
"Underlying Shares"). The Common Stock Underwriter Warrants are sometimes
referred to in the Warrants." The Common Stock Underwriter Warrants will be
exercisable for a five-year period commencing on the Effective Date. The initial
exercise price of each Common Stock Underwriter Warrant shall be $______ per
Underlying Share (____% of the public offering price). The Underwriter Warrants
will be restricted from sale, transfer, assignment or hypothecation for a period
of twelve months from the Effective Date by the holder, except (i) to officers
of the Underwriter and members of the selling group and officers and partners
thereof; (ii) by will; or (iii) by operation of law.
The Common Stock Underwriter Warrants contain provisions providing for
appropriate adjustment in the event of any merger, consolidation,
recapitalization, reclassification, stock dividend, stock split or similar
transaction. The Underwriter Warrants contain net issuance provisions permitting
the holders thereof to elect to exercise the Underwriter Warrants in whole or in
part and instruct the Company to withhold from the securities issuable upon
exercise, a number of securities, valued at the current fair market value on the
date of exercise, to pay the exercise price. Such net exercise provision has the
effect of requiring the Company to issue shares of Common Stock without a
corresponding increase in capital. A net exercise of the Underwriter Warrants
will have the same dilutive effect on the interests of the Company's
shareholders as will a cash exercise. The Underwriter Warrants do not entitle
the holders thereof to any rights as a shareholder of the Company until such
Underwriter Warrants are exercised and shares of Common Stock are purchased
thereunder.
The Underwriter Warrants and the securities issuable thereunder may not
be offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that if it shall cause a post-effective
amendment, a new registration statement, or similar offering document to be
filed with the Commission, the holders shall have the right, for seven (7) years
from the Effective Date, to include in such registration statement or offering
statement the Underwriter Warrants and/or the securities issuable upon their
38
exercise at no expense to the holders. Additionally, the Company has agreed
that, upon request by the holders of 50% or more of the Underwriter Warrants
during the period commencing one year from the Effective Date and expiring four
years thereafter, the Company will, under certain circumstances, register the
Underwriter Warrants and/or any of the securities issuable upon their exercise.
In order to facilitate the offering of the Common Stock, the
Underwriter may engage in transactions that stabilize, maintain or otherwise
affect the price of the Shares. Specifically, the Underwriter may sell or allot,
more Shares than the ______ Shares the Company has agreed to sell to the
Underwriter. This over-allotment would create a short position in the Shares for
the account of the Underwriter. To cover any over-allotments or to stabilize the
price of the Shares, the Underwriter may bid for, and purchase, Shares in the
open market. Finally, the Underwriter may reclaim selling concessions allowed to
dealers for distributing the Shares in the Offering, if the Underwriter
repurchases previously distributed Shares in transactions to cover short
positions, in stabilization transactions or otherwise. The Underwriter has
reserved the right to reclaim selling concessions in order to encourage dealers
to distribute the Shares for investment, rather than for short-term profit
taking. Increasing the proportion of the Offering held for investment may reduce
the supply of Shares available for short-term trading. Any of these activities
may stabilize or maintain the market price of the Shares above independent
market levels. The Underwriter is not required to engage in these activities,
and may end any of these activities at any time.
The Company has agreed to indemnify the Underwriter against any costs
or liabilities incurred by the Underwriter by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement filed by the Company (together with all amendments and
exhibits thereto, the "Registration Statement") and this Prospectus. The
Underwriter has in turn agreed to indemnify the Company against any costs or
liabilities by reason of misstatements or omissions to state material facts in
connection with the statements made in the Registration Statement and this
Prospectus, based on information relating to the Underwriter and furnished in
writing by the Underwriter. To the extent that these provisions may purport to
provide exculpation from possible liabilities arising under the federal
securities laws, in the opinion of the Commission, such indemnification is
contrary to public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A., Fort
Lauderdale, Florida. Certain members of the firm of Atlas, Pearlman, Trop &
Borkson own 21,000 shares of Common Stock. Certain matters will be passed upon
for the Underwriter by David A. Carter, P.A., 2300 Glades Road, Suite 210, West
Tower, Boca Raton, Florida.
EXPERTS
The financial statements of the Company appearing in this Prospectus
have been audited by Pricher and Company, independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company intends to furnish to its shareholders annual reports,
which will include financial statements audited by independent accountants, and
such other periodic reports as it may determine to furnish or
39
as may be required by law, including Sections 13(a) and 15(d) of the Securities
Exchange Act of 1934, as amended.
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form SB-2 (the "Registration Statement") under the Securities Act
with respect to the securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
thereto, as permitted by the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement and to the
exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document which has been filed as an exhibit to
the Registration Statement are qualified in their entirety by reference to such
exhibits for a complete statement of their terms and conditions. The
Registration Statement and the exhibits thereto may be inspected without charge
at the offices of the Commission and copies of all or any part thereof may be
obtained from the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at certain of the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the
fees prescribed by the Commission. Electronic reports and other information
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's website (http://www.sec.gov.).
40
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
----
Report of Certified Public Accountant...................................... F-2
Balance Sheets as of April 30, 1998 and 1997............................... F-3
Statements of Operations for the Years Ended April 30 1998,
1997 and 1996 and for the Period from March 20, 1986 (Inception)
to April 30, 1998......................................................... F-4
Statements of Stockholders' Equity (Deficit) for the Period
from March 20, 1986 (Inception) to April 30, 1998......................... F-5
Statements of Cash Flows for the Years Ended April 30, 1998
1997 and 1996 and from the Period from March 20, 1986 (Inception)
to April 30, 1998..........................................................F-6
Notes to Financial Statements...............................................F-7
Unaudited Balance Sheet as of October 31, 1998............................. F-15
Unaudited Statements of Operations for the Six Months
Ended October 31, 1998 and 1997........................................... F-17
Unaudited Statements of Cash Flows for the Six Months Ended
October 31, 1998 and 1997................................................. F-18
Notes to the Financial Statements.......................................... F-19
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
American Quantum Cycles, Inc.
We have audited the accompanying balance sheet of American Quantum
Cycles, Inc. as of April 30, 1998 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for the years ended April 30,
1998, 1997 and 1996, and for the period from March 20, 1986 (inception) to April
30, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American Quantum
Cycles, Inc. as of April 30, 1998 and 1997 and the results of its operations and
its cash flows for the years ended April 30, 1998, 1997 and 1996, and for the
period from March 20, 1986 (inception) to April 30, 1998 in conformity with
generally accepted accounting principles.
Pricher and Company
Orlando, Florida
September 21, 1998
F-2
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
BALANCE SHEET
April 30, 1998 and 1997
1998 1997
--------------------- ---------------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 48,768 $ 244,985
Accounts receivable 35,602
Prepaid expenses 39,308 4,165
Inventories 763,158
--------------------- ---------------------
Total current assets 886,836 249,150
--------------------- ---------------------
Property and equipment 649,499
Less accumulated depreciation 62,486
--------------------- ---------------------
587,013
--------------------- ---------------------
Other assets:
Deposits 40,700
Licenses and intellectual rights, less accumulated
amortization of $12,565 349,667
--------------------- ---------------------
390,367
--------------------- ---------------------
$ 1,864,216 $ 249,150
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
Current liabilities:
Accounts payable $ 370,658 $
Accrued liabilities 317,103 767
Current maturities of long-term debt 20,183
Current capital lease obligations 24,006
Notes payable 2,317,500 221,770
--------------------- ---------------------
Total current liabilities 3,049,450 222,537
--------------------- ---------------------
Capital lease obligations, less current maturities 75,598
Long-term debt, less current maturities 42,378
--------------------- ---------------------
117,976
--------------------- ---------------------
Stockholders' equity (deficit):
Common stock, par value $.001 per share; authorized
50,000,000 shares, issued and outstanding
2,471,045 and 900,000 shares 2,471 900
Preferred stock, par value $.001 per share; authorized
2,500,000 shares, no shares issued and outstanding
Additional paid-in capital 1,328,664 28,347
Deficit accumulated during the development stage (2,634,345) (2,634)
--------------------- ---------------------
Total stockholders' equity (deficit) (1,303,210) 26,613
--------------------- ---------------------
$ 1,864,216 $ 249,150
===================== =====================
See accompanying notes to financial statements.
