-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VvQ5vf+FzFTPy9cwC+szh3Jja+Y5ASwIyDJ6Ck8ShfkWWskWBQMs6VMqKghCbKLO YX/OFj6JtfSVFwArzKvThg== 0001042910-99-001095.txt : 19990819 0001042910-99-001095.hdr.sgml : 19990819 ACCESSION NUMBER: 0001042910-99-001095 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19990818 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN QUANTUM CYCLES INC CENTRAL INDEX KEY: 0001041970 STANDARD INDUSTRIAL CLASSIFICATION: MOTORCYCLES, BICYCLES & PARTS [3751] IRS NUMBER: 592651232 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-74211 FILM NUMBER: 99694956 BUSINESS ADDRESS: STREET 1: 731 WASHBURN RD CITY: MELBOURNE STATE: FL ZIP: 32934 BUSINESS PHONE: 4077520008 SB-2/A 1 AMERICAN QUANTUM CYCLES, INC. FORM SB-2 AMENDMENT NO. 4 As filed with the Securities and Exchange Commission on August 17, 1999 Registration Statement No. 333-74211 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT No.4 TO 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 2,794,500(1) $3.50(2) $9,780,750(2) $2,719.50 Representative's Warrants each to purchase one share of Common Stock, $.001 par value 243,000 $.001 $243 (3) Common stock, $.001 par value 243,000(4) $5.78(2) $1,404,540(2) $390.50 Common stock, $.001 par value (8) 929,449(5) $3.56(6) $3,308,839 $919.86 Common stock, $.001 par value (8) 62,500(7) $16.00(8) $1,000,000 $278.00 - ------------------- --------- --------- ---------- ------- Amount Due $4,307.86
(1) Assumes the underwriter's over-allotment option to purchase 364,500 additional shares of common stock is exercised in full. (2) Estimated solely for purposes of calculating the registration fee. (3) No registration fee required pursuant to Rule 457(g). (4) Issuable upon the exercise of the underwriter's warrants together with an indeterminate number of shares of common stock that may be issuable by reason of the anti-dilution provisions contained therein. (5) Includes 929,449 shares of American Quantum Cycles common stock being offered by selling security holders pursuant to the alternate prospectus. (6) Calculated pursuant to rule 457(c) (see 8). (7) Includes 62,500 shares of the American Quantum Cycles common stock issuable upon the exercise of options exercisable at $16.00 per share being offered by the selling security holders pursuant to the alternate prospectus. (8) Adjusted to give effect for a one for four reverse stock split effective on June 3, 1999 The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said Section 8(a), may determine. EXPLANATORY NOTE This registration statement covers the primary offering of shares of our common stock by American Quantum Cycles, Inc. and the offering of shares of our common stock by certain selling security holders. American Quantum Cycles is registering, under the primary prospectus, 2,430,000 shares of common stock not including shares of our common stock issuable upon exercise of the underwriter's over-allotment option. American Quantum Cycles is registering, on behalf of the selling securityholders, under an alternate prospectus, 991,949 shares of common stock including 62,500 shares of common stock issuable upon exercise of warrants and options. The alternate prospectus pages, which follow the primary prospectus, contain certain sections which are to be combined with all of the sections contained in the primary prospectus, with the following exceptions: the front and back cover pages, and the sections entitled "The Offering" and "Selling Securityholders". In addition, the sections entitled "Concurrent Offering" and "Plan of Distribution" will be added to the alternate prospectus. Furthermore, all references contained in the alternate prospectus to the "offering" shall refer to American Quantum Cycles offering under the primary prospectus. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there by any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. SUBJECT TO COMPLETION Prospectus American Quantum Cycles, Inc. 2,430,000 shares of common stock $________ per share We are offering 2,430,000 shares of our common stock through Barron Chase Securities, Inc., our underwriter. The chart below shows the basic terms of the offering. The offering price may be more than the market price of our common stock after the offering. Per Share Total Offering Price $_______ $_______ Underwriting discounts $_______ $_______ Proceeds to American Quantum Cycles, Inc. $_______ $_______. We granted the underwriter an option to purchase a maximum of 364,500 additional shares of common stock to cover over-allotments of shares. Our common stock currently trades on the OTC Bulletin Board under the Trading Symbol "AMQC" On August 16, 1999, the closing bid price for our common stock was $3.56. We are attempting to register our common stock for trading on the American Stock Exchange under the symbol AQC. This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss. See "High Risk Factors" beginning on page 5. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Barron Chase Securities, Inc. [DATE]
TABLE OF CONTENTS Page ---- Prospectus Summary................................................................................. 3 High Risk Factors.................................................................................. 5 Use of Proceeds.................................................................................... 11 Dividend Policy.................................................................................... 12 Capitalization..................................................................................... 12 Selected Financial Information..................................................................... 13 Management's Discussion and Analysis and Plan of Operation.............................................................................. 14 Business........................................................................................... 18 Management......................................................................................... 27 Principal Shareholders............................................................................. 32 Certain Relationships and Related Transactions..................................................... 33 Concurrent Offering................................................................................ 33 Description of Securities.......................................................................... 33 Shares Eligible for Future Sale.................................................................... 35 Underwriting....................................................................................... 35 Legal Matters...................................................................................... 37 Experts............................................................................................ 37 Additional Information............................................................................. 37 Index to Financial Statements...................................................................... F-1
2 PROSPECTUS SUMMARY American Quantum Cycles, Inc. We are beginning to manufacture and mass market American-made, high performance, custom made, V-twin engine cruisers and touring style motorcycles. We believe that ordering the parts we require to make our motorcycles on an as-needed basis, instead of carrying a large inventory, will allow us to minimize our production costs and enable us to mass-produce high quality motorcycles. Our executive offices are located at 731 Washburn Road, Melbourne, Florida 32934. Our telephone number is (407) 752-0008 our facsimile number is (407) 752-0550 and our website is http://www.quantumcycle.com.