F-3
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
Years Ended April 30, 1998, 1997 and 1996
and the Period from March 20, 1986 (inception) to April 30, 1998
March 20, 1986
(inception)
1998 1997 1996 to April 30, 1998
---------------- ---------------- ------------------ --------------------
Sales $ 192,856 $ $ $ 192,856
---------------- ---------------- ------------------ --------------------
Cost and expenses:
Cost of goods sold 173,424 173,424
General and administrative 2,453,062 1,542 2,454,604
---------------- ---------------- ------------------ --------------------
2,626,486 1,542 2,628,028
---------------- ---------------- ------------------ --------------------
Loss from operations (2,433,630) (1,542) (2,435,172)
---------------- ---------------- ------------------ --------------------
Other income (expense):
Loss on disposition of property and
equipment (13,956) (13,956)
Interest and other income 3,107 3,107
Interest expense (187,232) (1,092) (188,324)
---------------- ---------------- ------------------ --------------------
(198,081) (1,092) (199,173)
---------------- ---------------- ------------------ --------------------
Net loss $ 2,631,711 $ (2,634) $ $ (2,634,345)
================ ================ ================== ====================
Loss per common share:
Weighted average shares
outstanding 2,007,844 591,716 500,000
================ ================ ==================
Net loss $ (1.311) $ (0.004) $ 0.00 $ (1.315)
================ ================ ================== ====================
See accompanying notes to financial statements.
F-4
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from March 20, 1986 (inception) to April 30, 1998
Common Stock Deficit
--------------------------- Accumulated
Additional During the Total
Number of Par Paid-In Development Stockholders'
Shares Value Capital Stage Equity (Deficit)
----------- -------------- -------------- --------------- ---------------
Issuance of common stock,
March 20, 1986 500 $ 500 $ $ $ 500
Net income (loss) from inception to
April 30, 1996
----------- ------------ ------------ ------------- -------------
Balance, April 30, 1996 500 500 500
1,000 for 1 stock split 499,500
Stock issued for consulting services 275,000 275 275
Stock issued to bridge loan participants 125,000 125 28,347 28,472
Net loss for the year ended
April 30, 1997 (2,634) (2,634)
----------- ------------ ------------ ------------- -------------
Balance, April 30, 1997 900,000 900 28,347 (2,634) 26,613
Common stock issued in exchange
for equipment and services 1,261,075 1,261 93,748 95,009
Private placement of common stock
for cash, net of issuance costs 245,744 246 949,728 949,974
Employee stock bonuses recorded
as compensation expense 51,300 51 205,150 205,201
Common stock issued to a dealership
for promotional expense 10,000 10 39,990 40,000
Stock issued to lenders for interest
on bridge loans 2,926 3 11,701 11,704
Net loss for the year ended
April 30, 1998 (2,631,711) (2,631,711)
----------- ------------ ------------ ------------- -------------
Balance, April 30, 1998 2,471,045 $ 2,471 $ 1,328,664 $(2,634,345) $ (1,303,210)
=========== ============ ============ ============= =============
See accompanying notes to financial statements.
F-5
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Years Ended April 30, 1998, 1997 and 1996
and the Period from March 20, 1986 (inception) to April 30, 1998
March 20, 1986
(inception)
1998 1997 1996 to April 30, 1998
--------------- ---------------- --------------- -----------------
Cash flows from operating activities:
Reconciliation of net loss to net cash used in
operating activities:
Net loss $ (2,631,711) $ (2,634) $ $ (2,634,345)
Items not requiring (providing) cash:
Loss on disposition of equipment 13,956 13,956
Depreciation and amortization 75,051 1,092 76,143
Issuance of common stock for services
and interest 304,409 275 304,684
Changes in assets and liabilities:
Receivables (35,602) 500 (35,102)
Inventories (763,158) (763,158)
Prepaid expenses (35,143) (35,143)
Other assets (40,700) (40,700)
Accounts payable 370,658 370,658
Accrued liabilities 316,336 767 317,103
--------------- ---------------- --------------- ----------------
Net cash used in operating activities (2,425,904) (2,425,904)
--------------- ---------------- --------------- ----------------
Cash flows from investing activities:
Capital expenditures (615,950) (615,950)
Investment in licenses and intellectual rights (362,232) (362,232)
--------------- ---------------- --------------- ----------------
Net cash used in investing activities (978,182) (978,182)
--------------- ---------------- --------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 2,317,500 244,985 2,562,485
Repayment of notes payable (221,770) (221,770)
Long-term borrowing 175,159 175,159
Repayment of long-term debt (12,994) (12,994)
Proceeds from issuance of common stock 949,974 949,974
--------------- ---------------- --------------- ----------------
Net cash provided by financing activities 3,207,869 244,985 3,452,854
--------------- ---------------- --------------- ----------------
Net increase (decrease) in cash (196,217) 244,985 48,768
Cash, beginning of year 244,985
--------------- ---------------- --------------- ----------------
Cash, end of year $ 48,768 $ 244,985 $ $ 48,768
=============== ================ =============== ================
Supplemental cash flow information:
Amounts paid for:
Interest $ 5,332 $ $ $ 5,332
=============== ================ =============== ================
Income taxes $ $ $ $
=============== ================ =============== ================
See accompanying notes to financial statements.
F-6
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business and organization - American Quantum Cycles, Inc., a
Florida corporation, ("The Company") designs, produces, markets, distributes and
sells American-made, high performance V-twin engine cruiser and touring style
motorcycles. These motorcycle products include stock models and motorcycles
built to customer specified configurations. The Company was originally
incorporated on March 20, 1986 as "Norbern, Inc." and was inactive until March
1997 when it began developing and implementing its business and financing plans.
On May 8, 1997 the Company changed its name to American Quantum Cycles, Inc. and
its fiscal year end to April 30.
Basis of presentation - As of April 30, 1998, the Company is still
considered to be in the development stage as substantially all of its efforts to
date have been devoted to raising capital, developing technological resources,
entering into employment agreements with key executives, leasing facilities and
securing licensing and dealership agreements. Sales during 1998 were minimal
compared to planned operations. The accompanying financial statements for years
prior to 1998 are presented on an April 30 fiscal year end which does not
require restatement since the Company had no operations prior to March 1997.
Cash and cash equivalents - For purposes of the statement of cash
flows, the Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Inventories - Inventories are carried at the lower of cost or market,
with cost principally determined under the average cost method.
Property and equipment - Property and equipment are carried at cost.
Depreciation is recorded principally on the straight-line method at rates based
on the estimated useful lives of the assets which range from three to seven
years. The book value of obsolete assets is charged to depreciation expense when
they are scrapped. Profits or losses from the sale of assets are included in
other income. Repairs and maintenance are charged to expense as incurred.
Intangible Assets - Intangible assets consist of licenses and
intellectual rights and are amortized on the straight-line method over fifteen
years.
Income taxes - Deferred taxes are recognized for temporary differences
between the basis of assets and liabilities for financial statements and income
tax purposes. The differences relate primarily to depreciable assets (using
accelerated depreciation methods for income tax purposes), the allowance for
doubtful accounts (deductible for financial statement purposes but not for
income tax purposes), stock-based compensation, and net operating loss
carryforwards.