THE OFFERING Common stock outstanding prior to the offering................................. 2,842,798 shares (1) Common stock offered........................................................... 2,430,000 shares Common stock outstanding after the offering.................................... 5,272,798 shares (2)
The information in this prospectus relating to our common stock gives effect to a one for four reverse stock split of our outstanding common stock effective on June 3, 1999. We are assuming in calculating the number of shares of common stock that the underwriter's over-allotment option is not exercised. The share information does include an aggregate of 929,449 shares of common stock being offered by the selling security holders under the alternative prospectus. The share numbers do not include: (i) 243,000 shares of common stock issuable upon the exercise of the representatives warrants; and (ii) a total of 556,250 shares of common stock issuable upon the exercise of outstanding options, of which 62,500 are being registered pursuant to the alternative prospectus. 3 SUMMARY FINANCIAL INFORMATION
For the years ended April 30, ----------------------------- 1999 1998 ---- ---- OPERATIONS DATA: Revenues $975,780 $192,856 Total costs and expenses 7,762,571 2,824,567 Net loss $(6,786,791) $(2,631,711) Weighted average shares outstanding (2) 1,212,503 501,961 Net loss per common share outstanding (2) $(5.597) $(5.243)
As of As of April 30, 1998 April 30, 1999 Adjusted (1) -------------- -------------- ----------- BALANCE SHEET DATA: Current assets $886,836 $936,654 $6,214,063 Working capital $(2,162,614) $(4,580,827) $3,225,852 Total assets $1,864,216 $2,642,758 $8,020,167 Total liabilities $3,167,426 $6,985,240 $3,092,470 Shareholders' equity (deficit) $(1,303,210) $(4,342,482) $4,927,697
(1) Adjusted to show the effect of the sale of 2,430,000 shares of common stock we are offering to you at a price of $3.50 per share. (2) Adjusted to give effect to a one for four reverse stock split of the issued and outstanding shares of our common stock effective on June 3, 1999. 4 HIGH RISK FACTORS AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE AND INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AMERICAN QUANTUM CYCLES AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED HEREIN. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. AMERICAN QUANTUM CYCLES ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. We have only limited operating history, we have experienced losses since inception, we expect future losses and we may not ever become profitable. Although we were incorporated in 1986, we did not begin manufacturing motorcycles until May 1997. To date, we have only manufactured 36 motorcycles of which 22 were sold. Due to our short operating history and limited number of motorcycle sales, we do not have any significant revenues. Investors in this offering therefore will have little, if any, meaningful information about us which may help you evaluate whether we will ever be able to successfully manufacture and market our motorcycles or whether an investment in us will be profitable or unprofitable. Because we have such a short operating history and such limited sales, we will face all the risks and problems associated with a new developmental stage business including the existence of operating losses. For example, between the time of our incorporation through April 30, 1999, we incurred cumulative losses of $9,421,138 and an accumulated deficit of $4,342,482. We anticipate our losses will continue in the future unless we are able to produce revenue from sales of our motorcycles. Our auditor's have indicated that our ability to continue as a going concern is questionable. Our auditors report, included as part of our financial statements for the year ended April 30, 1999, contains a qualification raising substantial doubt about our ability to continue as a going concern because of our recurring losses from operations and our net capital deficiency. Although we believe that the proceeds from the sale of the shares of our common stock in this offering will enable us to continue as a going concern, we cannot assure you that we will be able to continue our operations in the future. If we are unable to continue our operations, your entire investment in us will be lost. Our proprietary technology may not provide sufficient protection to us. We may also be subject to claims from third parties for infringement. Our success depends upon our motorcycle-related proprietary technology. We rely on a combination of contractual rights, patents, trade secrets, know-how, trademarks, non-disclosure agreements and technical measures to establish and protect our rights, most of which we license from third parties pursuant to an exclusive licensing agreement. We cannot assure you that we can protect our rights to prevent third parties from using or copying our technology. We believe that we independently developed our technology and that it does not infringe on the proprietary rights or trade secrets of others. However, we cannot assure you that we have not infringed on the technologies of third parties or those third parties will not make infringement violation claims against us. Any infringement claims may have a negative effect on our ability to manufacture motorcycles. We are subject to federal, state and local government regulations affecting motorcycle production that is very costly and can affect our operations. We are subject to direct regulation by the Department of Transportation, Environmental Protection Agency and Federal Trade Commission as well as other local, state and federal agencies. Compliance with the regulations established by these agencies is very costly and affects our manufacturing process. Any changes in the laws or regulations imposed on us by these agencies could significantly increase our motorcycle production costs and could have a very negative effect on our business. 5 In particular, our business operations and facilities are subject to a number of federal, state and local environmental laws and regulations. These laws, regulations or the nature of our operations may require us to make significant additional capital expenditures to ensure compliance in the future. Our failure to comply with environmental laws could result in the termination of our operations, impositions of fines, or liabilities in excess of our capital resources. We do not maintain environmental liability insurance, and if we are required to pay the expenses related to any environmental liabilities, these expenses could have a material adverse effect on our operations. We will also be required to obtain approvals and make certifications regarding compliance with federal, state and local regulations regarding the noise, emissions and safety characteristics of our motorcycles. The potential delays and costs that could result from obtaining these regulatory approvals and complying with, or failing to comply with, such regulations could result in delays in motorcycle production and adversely affect operating results. Consumer discretionary spending may affect motorcycle purchases and is affected by various economic conditions and changes. Purchases of motorcycles, such as the premium heavyweight motorcycles that we are attempting to mass-produce, are considered discretionary for consumers. Our success will therefore be influenced by a number of economic factors affecting discretionary consumer spending, such as employment levels, business conditions, interest rates and taxation rates, all of which are not under our control. Adverse economic changes affecting these factors may restrict consumer spending and thereby adversely affect our growth and profitability. Motorcycle defects could cause product recalls that can be expensive and damaging to our reputation. Our motorcycles may have unanticipated defects which could require us to recall them. A product recall could delay or even halt production until we are able to correct any such defects. Recalls may also have a materially negative effect on the brand image and public perception of our motorcycles and any other products we develop and thereby adversely effect our future sales. Such recalls or other defects would also require substantial expenditures to correct. Product liability claims could severely damage our business and we may have insufficient insurance coverage. Given the nature of our products, we expect that we will be subject to potential product liability claims that could, in the absence of sufficient insurance coverage, have a material adverse impact on our business. Although we intend to obtain adequate insurance coverage prior to commencing mass production, there can be no assurance that we will be able to secure or maintain adequate liability insurance to cover all product liability claims. As a new market entrant, any large product liability suits occurring early in our mass marketing operations may significantly adversely affect our ability to market our motorcycles. We may not have the ability to compete with larger motorcycle companies that could force us to terminate operations. The market for the type of motorcycles we manufacture is extremely competitive and we expect that competition will increase in the future. Our competitors include many large companies that have substantially greater market presence and financial resources than we do. For example, we will compete with Harley Davidson, Honda, Kawasaki, Yamaha, Excelsior Henderson and other national, regional and local companies. 