Concentration of credit risk - The Company occasionally maintains
deposits in excess of federally insured limits. Statement of Financial
Accounting Standards No. 105 identifies these items as a concentration of credit
risk requiring disclosure, regardless of the degree of risk. The risk is managed
by maintaining all deposits in high quality financial institutions.
F-7
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
2 INVENTORIES
Inventories at April 30, 1998 are comprised as follows:
Finished goods $ 13,787
Work in process 66,796
Purchased raw materials 682,575
-----------
$ 763,158
===========
There were no inventories as of April 30, 1997.
3 PROPERTY AND EQUIPMENT
Property and equipment includes the following:
Leasehold improvements $ 52,750
Manufacturing tools and equipment 142,805
Office furniture, equipment and software 308,025
Vehicles 145,919
----------
$ 649,499
==========
Depreciation expense for the year ended April 30, 1998 amounted to $
62,486. As of April 30, 1997, the Company had not yet acquired any property and
equipment, accordingly, there was no depreciation expense for years prior to
1998.
F-8
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
4 LICENSES AND INTELLECTUAL PROPERTY
Licenses and intellectual property are comprised of the following:
Proprietary technology license $ 235,000
Intellectual property rights 127,232
-----------
362,232
Less accumulated amortization (12,565)
-----------
$ 349,667
===========
In August 1997, the Company entered into a license agreement (the
"Agreement") with Feuling Advanced Technologies, Inc. whereby the Company
obtained a license to use certain proprietary technologies including, among
other things, patents, trade secrets, techniques, tooling designs, product
designs, and trademarks. Pursuant to the terms of the Agreement, as long as the
Company complies with certain other provisions including non-disclosure of the
proprietary technology, the Company has an exclusive license, for motorcycle
applications, in perpetuity for the 4-Valve technology. This technology will be
used in connection with the Company motorcycles and bolt-on kits for the Harley
Davidson motorcycles which feature the evolution engine, evolution big twin,
other Harley Davidson clones and aftermarket parts.
5 NOTES PAYABLE
Notes payable at April 30, 1998 consist of:
10% Subordinated Bridge Loans - The Company issued eight unsecured promissory
notes dated March 30, 1998 to individuals providing bridge loan financing. The
aggregate principal balance of the notes at April 30, 1998 is $650,000 with
interest payable at 10% at maturity on September 30, 1998. The terms of the loan
agreements provide for the Company to issue a total of 130,000 shares of common
stock to the note holders at maturity in order to obtain a favorable interest
rate and repayment terms. Additional interest expense (equal to the fair value
of the common stock to be issued minus the conversion price) will be recognized
over the term of the loans.
Convertible Debentures - The Company has issued two separate series of
convertible notes to investors:
Beginning in October 1997, the Company issued thirty-four 8%
Subordinated Notes, for an aggregate of $1,524,500. The notes mature one year
from date of issue, convertible at $2.00 per share. Interest is convertible at
the same rate as the principal, at the discretion of the note holder. Additional
interest expense of $381,125 (equal to the fair value of the common stock
assumed to be issued minus the conversion price) will be recognized over the
term of the loans. During the year ended April 30, 1998, $125,168 of such
additional interest expense was accrued.
F-9
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
Beginning in April 1998, the Company issued three 7% Subordinated
Notes, for an aggregate of $143,000. The notes mature one year from the date of
issue, convertible at $8.00 per share. Interest is payable in cash or
convertible at the same rate as the principal, at the discretion of the Company.
A warrant is attached at 10% above the final price of a proposed secondary
offering.
Notes payable at April 30, 1997 consisted of seven unsecured promissory
notes dated April 16, 1997 with principal aggregating $250,000. Interest at 8%
and principal were paid at maturity in September, 1997.
6 LONG-TERM DEBT
Long-term debt at April 30, 1998 is as follows:
Installment loan, monthly payments of $618 including interest
at 8.75%, matures September, 2002, secured by a vehicle $ 27,074
Three installment notes payable to individuals for the purchase of intellectual
property rights, monthly payments aggregating $1,389 including interest at 8% to
10%, matures January, 2001
and 2002, secured by property rights 35,487
---------
62,561
Less current maturities 20,183
---------
Total long-term debt $ 42,378
=========
The aggregate maturities of total long-term debt during the next five years are
$20,182 in 1999, $19,461 in 2000, $13,073 in 2001, $6,822 in 2002 and $3,023 in
2003.
7 LEASES
Capital leases - The Company leases various manufacturing, production,
telephone and computer equipment under capital lease agreements with terms of
three to five years through February, 2002. The economic substance of the leases
is that the Company is financing the acquisition of the assets, and accordingly,
they are capitalized as property and equipment. The leases contain bargain
purchase options at the end of the lease terms.
F-10
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
The following is an analysis of the leased assets included in property and
equipment as of April 30, 1998:
Telephone equipment $ 16,452
Computer equipment 49,142
Machinery and production equipment 41,479
-------------
107,073
Less accumulated amortization (7,489)
-------------
$ 99,584
=============
The following is a schedule by years of future minimum payments
required under the leases together with their present value as of April 30,
1998:
Year ending
April 30, Amount
------------------ ------------------
1999 $ 35,308
2000 35,308
2001 32,378
2002 21,276
2003 4,030
------------------
Total minimum lease payments 128,300
Less amount representing interest (28,697)
------------------
Present value of minimum lease payments $ 99,604
==================
Operating leases - The Company leases its facilities and other real
property under noncancelable operating leases with terms of one to four years
expiring in February, 2002. The Company is also responsible for real estate
taxes on the leased facilities. Rent expense under these leases was $ 83,155 for
the year ended April 30, 1998. The following is a schedule of future minimum
lease payments required under operating leases:
Year ending
April 30, Amount
------------------ ---------------
1999 $ 133,956
2000 $ 69,756
2001 $ 69,756
2002 $ 58,130
F-11
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
8 CONTINGENCIES
Results of operations in the future will be influenced by numerous
factors including technological developments, competition, regulation, increases
in expenses associated with sales growth, market acceptance of the products of
the Company, the capacity of the company to expand and maintain the quality of
its motorcycles and related services, continued development of the dealer
organization, favorable sourcing of supplies, recruitment of highly skilled
employees and integration of such persons into a cohesive organization, and the
ability of the Company to raise funds and control costs
9 SECURITY TRANSACTIONS
Following is a summary of security transactions during the year ended
April 30, 1998:
On May 21, 1997 the Company issued 1,261,075 shares of common stock
valued at $95,009 for management services, equipment and other assets (See
Subsequent Events - Note 14).
In September, 1997 the Company issued 245,744 shares of common stock in
a private placement. The net proceeds of the offering of $949,974 were used to
repay debt of $250,000 (see note 5) and to provide working capital.
On October 24, 1997 and December 31, 1997, 50,000 and 1,300 shares,
respectively, of common stock valued at $205,201 were issued to key employees as
performance bonuses (See Subsequent Events - Note 14).
On December 15, 1997, 10,000 shares of common stock valued at $40,000
were issued to a dealership and recorded as promotional expense and 2,926 shares
valued at $11,794 were issued to bridge lenders and recorded as interest
expense.
10 PREFERRED STOCK
As of April 30, 1998, the Company was authorized to issue up to
2,500,000 shares of $.001 par value Preferred Stock. Preferred Stock is
designated as the "Series A 7% Convertible Preferred Stock" and has a stated
value of $6.00 per share. Dividends of 7% of the stated value accrue and are
payable semi-annually. Each share of Preferred Stock is convertible into one
share of common stock at the option of the shareholder. No preferred shares have
been issued.