6 We believe that our ability to compete successfully depends on a number of factors including: o design of high performance and quality motorcycles; o market presence; o timely delivery of our motorcycles; o competitive pricing policies; o the timing and introduction of our products and services into the market; and o our ability to keep up with existing and emerging industry trends. Current or increased competition may either prevent us from entering or maintaining a place in the motorcycle manufacturing market. We cannot assure you that we will be able to successfully identify new opportunities and develop and bring new products to market in a timely manner, nor can we guarantee you that products developed by our competitors will not make our products noncompetitive or obsolete. We cannot guarantee that we will have the financial resources or marketing and manufacturing capabilities to compete successfully. If we cannot successfully compete, we probably will be forced to terminate our operations. A reduction or delay in sales by our dealers will have a material adverse effect on our business. We expect to derive substantially all of our revenue from sales through independent dealers. As of August 1999, we executed agreements with 28 dealers. Either party may terminate the agreements at any time. We do not yet know how successful these dealers will be in selling our motorcycles. Furthermore, we do not have any history or experience in establishing or maintaining such dealer support, and there can be no assurance that we will be able to successfully support our dealer network. If we are unable to provide such support, we may lose dealers and, consequently, distribution of our products would be adversely affected. In addition, most of our dealers will offer competitive products manufactured by third parties. There can be no assurance that our dealers will give priority to our products as compared to competitors' products. Finally, we will need to attract additional or replacement dealers to sell our products. There can be no assurance that we will be able to convince a sufficient number of additional or replacement dealers that our products will be a successful and profitable line or that such additional or replacement dealers will be successful in selling our products. Any reduction or delay in sales of our products by our dealers would have a material adverse effect on our business, operating results or financial condition. If we are unable to expand our motorcycle production and distribution capacities we may have to terminate operations. We must increase our motorcycle manufacturing capacity and expand our dealer network, which will sell our motorcycles, before we will have even a chance to compete in the marketplace. Increasing our manufacturing and marketing capacity will involve hiring additional personnel, purchasing additional manufacturing equipment and spending significant funds on advertising. This will require significant capital expenditures, which will most likely increase our operating losses for an indefinite period of time. Our expansion plans will also place a great deal of strain on our management team most of whom have not had experience managing large complex business operations. We cannot guarantee that we will be able to expand our motorcycle manufacturing and marketing capabilities as planned. If any of these obstacles prevent us from expanding our motorcycle manufacturing and marketing business, we may be forced to terminate our operations. Proceeds from this offering may not be sufficient and we may not be able to generate sufficient revenues or other additional capital to continue operations. Manufacturing and marketing motorcycles and our plans for expansion, as mentioned above, will require significant amounts of capital. Since we have no significant internal revenues to finance our continuing operations and plans for expansion, we depend on proceeds from sales of our securities to satisfy our capital requirements. We believe that the proceeds we receive from this offering will satisfy our capital requirements until February 2000. At that time, we will have to arrange for additional financing unless we are receiving revenues from sales of our motorcycles to finance our manufacturing and marketing operations at a sufficient level. Financing options could include, but not be limited to additional sales of our securities or an operating line of credit. If we are unable to obtain additional financing on satisfactory terms when needed, we may have to suspend our operations or terminate our operations altogether. A significant portion of proceeds from this offering will be used to pay our existing debt and may not provide us with sufficient capital to conduct our operations. Approximately 24% of the proceeds of this offering will be used to pay our debt. Because such a large percentage of the proceeds from this offering will be used to pay down our debt objectives, there is a risk that the remaining proceeds from the offering will be insufficient to allow us to further our business plan and conduct our operations. 7 We depend on motorcycle parts and material suppliers and if we cannot obtain these supplies as needed, our operation will be severely damaged. We rely on third party suppliers to produce the parts and materials we use to manufacture our motorcycles. If our suppliers are unable or unwilling to provide us with the parts and supplies, we will be unable to produce our motorcycles. We cannot guarantee that we will be able to purchase the parts we need at reasonable prices or in a timely fashion. If we are unable to purchase the supplies and parts we need to manufacture our motorcycles, we will experience severe production problems, which may possibly result in the termination of our operations. Our operations may suffer from computer problems relating to the year 2000. Our future success will depend, in part, on our computer network infrastructure that will be used by our dealers to place sales orders and for general and administrative purposes. We must continue to expand and improve our computer infrastructure as the number of dealers and motorcycles ordered increase. We cannot assure you that we will be able to develop our network infrastructure to meet additional demand or our dealers' changing requirements on a timely basis and at a reasonable cost. If we cannot develop our computer infrastructure on a timely basis, we may not be able to efficiently manufacture and market our bikes and other products which could have a negative effect on our business and financial condition. Our computer infrastructure is also vulnerable to computer viruses or similar disruptive problems. Computer viruses or problems caused by third parties could lead to interruptions, delays or termination in production and delivery of our motorcycles to our dealers, which could also negatively affect our business. Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the year 2000. Some older computer systems store dates with only a two-digit year with an assumed prefix of "19" which limits those older systems to dates between 1900 and 1999. If not corrected, many computer systems and applications could fail or create erroneous results by or at the year 2000. Because we will rely heavily on computers to conduct our business we are subject to all the risks associated with the Year 2000. We have assessed the scope of our risks related to problems these computer systems may have related to the year 2000, and we believe such risks are not significant. In addition, we are in the process of questioning our vendors and business partners about their progress in identifying and addressing problems related to the year 2000. However, no assurance can be given that all of these third party systems or our computer systems will be year 2000 compliant. Since we started the business using a paper based workflow process, we will revert to the paper form process to run American Quantum Cycles on a contingency basis should we experience Year 2000 problems. We may not be able to attract and retain key personnel. Our success depends on the efforts of our management team, including Richard Hagen, our Chairman and Chief Executive Officer, Gary Irving, our Chief Operating Officer, Michael Smith, our Vice President of Sales, Frank Aliano, our Vice President of Production and Jeff Starke, our Vice President of Research and Development. We cannot guarantee that these persons will continue their employment with us. The loss of services of one or more of these key people would have a negative effect on our ability to conduct our operations. Currently we do not have key man life insurance on any of the members of our management team. Our success also depends on our ability to hire and retain additional qualified executive, computer programming, engineering, production, investor management and marketing personnel. We cannot assure that we will be able to hire or retain necessary personnel. 8 Your investment in American Quantum Cycles will be diluted. Dilution is the difference between the amount you pay for a share of common stock in this offering and the net tangible book value per share of such common stock immediately after the offering. If you invest in this offering, you will incur an immediate and substantial dilution of your investment. In addition, we may issue a substantial number of shares of common stock or preferred stock without your approval. Any such issuance of our securities in the future could reduce your ownership percentage and voting rights in us and further dilute the value of your investment. Our intended use of proceeds could be revised by changing circumstances which investors will not have a right to approve. 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. There is only a limited market for American Quantum Cycles common stock and we can not assure you that a more significant market will ever develop. There is currently only a limited trading market for our common stock. Our common stock trades on the OTC Bulletin Board under the symbol "AMQC," which is a limited market in comparison to the NASDAQ system or the American Stock Exchange. Simultaneously with this offering, we intend to apply for inclusion of our common stock on the AMEX, however, we cannot assure you that our common stock will ever qualify for inclusion on the AMEX or that more than a limited market will ever develop for our common stock. Risk associated with penny stock rules will limit the liquidity of American Quantum Cycles stock. Our common stock currently trades on the OTC Bulletin Board at a price of less than $5.00 per share and is subject to the penny stock rules under the Securities Exchange Act of 1934. These rules regulate broker-dealer practices for transactions in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers, to deliver a standardized risk disclosure document prepared by the Security and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker dealer and salesperson compensation information, must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction, the broker and/or dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may reduce purchases in this offering and trading activity in this offering market for our common stock. As long as our common stock is subject to the penny stock rules, investors in this offering may find it more difficult to sell their securities. 9 Risk that offering price does not accurately reflect the value of our common stock. The purchase price for the shares of common stock we are offering to you was determined by American Quantum Cycles and Barron Chase Securities, Inc., the underwriter for this offering. We calculated the purchase price for the shares based on our current financial condition and the general condition of the securities market; however, we cannot assure you that the purchase price we established accurately reflects the value of our assets or potential earnings. Possible volatility of American Quantum Cycles' stock price. The stock markets are subject to significant price fluctuations, which may be unrelated to the operating performance of particular companies; and therefore, the market price of our common stock may frequently change. In addition, if our competitors or we publicly announce new products or developments, such announcements may have a significant impact on the market price of our common stock. Use of Preferred Stock could be used to resist takeovers and affect voting power of our common stock. 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. 10 USE OF PROCEEDS The net proceeds we receive from the sale of the common stock we are offering to you based on a public offering price of $3.50 per share, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $7,230,000 (not including an additional $1,275,750 if the over-allotment option granted to the underwriter is exercised in full). We intend to use the net proceeds of the offering approximately as follows:
Approximate Approximate Amount Percentage of Application of Net Proceeds of Net Proceeds ----------- --------------- --------------- Repayment of notes (1) (4) .............................. $1,735,989 24.0% Equipment Purchase (2)................................... $100,000 1.4% Working Capital (3) ..................................... $5,394,011 74.6% ---------- ----- Total.............................................. $7,230,000 100% ========== =====
(1) The proceeds from the notes being repaid were used to fund $958,918 for product development, $394,467 for factory build-out, $223,011 for information systems, and $159,593 for e-commerce. Includes the repayment of (i) an aggregate of $661,780 principal and accrued interest to the holders of American Quantum Cycles 8% notes; and (ii) an aggregate of $163650 principal and accrued interest to the holders of American Quantum Cycles 7% notes; (iii) an aggregate of $910,559 to the holders of American Quantum Cycles senior promissory notes issued between November 1998 and January 1999. (2) Includes the purchase of ERP Software (which will manage all internal operating facets of American Quantum Cycles including financial information), computer hardware and materials handling equipment. (3) Includes the costs of goods required for motorcycle manufacturing, research and development, product development, marketing and administrative expenses. The foregoing is our best estimate of how we intend to use the net proceeds of the offering during the next approximately 12 months. We reserve the right to use the proceeds for different purposes if we believe such a change is in our best interest. If we receive additional proceeds because the underwriter exercises their over-allotment option, we will use such additional proceeds for working capital purposes. We may invest the net proceeds of the offering in short-term, interest-bearing investments until we use them for the purposes stated above. MARKET PRICE AND DIVIDENDS OF THE REGISTRANT'S COMMON EQUITY AND OTHER STOCKHOLDER MATTERS As of August 16, 1999, there were approximately 221 shareholders of record of our common stock. Our common stock is currently listed for trading on the over-the-counter bulletin board under the symbol "AMQC". The following table sets forth, the high and low bid prices for our common stock as reported by the OTC Bulletin Board since August 12, 1997. The following table also gives effect to our 1 to 4 reverse stock split effective June 3, 1999.