F-12
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
11 INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting For Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires that
the Company use the liability method which attempts to recognize the future tax
consequences of temporary differences between the book and tax bases of assets
and liabilities.
At April 30, 1998, the Company has net operating loss carryforwards
totaling approximately $2,600,000 that may be offset against future taxable
income through 2012. No tax benefit has been reported in the 1998 financial
statements, however, because the Company believes there is at least a 50% chance
that the carryforwards will expire unused. Accordingly, a $1,040,000 tax benefit
of the loss carryforward has been offset by a valuation allowance of the same
amount. The expected tax benefit that would result from applying federal
statutory tax rates to the pretax loss differs from amounts reported in the
financial statements primarily because of the increase in the valuation
allowance.
The company paid no income taxes since its inception.
12 LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period. All
share and per share data, except shares authorized, have been retroactively
adjusted to reflect a 1,000 for 1 stock split effective March 25, 1997.
13 STOCK OPTIONS
On May 9, 1997 (and as amended June 3, 1997) the Company entered into a
consulting agreement with Greenstone Financial Corp. ("GFC") to assist the
Company with corporate development and strategic business planning. Under terms
of the agreement, the Company granted GFC an option to purchase up to 250,000
shares of Company common stock based upon the successful completion of a private
placement of Company common stock (see note 9), with each option exercisable at
$4.00 per share. Also under the terms of the agreement, as amended, the Company
granted GFC a five year option to purchase 300,000 shares of Company common
stock, exercisable when and if there is a successful completion of a secondary
offering of the Company's common stock, at an exercise price of $0.10 per share.
F-13
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
On June 15, 1998, the Company adopted the "1997 Stock Option Plan" (the
"Plan"). Under the Plan, 3,000,000 shares of common stock are reserved for
issuance upon exercise of options granted to management, key employees and
consultants. The plan provides for the granting of either "incentive stock
options" or "non-qualified stock options", as defined under the Internal Revenue
Code. Options may be granted at prices not less than 100 percent of the fair
market value at the date of grant and may be exercisable with a term not
exceeding ten years. As of April 30, 1998, the Company has granted common stock
options to plan participants as follows:
Exercise Price Number of Options
-------------- -----------------
$ 5.00 405,000
$ 6.00 315,000
$ 7.00 500,000
$ 8.00 685,000
----------
Total options granted 1,905,000
==========
No options have been exercised as of April 30, 1998 (See Subsequent Events -
Note 14)
14 SUBSEQUENT EVENTS
On August 11, 1998 the Company retroactively reduced an employee stock
bonus awarded to two individuals on October 24, 1997, from 100,000 shares to
50,000 shares. The reduced number of shares have been recorded as compensation
expense of $200,000 for the year ended April 30, 1998 based on a value of $4.00
per share (See Note 9).
Also, on August 11, 1998 the Company retroactively reduced the number
of common shares issued in an exchange for certain property and equipment on May
21, 1997, from 1,911,075 shares to 1,261,075 shares. The exchange has been
recorded as a capital expenditure during the year ended April 30, 1998 based on
the fair market value of the equipment (See Note 9).
As of September 21, 1998, the board of directors is considering
rescinding all of the common stock options previously granted under the 1997
Stock Option Plan, however, no formal action has been approved (See Note 13).
F-14
AMERICAN QUANTUM CYCLES, INC.
Condensed Balance Sheets
October 31, 1998 April 30, 1998
(Unaudited)
---------------- --------------
ASSETS
------
Current assets
Cash and cash equivalents $ 20,408 $ 8,768
Accounts receivable - trade (Note 8) 5,090,919 35,602
Inventory - raw materials (at FIFO) 138,646 682,575
Inventory - work in process 779,563 66,796
Inventory - finished goods 0 13,787
Prepaid expenses and other current assets 41,875 39,308
------------------ ---------------
Total current assets 6,071,411 886,836
Property and equipment, net 1,062,855 587,013
Patents and licenses, net (Note 4) 341,833 349,667
Other assets 41,767 40,700
------------------ ----------------
Total Assets $ 7,517,866 $ 1,864,216
================== ================
(See accompanying notes to condensed financial statements)
F-15
October 31, 1998 April 30, 1998
(Unaudited)
---------------- --------------
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Liabilities
Current liabilities
Accounts payable - trade $ 1,459,724 $ 370,658
Accrued compensation 32,141 21,921
Notes payable - bridge loan (Note 6) 700,000 650,000
Convertible debentures - 8% (Note 7) 1,579,500 1,524,500
Convertible debentures - 7% (Note 7) 699,500 143,000
Deferred income (Note 8) 4,728,308 0
Other accrued expenses and current liabilities 981,762 295,182
------------------ ----------------
Total current liabilities 10,180,935 3,005,261
Long term liabilities
Capitalized leases (Note 5) 76,825 99,604
Notes payable - bank 24,956 27,074
Notes payable - other 29,982 35,487
------------------ ----------------
Total long term liabilities 131,763 162,165
------------------ ----------------
Total Liabilities 10,312,698 3,167,426
------------------ ----------------
Shareholders' Equity
Preferred stock - $.001 par value; 2,500,000
shares authorized; no shares issued 0 0
Common stock - $.001 par value; 50,000,000
shares authorized; 4,361,345 shares and
2,471,045 shares issued and outstanding 4,361 2,471
Capital in excess of par value 2,550,273 1,328,664
Retained earnings (deficit) (5,349,466) (2,634,345)
------------------ ----------------
Total shareholders' equity (deficit) (2,794,832) (1,303,210)
------------------ ----------------
Total Liabilities & Shareholders' Equity $ 7,517,866 $ 1,864,216
================== ================
(See accompanying notes to condensed financial statements)
F-16
AMERICAN QUANTUM CYCLES, INC.
Condensed Statements of Operations
(Unaudited)
Three months ended Three months ended Six months ended Six months ended
October 31, 1998 October 31, 1997 October 31, 1998 October 31, 1997
------------------ ------------------ ---------------- ----------------
Net sales of tangible goods $ 305,999 $ 23,355 $ 474,023 $ 23,355
Cost of goods sold 369,123 37,422 644,316 37,422
--------------- -------------- ------------ ------------
Gross profit (deficit) (63,124) (14,067) (170,293) (14,067)
Selling, general and administrative expenses 745,691 311,810 1,977,436 523,972
--------------- -------------- ------------ ------------
Operating profit (deficit) (808,815) (325,877) (2,147,729 (538,039)
Other income (expense):
Interest expense (61,374) (26,246) (569,083) (26,246)
Loss on disposition of asset 0 (7,566) 0 (7,566)
Other income (Note 9) 197 317 1,691 321
--------------- -------------- ------------ ------------
Net Operating Loss $ (869,992) $ (359,372) $ (2,715,121) (571,530)
=============== ============== ============ ============
Weighted average shares outstanding 3,669,445 3,518,741 3,706,908 3,502,009
=============== ============== ============ ============
Loss per common share $ (0.237) $ (0.102) $ (0.732) $ (0.163)
=============== ============== ============ ============
Loss per Common Share-diluted $ (0.149) $ (0.102) $ (0.465) $ (0.163)
=============== ============== ============ ============
(See accompanying notes to condensed financial statements)
F-17
AMERICAN QUANTUM CYCLES, INC.