Common Stock ------------ High Low ---- --- August 12, 1997 - October 31, 1997 $40.00 $22.00 November 1, 1997 - January 31, 1998 42.50 24.00 February 1, 1998 - April 30, 1998 32.00 13.50 May 1, 1998 - July 30, 1998 26.00 14.00 August 1, 1998 - October 31, 1998 10.36 6.32 November 1, 1998 - January 31, 1999 9.00 2.32 February 1, 1999 - April 30, 1999 4.88 3.40 May 1, 1999 - July 30, 1999 5.52 2.48 August 1, 1999 - August 16, 1999 4.00 3.19 ==== ==== 11 DIVIDEND POLICY Our Board of Directors has complete control over whether or not we pay dividends to our shareholders. We have not paid, and do not believe we will pay, any dividends on our common stock in the near future. We intend to invest future earnings, if any, in developing and expanding our business. CAPITALIZATION The following table describes our actual capitalization as of April 30, 1999, our capitalization as adjusted to show the sale of our common stock offered at a public offering price of $3.50 per share and the receipt of the estimated net proceeds from the offering. April 30, 1999 Actual(1) As Adjusted --------- ----------- Short term debt: Notes payable $2,188,753 $ -- Current maturities of long-term debt 15,558 15,558 Current capital lease obligations 147,560 147,560 Lines of credit 1,093,893 1,093,893 $3,445,764 $ 1,257,011 Long term debt: Installment note for vehicle purchase at 8.75% $13,001 $ 13,001 Installment notes for intellectual property rights from 8% to 10% 9,917 9,917 Short-term obligations to be converted 1,363,500 -- -------------- ------------- 1,386,418 22,918 Capital lease obligations 81,341 81,341 -------------- ------------- 1,467,759 104,259 Shareholders' equity: Preferred Stock, $.001 par value; 2,500,000 shares authorized; no shares outstanding -- -- Common stock, $.001 par value; 50,000,000 shares authorized; 2,300,586 shares issued (actual); 5,519,208 shares (as adjusted) (2) 2,031 5,519 Additional paid-in capital (2) 5,076,353 14,343,314 Accumulated deficit (9,421,136) (9,421,136) -------------- ------------- (4,342,482) 4,927,697 -------------- ------------- Total capitalization $(2,874,723) $4,215,981 ============== =============
(1) As of August 16, 1999, there were 2,842,798 shares of our common stock outstanding. (2) Adjusted to give effect to a one for four reverse stock split of the issued and outstanding shares of common stock effective on June 3, 1999. 12
SUMMARY FINANCIAL INFORMATION For the years ended April 30, ----------------------------- 1999 1998 ---- ---- STATEMENT OF OPERATIONS DATA: Revenues $975,780 $192,856 Total costs and expenses 7,762,571 2,824,567 Net loss $(6,786,791) $(2,631,711) Weighted average shares outstanding (2) 1,212,503 501,961 Net loss per common share outstanding (2) $(5.597) $(5.243)
As of As of April 30, 1998 April 30, 1999 Adjusted (1) -------------- -------------- ----------- BALANCE SHEET DATA: Current assets $886,836 $936,654 $6,214,063 Working capital $(2,162,614) $(4,580,827) $3,225,852 Total assets $1,864,216 $2,642,758 $8,020,167 Total liabilities $3,167,426 $6,985,240 $3,092,470 Shareholders' equity (deficit) $(1,303,210) $(4,342,482) $4,927,697
(1) Adjusted to show the effect of the sale of 2,430,000 shares of common stock we are offering to you at a price of $3.50 per share. (2) Adjusted to give effect to a one for four reverse stock split of the issued and outstanding shares of our common stock effective on June 3, 1999. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, INCLUDED IN OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS, ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, WHEN USED IN THIS DOCUMENT, THE WORDS "ANTICIPATE," "ESTIMATE," "PROJECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS INCLUDING THOSE RISKS DESCRIBED IN OUR ANNUAL REPORT ON FORM 10-KSB, AS WELL AS IN THIS REPORT ON PROSPECTUS. SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED OR PROJECTED. ALTHOUGH AMERICAN QUANTUM CYCLES BELIEVES THAT THE EXPECTATIONS WE INCLUDE IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT ASSURE YOU THAT THESE EXPECTATIONS WILL PROVE TO BE CORRECT. AMONG THE KEY RISKS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTATIONS ARE ESTIMATES OF COSTS, PROJECTED RESULTS OR ANTICIPATED RESULTS. The following discussion and analysis should be read in conjunction with the financial statements of American Quantum Cycles and the notes thereto appearing at the end of this prospectus. PLAN OF OPERATION American Quantum Cycles has made, and projects significant investments in its manufacturing plant and people which will support an aggressive increase in monthly production of motorcycles and engines during the next six months. Investment in the plant includes manufacturing equipment, material-handling equipment along with computer hardware and software (enterprise resource planning software including integration with our dealer oriented intranet). During this same period, our headcount (number of full time employees) is projected to increase from 38 to over 70. Most of the increase in headcount will be in production and key support functions such as quality control, procurement and inventory management. Production increase will be implemented through refinement of the assembly process and investment in jigs, fixtures and material handling equipment such as pneumatic hoists, lifts and conveyor belts. The total monthly production is projected to increase from 20 motorcycles in March to 80 motorcycles per month by September 1999 with the addition of a second assembly line. American Quantum Cycles also plans to invest in the research and development of two new product lines during the next six months: a touring motorcycle and a 96 cubic inch engine. The touring motorcycle will be a second product line to the cruiser model currently manufactured by American Quantum Cycles and will include saddlebags and windshields/fairing. The touring motorcycle is targeted at one of the fastest growing market segments. A prototype of the touring product was featured at the Sturgis Motorcycle Rally in August of 1998. Management of American Quantum Cycles believes that the dealer and consumer response was very favorable due to the number of orders for the touring motorcycle that were placed at the rally. The 96 cubic inch engine will use the same 4-Valve technology as our present 88 cubic inch engine. We put the 96 cubic inch engine through extensive testing, including over 4,000 miles of road testing and numerous dynamometer tests. The dynamometer tests established a 10% improvement in peak foot-pounds of torque than the 88 cubic inch engine. Management believes that 4-Valve engine design is one of the industry leaders in high torque at low and mid-range speeds. This torque gives riders excellent acceleration for increasing speed to merge into highway traffic from on-ramps and passing trucks safely. The touring motorcycle and the 96 cubic inch engine are planned to be introduced in the next twelve months. 14 RESULTS OF OPERATIONS American Quantum Cycles has transitioned from a development stage company into an early production company. American Quantum Cycles was originally incorporated on March 20, 1986 as "Norbern, Inc." and was inactive until March 1997 when it began developing and implementing its business and financing plans. On May 8, 1997, Norbern, Inc. changed its name to American Quantum Cycles, Inc. and its fiscal year end to April 30. As American Quantum Cycles was inactive prior to March 1997, there was no income and only incidental supply costs and the accrued interest expense from seven promissory notes totaling $250,000. For the fiscal year ended April 30, 1997, we had a deficit carry forward of $2,634. During the fiscal year ended April 30, 1998, our efforts were principally devoted to research, development and design of products, marketing activities and raising capital, which resulted in cumulative losses of $2,634,345. These losses resulted primarily from expenditures for general and administrative activities, including salaries and professional fees for outside services in the amount of $1,164,291, travel and marketing expenses of $457,590, and accrued interest expense of $187,232 from the bridge loan and convertible debentures issued. American Quantum Cycles sustained continuing losses during the fiscal year ended April 30, 1999 in the amount of $6,786,791. These losses include $5,706,840 in general and administrative activities, representing training and development of personnel and process necessary in a development stage operation, and $1,079,951 in accrued interest expense. Revenues in the fiscal year ended April 30, 1998 of $192,856 resulted from the sale of the initial ten motorcycles produced plus some after-market 4-Valve engine parts. An additional eight motorcycles were produced, of which two were used for engineering and regulatory testing, and the remaining six are used for marketing purposes. Fifty-four (54) motorcycles have been produced during the fiscal year ended April 30, 1999 for revenues of $959,210 plus $16,570 in aftermarket parts. Two hundred eighty (280) motorcycles have been booked into production slots based on orders from 28 dealers. Eighty-six of these bikes were scheduled for delivery during the January-March time frame of 1999. Of the 86 motorcycles that were ordered for delivery between January and March 1999, 4 were delivered between January and March, 4 were delivered in April. These eight motorcycles are included in the 54 motorcycles produced this past fiscal year. Seven additional motorcycles were delivered in May 1999 and eight in June 1999 as part of the new fiscal year production. American Quantum Cycles expects after-market 4-Valve engine and part sales to increase significantly during the fiscal year 1999/2000. In order to successfully deliver the 280 motorcycles, which have been ordered by the dealers, American Quantum Cycles will have to increase monthly production from 5 per month to 85 per month. To accomplish this production increase, we will need to improve the facilities, refine production processes, add to production staff, and insure continued and smooth flow of proper parts and implement effective quality. There is no guarantee that the management team will be able to implement this required production increase in the 3-6 month time frame necessary for timely delivery of motorcycles against outstanding orders. Risks which could prevent successful delivery of 280 motorcycles include: O Not recruiting adequate production staff, O Insufficient training of production staff, O Not ordering part on time, O Not ordering correct parts, O Suppliers delivering parts of unacceptable quality, O Suppliers not delivering parts on a timely basis, O Not being able to devise efficient assembly procedures, jigs, fixtures and tools and O To manage production staff to operate at an acceptable level of energy, efficiency and productivity Consequently, there is no guarantee that we will be successful in producing the motorcycles that have been ordered. 15 American Quantum Cycles anticipates that the current fiscal year ending April 30, 2000 will have significant reductions in the loss incurred during the first two quarters. American Quantum Cycles expects their first profitable quarter to occur third quarter of fiscal year 2000. Results of operations in the future will be influenced by numerous factors including technological developments, competition, regulation, increases in expenses associated with sales growth, market acceptance of the products of American Quantum Cycles, the capacity of American Quantum Cycles to expand and maintain the quality of its motorcycles and related services, continued development of the dealer organization, favorable source of supplies, recruitment of highly skilled employees and integration of such persons into a cohesive organization, and the ability to raise funds and control costs. LIQUIDITY AND CAPITAL RESOURCES Since American Quantum Cycles only recently emerged from its development stage, it has not received any material income from operations. As such, American Quantum Cycles relies on private sources of financing to support its operations. As part of its funding and financing, American Quantum Cycles issued three separate series of convertible notes to investors: o Beginning in October 1997, American Quantum Cycles issued an aggregate of forty (40) 8% subordinated notes to 32 investors, in the aggregate principal amount of $1,407,000. The notes matured one year from date of issue. Eighteen of the 8% note holders, representing an aggregate of $756,500 of the aggregate outstanding principal amount of the 8% notes agreed to convert the principle balance