Condensed Statements of Cash Flows
(Unaudited)
Six months ended Six months ended
October 31, 1998 October 31, 1997
---------------- ----------------
Cash flows from operating activities:
Net loss $ (2,715,121) $ (571,530)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 118,153 12,105
Changes in assets and liabilities:
Receivables (463,311) 52,691
Inventories (155,051) (475,807)
Prepaid expenses and other 10,244 (36,398)
Accounts payable 1,089,066 66,725
Other accrued expenses and current liabilities 696,800 43,800
-------------- ---------------
Net cash used by operating activities (1,419,220) (908,414)
Cash flows from financing activities:
Loan proceeds 50,000 200,000
Convertible debenture proceeds 611,500 280,000
Retirement of prior debt 0 (325,000)
Payment of loan principal (30,401) (846)
Net capital and stock changes 1,341,088 1,092,378
-------------- ---------------
Net cash provided by financing activities 1,972,187 1,246,532
Cash flows from investing activities:
Additions to property and equipment (581,327) (234,759)
Additions to intangible assets (Note 4) 0 (235,000)
-------------- ---------------
Net cash used by investing activities (581,327) (469,759)
-------------- ---------------
Net (decrease) increase in cash (28,360) (131,641)
Cash at beginning of period 48,768 244,985
-------------- ---------------
Cash at end of period $ 20,408 $ 113,344
============== ===============
(See accompanying notes to condensed financial statements)
F-18
AMERICAN QUANTUM CYCLES, INC.
Notes to Condensed Financial Statements
(Unaudited)
(1) Basis of Presentation, General and Business
-------------------------------------------
American Quantum Cycles, Inc. ("The Company") is an early production stage
company that designs, produces, markets, distributes and sells American-made,
high performance V-twin engine cruiser and touring style motorcycles. These
motorcycle products include stock models and motorcycles built to customer
specified configurations. The Company was originally incorporated on March 20,
1986 as "Norbern, Inc." and was inactive until March 1997 when it began
developing and implementing its business and financing plans. On May 8, 1997 the
Company changed its name to American Quantum Cycles, Inc. and its fiscal year
end to April 30.
The accompanying interim financial statements are prepared in accordance with
the instructions to Form-10QSB, are unaudited and do not include all the
information and disclosures required by generally accepted accounting principles
for complete financial statements. All adjustments that, in the opinion of
management, are necessary for a fair presentation of the results of operations
for the interim periods have been made and are of a recurring nature unless
otherwise disclosed herein. The results of operations for such interim periods
are not necessarily indicative of results of operations for a full year.
(2) Concentration of Credit Risk
----------------------------
The Company occasionally maintains deposits in excess of federally insured
limits. Statement of Financial Accounting Standards No, 105 identifies these
items as a concentration of credit risk requiring disclosure, regardless of the
degree of risk. The risk is managed by maintaining all deposits in high quality
financial institutions.
(3) Transition from Development Stage Company to Production
-------------------------------------------------------
The Company has transitioned from a development stage company into an early
production ramp-up stage company. The Company has completed various activities
necessary for this transition including entering into dealership agreements, a
technology license agreement (see Note 4), leasing and upgrading facilities,
purchasing supplies and equipment, and hiring and training employees. The
Company anticipates that the current fiscal year ending April 30, 1999 will
sustain additional losses. Except for the historical information contained
herein, the matters set forth in this Form 10-QSB are forward looking and
involve a number of risks and uncertainties.
F-19
Results of operations in the future will be influenced by numerous factors
including technological developments, competition, regulation, increases in
expenses associated with sales growth, market acceptance of the products of the
Company, the capacity of the company to expand and maintain the quality of its
motorcycles and related services, continued development of the dealer
organization, favorable sourcing of supplies, recruitment of highly skilled
employees and integration of such persons into a cohesive organization, and the
ability of the Company to raise funds and control costs.
(4) Patents, Licenses and Certificates
----------------------------------
In August 1997, the Company entered into a license agreement (the "Agreement")
with Feuling whereby the Company, as licensee, obtained a license to use certain
proprietary technologies including among other things, patents trade secrets,
techniques, tooling designs, product designs, and trademarks. Pursuant to the
terms of the Agreement, so long as the Company complies with certain other
provisions including non-disclosure of the proprietary technology, the Company
has an exclusive license, for motorcycle applications, in perpetuity for the
4-Valve technology. This technology will be used in connection with the Company
motorcycles and bolt-on kits for the Harley Davidson motorcycles which feature
the evolution engine, evolution big twin, other Harley Davidson clones and
aftermarket parts. An American Quantum Motorcycle with its 4-Valve engine
successfully passed EPA testing and was awarded an EPA certificate for 49 states
(less California). American Quantum will submit a second motorcycle for further
testing aimed at a 50 state certificate in the early spring of 1999.
(5) Capitalized Leases
------------------
The Company has executed capital leases with Nations Commercial Credit
Corporation for purchasing manufacturing and production equipment, and for
computer equipment to expand and improve the Company's network infrastructure.
All leases provide a $1 purchase buy-out provision at the end of the term of the
lease.
(6) Bridge Loan Financing
---------------------
Notes payable consist of nine (9) unsecured promissory notes dated March 30,
1998 to individuals providing bridge loan financing. The principal aggregate is
$700,000 with interest payable at 10% at maturity on September 30, 1998. The
Company also contracted to issue a total of 142,000 shares of common stock to
these individuals at maturity in order to obtain a favorable interest rate and
repayment terms. Loan costs are expensed as incurred.
The Company has received extensions until a secondary offering on all notes and
these note holders have been offered an updated agreement tied to the contracted
secondary offering expected to be completed during March 1999, however no
assurance can be given that the secondary offering will be completed. The note
holders will be repaid by converting principle plus interest (accrued through
the date of secondary completion) into American Quantum stock at the opening
stock price of the secondary offering plus two warrants (at the same share price
as the original conversion) for each share resulting from the note conversion.
As of the date of this filing 6 note
F-20
holders representing $249,999 of original note loans have executed agreements to
convert to American Quantum stock at time of completion of the secondary.
(7) Convertible Debentures
----------------------
As part of its equity funding and financing, the Company has issued two separate
series of convertible notes to investors: Beginning in October 1997, the Company
issued thirty-four (34) 8% Subordinated Notes, for an aggregate of $1,579,500.
The notes mature one year from date of issue, convertible at $2.00 per share,
with no warrants attached. Interest is convertible at the same rate as the
principal, at the discretion of the note holder.
The Company has received extensions until a secondary offering on all notes and
these note holders have been issued an updated agreement tied to the contracted
secondary offering expected to be completed during March 1999. These note
holders have been offered the choice of being repaid via principle, interest
(accrued through to the time of completion of the secondary offering) and
American Quantum incentive shares or to be repaid by converting principle plus
interest (accrued through the date of secondary completion) into American
Quantum stock at the opening stock price of the secondary offering plus one
warrant (at the same share price as the original conversion) for each share
resulting from the note conversion. As of the date of this filing 11 note
holders representing $579,000 of original note loans have executed agreements to
convert to American Quantum stock at time of completion of the secondary.
Beginning in April 1998, the Company issued twenty-nine (29) 7%
Subordinated Notes, for an aggregate of $699,500. The notes mature one year from
the date of issue, convertible at $8.00 per share. Interest is payable in cash
or convertible at the same rate as the principal, at the discretion of the
Company. A warrant is attached at 10% above the final price of a secondary
offering.
The Company has received extensions until a secondary offering on all notes and
these note holders have been issued an updated agreement tied to the contracted
secondary offering expected to be completed during March 1999. These note
holders have been offered the choice of being repaid via principle, interest
(accrued through to the time of completion of the secondary offering) and
American Quantum incentive shares or to be repaid by converting principle plus
interest (accrued through the date of secondary completion) into American
Quantum stock at the opening stock price of the secondary offering plus one
warrant (at the same share price as the original conversion) for each share
resulting from the note conversion. As of the date of this filing 11 note
holders representing $245,000 of original note loans have executed agreements to
convert to American Quantum stock at time of completion of the secondary.