plus accrued interest of their respective notes into (i) common stock of American Quantum Cycles at the a price per share equal to $3.50; and (ii) warrants to purchase an equal number of shares of American Quantum Cycles common stock at an exercise price of $3.50 per share. American Quantum Cycles redeemed two of the 8% notes with a principal balance of $80,000. The total amount of the proceeds of this offering that American Quantum Cycles has designated for repayment of the 8% notes is $570,500 principal plus $91,280 interest. Nine of the 8% note holders, representing an aggregate of $247,500 of the outstanding principal balance of the 8% Notes, agreed to extend the maturity date of their 8% notes until the close of this offering. American Quantum Cycles intends to repay these notes from the proceeds of this offering. The remaining three 8% note holders, representing an aggregate of $323,000 of the outstanding principal balance of the 8% notes, have not agreed to either extend the terms of, or convert, their 8% notes. American Quantum received notice of default from one 8% note holder and agreed to settlement terms with such note holder.. o Beginning in April 1998, American Quantum Cycles issued an aggregate of twenty-seven (27) 7% subordinated notes to 25 investors, in return for which American Quantum Cycles received proceeds of $549,500. The 7% notes matured one year from the date of issuance and are convertible into shares of common stock of American Quantum Cycles at $8.00 per share. Interest is payable in cash or shares of common stock of American Quantum Cycles, at the discretion of American Quantum Cycles. Seventeen of the 7% note holders, representing an aggregate of $367,000 of the aggregate outstanding principal amount of the 7% notes agreed to convert the principle balance plus accrued interest of their respective notes into (i) common stock of American Quantum Cycles at the a price per share equal to $3.50; and (ii) warrants to purchase an equal number of shares of American Quantum Cycles common stock at an exercise price of $3.50 per share. American Quantum Cycles redeemed two of the 7% notes that had an aggregate principal balance of $32,500. Six of the 7% note holders, representing an aggregate of $150,000 of the outstanding principal balance of the 7% notes, agreed to extend the maturity date of their 7% notes until the close of this offering. American Quantum Cycles intends to repay these notes from the proceeds of this offering. The total amount of the proceeds that American Quantum Cycles has designated for repayment of the 7% notes is $150,000 principal plus $13,650 interest. 16 o In March 1998, American Quantum Cycles received aggregate of $700,000 in connection with the issuance of nine (9) promissory notes to nine investors, which bear interest annually at a rate of 10%. The 10% notes matured one year from the date of issuance and are convertible into shares of common stock of American Quantum Cycles at $8.00 per share. Interest is payable in cash or shares of common stock of American Quantum Cycles, at the discretion of American Quantum Cycles. All of the 10% note holders agreed to convert the principle balance plus accrued interest of their respective notes into (i) common stock of American Quantum Cycles at the a price per share equal to $3.50; and (ii) two warrants to purchase a number of shares of American Quantum Cycles common stock equal to the 10% note shares at an exercise price of $3.50 per share. Under the terms of the notes, American Quantum Cycles has 30 days after receipt of written notice of default from a note holder to cure the default. If American Quantum is unable to cure the default or reach satisfactory arrangements with the note holder who sent such written default, the note holder is entitled to proceed to protect and enforce his or her rights under this note. There is a risk that the proceeds from this offering would be insufficient for American Quantum Cycles to satisfy the payment of these notes. American Quantum Cycles would attempt to establish a long-term payment plan out of cash flow from the sale of motorcycles. There are risks that cash flow will be insufficient, the note holders would not accept a payment plan and that legal action could be taken against American Quantum Cycles by the holders of the notes in default. Between November 1998 and January 1999, American Quantum Cycles completed a private offering of approximately 35 units of its securities to 11 investors from which American Quantum Cycles received gross proceeds of $870,000. Each unit consisted of (i) a senior promissory note in the principal amount of $25,000 and (ii) the right to receive a number of shares of common stock of American Quantum Cycles determined by dividing $12,500 by the subsequent public offering price per share of American Quantum Cycles common stock in an underwritten public offering from which American Quantum Cycles receives at least $5,000,000 gross proceeds. . American Quantum will use these funds for costs of goods required for motorcycle manufacturing, research and development, product development, marketing and administrative expenses through to the time of the completion of this offering. As of June 14, 1999, American Quantum Cycles issued an aggregate of five (5) 8% subordinated notes in the aggregate principal amount of $284,181. The notes mature October 1, 1999 with interest and principal payable in cash. In December 1998, American Quantum Cycles contracted for a secured line of credit with Skippack Capital Corp. in the amount of $755,000 to use for research and development, product development, marketing and administrative expenses. The line of credit accrues interest at a rate of 10% per annum. The line of credit is evidenced by a secured promissory note. Principal and interest on the line of credit must be repaid to the line of credit provider upon demand. The entire amount of the line of credit has been drawn down as of April 30, 1999. This is not a revolving line of credit and is secured by all of American Quantum Cycles' assets. If Skippack calls the line of credit, American Quantum Cycles will attempt to establish a long-term payment plan out of revenue from the sale of motorcycles. In February 1999, American Quantum Cycles contracted with seven individuals for an unsecured line of credit in