(8) Recognition of Income
---------------------
Orders received from the Company's dealers are booked as received in Account
Receivable, with an offset in Deferred Income. As the motorcycle proceeds
through the production process, revenue is recognized based on "percentage of
completion."
F-21
No dealer, sales representative, or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any of the
Underwriters. This Prospectus does not constitute an offer or any securities
other than those to which it relates or an offer to sell, or a solicitation of
any offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
the information set forth herein is correct as of any time subsequent to the
date hereof.
AMERICAN QUANTUM
CYCLES INCORPORATED
[LOGO]
1,600,000 Shares of Common Stock
PROSPECTUS
_________________, 1999
BARRON CHASE SECURITIES
7700 West Camino Real
Boca Raton, Florida 33433
(561) 347-1200
Beverly Hills, California
Boston, Massachusetts
Brooklyn, New York
Buffalo, New York
Chicago, Illinois
Clearwater, Florida
Duluth, Georgia
Edison, New Jersey
Eureka Springs, Arkansas
Fort Lauderdale, Florida
Hasbrook Heights, New Jersey
La Jolla, California
Naples, Florida
New York, New York
Orlando, Florida
Sarasota, Florida
Tampa, Florida
West Boca Raton, Florida
----------------------------
March _____, 1999
Subject to Completion ____________, 1999
PROSPECTUS (ALTERNATE)
AMERICAN QUANTUM CYCLES, INC.
928,000 Shares of Common Stock
This is an offering of 928,000 Shares of Common Stock of American
Quantum Cycles, Inc., a Florida corporation, held by certain of our Shareholders
(the "Selling Security Holders"). Of the 928,000 Shares being offered by the
Selling Security Holders, 250,000 are issuable upon the exercise of options
owned by certain of the Selling Security Holders. We will not receive any
proceeds from the sale of the Shares but we will receive proceeds from the
Selling Security Holders if they exercise their options.
Our Common Stock is quoted on the OTC Bulletin Board under the symbol
"AMQC". On _________, 1999, the closing bid price per share of the Common Stock
as reported by the OTC Bulletin Board was $_____.
------------------------------------------
This Investment Involves a High Degree of Risk. You Should Purchase
Shares Only If You Can Afford a Complete Loss of Your Investment. See "High Risk
Factors" Beginning on Page __.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------------------------
The date of this Prospectus is ____________, 1999
THE OFFERING
Shares Offered by the Selling
Security Holders(1)............................................ 928,000 Shares of Common Stock
Use of Net Proceeds............................................ We will not receive any proceeds from the -
re-sale of the Shares offered by the Selling
Security Holders.
Common Stock Outstanding:
Prior to the Offering (2) ................................ 9,166,235
After the Offering (3) ................................... 11,016,235
Risk Factors .................................................. The Offering involves a high degree of risk
and immediate substantial dilution. See
"High Risk Factors" beginning on page ____.
- ---------------------------
(1) The number of Shares being offered by the Selling Security Holders
includes 250,000 shares of our Common Stock issuable upon the exercise
of options held by the Selling Security Holders. The Options are
exercisable at $4.00 per share.
(2) Does not include 1,600,00 Shares of Common Stock which are being
offered in a concurrent underwritten offering. See "Concurrent Public
Offering".
(3) Includes the 928,000 Shares being offered by the Selling Security
Holders and the 1,600,000 Shares of Common Stock being offered in the
Concurrent Offering. Does not include (i) 150,000 Shares of Common
Stock issuable to the Underwriters in the Concurrent Offering; and (ii)
up to 3,775,000 Shares of Common Stock issuable upon the exercise of
outstanding options to purchase shares of our Common Stock.
2
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement with respect
to an underwritten public offering of 1,600,000 Shares of our Common Stock (the
"Underwritten Public Offering") was declared effective by the Securities and
Exchange Commission ("Commission"). Sales of securities under this Prospectus by
the Selling Security Holders, and in the Underwritten Public Offering, or even
the potential of such sales may have an adverse effect on the market price of
our Common Stock.
SELLING SECURITY HOLDERS
SHARES SHARES OF
SHARES OF THAT MAY COMMON
COMMON BE OFFERED STOCK
STOCK OWNED PURSUANT OWNED
SELLING PRIOR TO TO THIS AFTER
SECURITY HOLDER THIS OFFERING PROSPECTUS OFFERING
- --------------- ------------- ---------- --------
Violetta Dwyer 100,000(1) 100,000 0
Terri Grundstedt 100,000(1) 100,000 0
Laine Moskowitz 50,000(2) 50,000 0
Jefferson Hen 12,000 12,000 0
Colson Construction 8,000 8,000 0
Todd Hemm 18,000 18,000 0
Allen Solomon 5,000 5,000 0
Wayne Laglia 5,000 5,000 0
Chase Construction 10,000 10,000 0
Dante Greco 272,500 272,500 0
Bridget McMahon 75,000 75,000 0
Carl Domino 75,000 75,000 0
Abe Goldberger 25,000 25,000 0
Catherine Hass 69,870 69,870 0
Michael Howell 67,130 67,130 0
Harvey Stober 37,500 37,500 0
(1) Includes 100,000 shares of common stock issuable upon the exercise of
options exercisable at $4.00 per share.
(2) Includes 50,000 shares of common stock issuable upon the execise of options
exercisable at $4.00 per share.
PLAN OF DISTRIBUTION
The Selling Security Holders may offer their Shares at various times in
one or more of the following transactions: in the over-the-counter market where
our Common Stock is listed; transactions other than in the over-the-counter
market; in connection with short sales of the Company's Common Stock; by
pledgees or donees; or a combination of any of the above transactions.
The Selling Security Holders may sell their shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices and at negotiated prices or at fixed prices.
The Selling Security Holders may use broker dealers to sell their
shares. If this happens, broker dealers will either receive discounts or
commissions from the Selling Security Holders, or they will receive commissions
from purchasers of shares for whom they acted as agents.
3
We have advised the Selling Security Holders that during such time as
they may be engaged in a distribution of the Shares they are required to comply
with Regulation M under the Exchange Act. Regulation M generally precludes any
Selling Security Holders, any affiliated purchasers and any broker-dealer or
other person who participates in such distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchase made in order to
stabilize the price of a security in connection with the distribution of that
security. All of the foregoing may affect the marketability of the Common Stock.
It is anticipated that the Selling Security Holders will offer all of
the Shares for sale. Further, because it is possible that a significant number
of Shares could be sold at the same time hereunder, such sales, or the
possibility thereof, may have a depressive effect on the market price of the
Company's Common Stock.
4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
928,000 SHARES OF COMMON STOCK
AMERICAN QUANTUM CYCLES, INC.
PROSPECTUS
________________, 1999
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Florida Business Corporation Act (the "Florida Act") contains
provisions entitling the Company's directors and officers to indemnification
from judgments, settlements, penalties, fines, and reasonable expenses
(including attorney's fees) as the result of an action or proceeding in which
they may be involved by reason of having been a director or officer of the
Company. In its Articles of Incorporation, the Company has included a provision
that limits, to the fullest extent now or hereafter permitted by the Florida
Act, the personal liability of its directors to the Company or its shareholders
for monetary damages arising from a breach of their fiduciary duties as
directors. Under the Florida Act as currently in effect, this provision limits a
director's liability except where such director breaches a duty. The Company's
Articles of Incorporation and By-Laws provide that the Company shall indemnify
its directors and officers to the fullest extent permitted by the Florida Act.
The Florida Act provides that no director or officer of the Company shall be
personally liable to the Company or its shareholders for damages for breach of
any duty owed to the Company or its shareholders, except for liability for (i)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (ii) any unlawful payment of a dividend or unlawful
stock repurchase or redemption in violation of the Florida Act, (iii) any
transaction from which the director received an improper personal benefit or
(iv) a violation of a criminal law. This provision does not prevent the Company
or its shareholders from seeking equitable remedies, such as injunctive relief
or rescission. If equitable remedies are found not to be available to
shareholders in any particular case, shareholders may not have any effective
remedy against actions taken by directors or officers that constitute negligence
or gross negligence.
The Articles of Incorporation also include provisions to the effect
that (subject to certain exceptions) the Company shall, to the maximum extent
permitted from time to time under the law of the State of Florida, indemnify and
upon request shall advance expenses to, any director or officer to the extent
that such indemnification and advancement of expenses is permitted under such
law, as may from time to time be in effect.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to any charter provision, by-law, contract, arrangement,
statute or otherwise, the Company has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions and the Representative's non-accountable
expense allowance and advisory fee) are as follows:
II-1
SEC registration fee............................................................ $3,000
NASD filing fee ................................................................ $1,731
Amex listing fee ............................................................... 22,500
Legal fees and expenses......................................................... 50,000
Accounting fees and expenses.................................................... 25,000
Blue sky fees and expenses...................................................... 25,000
Printing and engraving expense.................................................. 75,000
Transfer agent fees and expenses................................................ 15,000
Miscellaneous................................................................... 10,000
---------
Total $222,731
=========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1997, the Company issued an aggregate of $250,000 in
promissory notes to seven investors (the "April 1997 Notes") three of whom were
accredited and four were non-accredited. The April 1997 Notes yielded interest
at 8% annually and matured at the earlier of April 8, 1998 or upon receipt by
the Company of $1,000,000 or more in any public or private financing. The
interest on the April 1997 Notes was payable by the Company, at its option,
either (i) in cash; or (ii) in Common Stock of the Company based on the lower of
(A) $2.00 per share; or (B) the average closing bid price of the Common Stock of
the Company for the five trading days preceding one date prior to the date of
interest on the Note the "Interest Provision"). Pursuant to the Interest
Provision, the Company issued 2,926 shares of Common Stock to the April 1997
Note holders in December 1997 as interest on the April 1997 Notes. As of the
date hereof, all the April 1997 Notes have been repaid and cancelled by the
Company. Each investor was provided with or had access to financial and other
information concerning the Company and had the opportunity to ask questions
concerning the Company and its operations. Accordingly, the issuance of these
securities was exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
In May 1997, the Company acquired assets totalling $92,270 in exchange
for an aggregate of 1,910,390 shares of Common Stock of the Company, of which
955,195 shares were issued to Doreen Cheal, a principal shareholder of the
Company, and 955,195 shares were issued to Denise O'Brien, a Director and
principal shareholders of the Company. Each investor was nonaccredited, but was
provided with or had access to financial and other information concerning the
Company and had the opportunity to ask questions concerning the Company and its
operations. Accordingly, the issuance of these securities was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
In June 1997, the Company commenced an offering of Common Stock at
$4.00 per share pursuant to Rule 504 of Regulation D under the Act. An aggregate
of 245,744 shares of Common Stock for an aggregate of $949,974 were sold by
management. Each of the investors were provided with and had access to financial
and other information concerning the Company and had the opportunity to ask
questions concerning the Company and its operations. Accordingly, the issuance
of these securities was exempt from the registration requirements of the Act
pursuant to Section 3(b) of the Act.
In January 1998, the Company granted options to purchase an aggregate
of 570,000 shares of Common Stock to a consultant. The options are exercisable
until October 2004_ and are exercisable at $.25 per share. Each investor was
provided with or had access to financial and other information concerning the
Company and had the opportunity to ask questions concerning the Company and its
operations. Accordingly, the issuance of these securities was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
Beginning in October 1997, the Company issued an aggregate of forty 8%
Subordinated Notes to 32 investors, in the aggregate principal amount of
$1,407,000 (the "8% Notes"). Each investor was provided
II-2
with or had access to financial and other information concerning the Company and
had the opportunity to ask questions concerning the Company and its operations.
Accordingly, the issuance of these securities was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act. The notes matured
one year from date of issue. Nine of the 8% Note holders, representing an
aggregate of $240,000 of the outstanding principal balance of the 8% Notes,
agreed to extend the maturity date of their 8% Notes until the close of this
Offering. Sixteen of the 8% Note holders, representing an aggregate of $624,000
of the aggregate outstanding principal amount of the 8% Notes agreed to convert
the principle balance plus accrued interest of their respective notes into (i)
common stock of the Company at the a price per share equal to $5.00, (the "8%
Note Shares"); and (ii) warrants to purchase a number of shares of the Company's
common stock equal to the 8% Note Shares at an exercise price of $5.00 per
share. The Company redeemed one of the 8% Notes with a principal balance of
$70,000. The remaining six 8% Note holders have not agreed to either extend the
terms of, or convert, their respective 8% Notes. As a result, if the remaining
six 8% Note holders, representing an aggregate of $473,000 of the outstanding
principal balance of the 8% Notes, send the Company notice informing the Company
that it is in default of its repayment obligations on the 8% Notes, the Company
will be considered in default of the 8% Notes.
Between May 1997 and June 1997, the Company granted options to purchase
an aggregated 550,000 shares to a consultant. Of the options 300,000 are
exercisable at $.10 per share and 250,000 are exercisable at $4.00 per share.
The options are exercisable until September 2003. Each investor was provided
with or had access to financial and other information concerning the Company and
had the opportunity to ask questions concerning the Company and its operations.
Accordingly, the issuance of these securities was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
Beginning in April 1998, the Company issued an aggregate of
twenty-seven 7% Subordinated Notes to 24 investors, in return for which the
Company received proceeds of , for an aggregate of $549,500 (the "7% Notes").
Each investor was provided with or had access to financial and other information
concerning the Company and had the opportunity to ask questions concerning the
Company and its operations. Accordingly, the issuance of these securities was
exempt from the registration requirements of the Act pursuant to Section 4(2) of
the Act. The 7% Notes mature one year from the date of issuance and are
convertible into shares of common stock of the Company at $8.00 per share.
Interest is payable in cash or shares of common stock of the Company, at the
discretion of the Company. The notes matured one year from date of issue. Six of
the 7% Note holders, representing an aggregate of $70,000 of the outstanding
principal balance of the 7% Notes, agreed to extend the maturity date of their
7% Notes until the close of this Offering. Thirteen of the 7% Note holders,
representing an aggregate of $292,000 of the aggregate outstanding principal
amount of the 7% Notes agreed to convert the principle balance plus accrued
interest of their respective notes into (i) common stock of the Company at the a
price per share equal to $5.00, (the "7% Note Shares"); and (ii) warrants to
purchase a number of shares of the Company's common stock equal to the 7% Note
Shares at an exercise price of $5.00 per share. The Company redeemed two of the
7% Notes which had an aggregate principal balance of $32,500. The remaining four
7% Note holders, representing an aggregate of $255,000 of the outstanding
principal balance of the 7% Notes, have not agreed to either extend the terms
of, or convert, their respective 7% Notes. As a result, if any of the remaining
four 7% Note holders are not repaid, or do not convert or extend the terms of
their 7% Notes by April 1999, and such 7% Note holders send the Company notice
informing the Company that it is in default of its repayment obligations on the
7% Notes, the Company will be considered in default of the 7% Notes.
In May 1998, the Company completed an offering of an aggregate of
$700,000 of 10% Subordinated Promissory Notes (the "10% Notes") and an aggregate
of 140,000 shares of Common Stock to nine accredited investors. The 10% Notes
mature one year from the date of issuance and are convertible into shares of
common stock of the Company at $8.00 per share. Interest is payable in cash or
shares of common stock of the Company, at the discretion of the Company. Two of
the 10% Note holders, representing an aggregate of $380,000 of the outstanding
principal balance of the 10% Notes, agreed to extend the maturity date of their
II-3
10% Notes until the close of this Offering. Seven of the 10% Note holders,
representing an aggregate of $320,000 of the aggregate outstanding principal
amount of the 10% Notes agreed to convert the principle balance plus accrued
interest of their respective notes into (i) common stock of the Company at the a
price per share equal to $5.00, (the "10% Note Shares"); and (ii) two warrants
to purchase a number of shares of the Company's common stock equal to the 10%
Note Shares at an exercise price of $5.00 per share. ^Each of the investors was
provided with, or had access to financial and other information concerning the
Company and had the opportunity to ask questions concerning the Company and its
operations. Accordingly, the issuance of these securities was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
Between September 1998 and November 1998, the Company granted options
to purchase an aggregate of 2,705,000 shares of Common Stock to 14 consultants
in connection with services rendered regarding the promotion of the Company's
motorcycles. The options are exercisable until December 2004. The exercise price
for the options ranges between $.50 and $1.00 with the exception of 150,000
options which are exercisable at $.10. Each investor was provided with or had
access to financial and other information concerning the Company and had the
opportunity to ask questions concerning the Company and its operations.
Accordingly, the issuance of these securities was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
In November 1998, the Company issued an aggregate of 1,500,000 shares
of Common Stock and granted options to purchase an aggregate of 200,000 shares
of Common Stock exercisable at $1.00 per share until December 31, 2003 to four
executive officers of the Company pursuant to the exemption from the
registration requirements of the Act provided by Section 4(2) of the Act.
Between November 1998 and January 1999, the Company completed a
Regulation D Rule 506 private offering of approximately 35 Units of its
securities (the "Units") to 10 accredited investors and 1 sophisticated investor
from which the Company received gross proceeds of $870,000. Each Unit consisted
of (i) a Senior Promissory Note in the principal amount of $25,000 and (ii) the
right to receive a number of shares of Common Stock of the Company determined by
dividing $12,500 by the subsequent public offering price per share of the
Company's Common Stock in an underwritten public offering from which the Company
receives at least $5,000,000 gross proceeds. Barron Chase Securities, Inc.,
("Barron") acted as the selling agent for the offering. In consideration for
acting as selling agent, Barron received a placement fee equal to ten percent
(10%) of the proceeds received from this offering and an unaccountable expense
allowance equal to 3% of the proceeds received from this offering.
Between December 1998 and February 1999, the Company obtained lines of
credit in the aggregate amount of $1,405,000 from accredited investors. The line
of credit accrues interest at 10% and 8% respectively. In connection with
obtaining the lines of credit, the Company agreed to issue an aggregate of
1,275,000 shares of common stock to the ^providers of the credit lines. Each
line of credit provider was provided with or had access to financial and other
information concerning the Company and had the opportunity to ask questions
concerning the Company and its operations. Accordingly, the issuance of these
securities was exempt from the registration requirements of the Act pursuant to
Section 4(2) of the Act.
ITEM 27. EXHIBITS
Exhibits Description of Document
- -------- -----------------------
1.1 Form of Underwriting Agreement (3)
1.2 Form of Selected Dealer Agreement (3)
2.1 Amended and Restated Articles of Incorporation of American Quantum Cycles, Inc., filed
November 21, 1997(1)
2.2 Amended Articles of Incorporation of American Quantum Cycles, Inc. filed April 6, 1998,
creating "Series A 7% Convertible Preferred Stock"(1)
II-4
2.3 Amended and Restated Bylaws of American Quantum Cycles, Inc.(1)
3.2 American Quantum Cycles, Inc. Amended 1997 Stock Option Plan(1)
4.1 Form of Common Stock Certificate (2)
4.2 Warrant Agreement between the Company and Barron Chase Securities, Inc. (3)
4.3 Form of Warrant Certificate (3)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. (2)
10.1 Consulting Agreement between American Quantum Cycles, Inc. and Greenstone Financial
Corporation dated May 9, 1997(1)
10.2 License Agreement between Feuling Advanced Technologies, Inc. and American Quantum
Cycles, Inc. dated as of August 19, 1997(1)
10.3 Agreement between the Company and Ferrex International, Inc.(1)
10.4 Sample Dealer Agreement(1)
10.5 Lease Agreement between the Company and Bruce and Karen Weiss effective May 1, 1997(1)
10.6 Amendment to Lease Agreement between the Company and Bruce and
Karen Weiss dated January 29, 1998(1)
10.7 Employment Agreement with Richard K. Hagen (2)
10.8 Employment Agreement with Gary W. Irving (2)
10.9 Financial Advisory Agreement between the Company and Barron Chase Securities, Inc.(3)
10.10 Merger and Acquisition Agreement between the Company and Barron Chase Securities, Inc.(3)
23.1 Consent of Pricher and Company Certified Public Accountants(3)
23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (contained in such firm's opinion filed as
Exhibit 5.1) (2)
27 Financial Data Schedule
- ----------------
(1) Incorporated by reference from the Company's Registration Statement on
Form 10-SB filed April 24, 1998 (File No. 000-24083).
(2) To be filed by Amendment
(3) Filed herewith
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act.
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information set forth in the
Registration Statement.
(iii) Include any additional or changed material
information on the plan of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration of the securities offered, and
the offering of such securities at that time to be the initial bona fide
offering; and
(3) File a post effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-5
(4) The Company will provide to the Underwriters at the closing
specified in the Underwriter's Agreement certificates in such denominations and
registered in such names as required by the Underwriters 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
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
For the purpose of determining any liability under the Securities Act,
the Company 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 Company pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Securities Act as part of this Registration Statement as of
the time the Securities and Exchange Commission declares it effective.
For the purpose of determining any liability under the Securities Act,
the Company will treat such post-effective amendment that contains a form of
Prospectus as a new Registration Statement for the securities offered in the
Registration Statement therein, and treat the Offering of the securities at that
time as the initial bona fide offering of those securities.
II-6
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 authorizes this Registration
Statement to be signed on its behalf by the undersigned, in the city of
Melbourne, State of Florida on March 10, 1999.
AMERICAN QUANTUM CYCLES, INC.
By: /s/ Richard K. Hagen
--------------------
Richard K. Hagen, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
Chairman of the
Board of Directors,
/s/Richard Hagen Principal Executive Officer,
- -------------------------- Principal Financial Officer March 10, 1999
Richard Hagen and President
/s/Jim Cheal Vice President
- -------------------------- and Director March 10, 1999
Jim Cheal
/s/Jeffrey W. Starke Vice President
- -------------------------- and Director March 10, 1999
Jeffrey W. Starke
/s/Denise O'Brien
- --------------------------
Denise O'Brien Director March 10, 1999
/s/Gary Irving Executive Vice President, Chief
- -------------------------- Operating Officer and Director March 10_, 1999
Gary Irving
/s/Linda Condon Principal Accounting Officer
- -------------------------- and Treasurer March 10, 1999
Linda Condon
II-7
EXHIBIT LIST
------------
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Form of Underwriting Agreement (3)
1.2 Form of Selected Dealer Agreement (3)
4.2 Warrant Agreement between the Company and Barron Chase
Securities, Inc. (3)
4.3 Form of Warrant Certificate (3)
10.9 Financial Advisory Agreement between the Company and Barron
Chase Securities, Inc.(3)
10.10 Merger and Acquisition Agreement between the Company and
Barron Chase Securities, Inc.(3)
23.1 Consent of Pricher and Company Certified Public Accountants(3)