the aggregate amount of $650,000 use for research and development, product development, marketing and administrative expenses. The entire amount of the line of credit was drawn down as of April 30, 1999.The line of credit accrues interest at a rate of 8% per annum plus an aggregate of 112,500 incentive shares of stock. Principal and interest are to be paid back after completion of this offering. This is not a revolving line of credit. In March 1999, American Quantum Cycles contracted with Anchor Capital Corporation for a $750,000 revolving line of credit to use for inventory and production expenses. Draw on the line of credit is based per purchase order for motorcycles from our dealers. Interest accrues at a rate of 10% per annum. Principal and interest are paid from funds received from the purchase of the motorcycles. In addition to the bridge funding and short-term notes, these lines of credit will cover expenses of American Quantum Cycles through to the completion of this offering. 17 The proceeds from American Quantum Cycles notes and lines of credit have been used for research and development in the amount of $489,302 and investment in inventory, equipment, licenses and intellectual rights in the amount of $978,182 during the fiscal year ended April 30, 1998. American Quantum Cycles expended $608,722 for research and development and $807,885 in equipment, facility improvements and fixtures during the fiscal year ended April 30, 1999. The remaining funds raised were used to supply working capital for American Quantum Cycles operations to date. Year 2000 Disclosure American Quantum Cycles has investigated what, if any, impact the year 2000 could have on its internal software and operating systems. It is believed by the management team that American Quantum's operating system (Win NT 4.0) is year 2000 compliant. DealerNet, a proprietary software for designing and ordering motorcycles at the dealership level, was developed for American Quantum Cycles in 1998, and is to our knowledge year 2000 compliant. Additionally, integral software that is currently being purchased and/or developed for American Quantum Cycles (MRP/ERP, TechNet, & e-commerce), is believed to also be year 2000 compliant. American Quantum Cycles has made efforts to ascertain its vulnerability should any of its vendors experience year 2000 difficulties. Should certain vendors become unable to meet American Quantum's material needs, production could be interrupted, which would in turn adversely affect operations. In 1999, American Quantum Cycles will attempt to identify, if possible, multiple vendor sources for product to limit our exposure to vendor's year 2000 problems. The anticipated costs of American Quantum's year 2000 initiative is not considered material. The internal year 2000 team's mission is to attempt to ensure that there is no adverse effect on us. While we believe that every effort is being taken to address all year 2000 concerns, we can not guarantee that the systems of other companies will be compliant and will not have a material adverse affect on American Quantum Cycles. BUSINESS INTRODUCTION American Quantum Cycles, Inc. designs, manufactures and distributes American-made, high performance V-twin engine cruiser and touring style motorcycles. These motorcycle products include stock models and motorcycles built to customer specifications. We make use of a "just in time" approach (i.e. ordering parts on an as-needed basis) in manufacturing, and we believe we can manufacture a high quality product using mass production methods. American Quantum Cycles further believes that this made-to-order approach helps produce greater customer satisfaction and reduces the need for added cash flow. We expects that its motorcycles will be lower in price compared to the other major sources of high performance, customer-specified motorcycles, which are primarily small customization shops and small manufacturers. We are initially focusing on manufacturing and selling heavyweight motorcycles and have begun small-scale production of our initial heavyweight cruiser, the Liberty. We unveiled this model at the Sturgis Motorcycle Rally in Sturgis, South Dakota, in August 1997. American Quantum Cycles has produced 55 motorcycles since that time, 41 of which have been sold to dealers and/or consumers. The remaining 14 motorcycles are being used for regulatory compliance testing, marketing and long term testing. We will also take bikes to rallies and conferences including the Indianapolis Dealers Conference, Daytona Beach Bike Week, Laconia Bike Week and many others. We have signed letters of intent with 28 prospective dealers and have received orders for 280 motorcycles including 86 for immediate delivery. We intend to make investments in plant and people to support a increase in monthly production of motorcycles and engines during the next twelve months. Investment in plant will include manufacturing equipment, materials handling equipment and computer hardware and software. During this same period, our 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. 18 American Quantum Cycles was originally incorporated as a Florida corporation on March 20, 1986 as "Norbern, Inc." On May 8, 1997, Norbern, Inc. changed its name to "American Quantum Cycles, Inc." American Quantum Cycles had no operations prior to May 9, 1997, when it issued shares of its common stock in exchange for management, equipment and other assets. This enabled us to manufacture, distribute and sell American-made motorcycles, motorcycle parts and related products. American Quantum Cycles fiscal year end is April 30. Our executive offices are at 731 Washburn Road, Melbourne, Florida 32934; Telephone (407) 752-0008, our fax is (407) 752-0550 and our website is http://www.quantumcycle.com. THE INDUSTRY AND MARKET Our management believes that the motorcycle market has been extremely robust, the healthiest segment being the cruiser market. Data from the Motorcycle Industry Council shows the cruiser market segment has enjoyed eight years of unbroken market growth averaging roughly 12% per year over this period. Industry experts are highly confident in the continuation of this growth pattern well into 2005 due to favorable demographics. The prime buyer for the heavyweight cruiser is middle-aged and middle class which means that the baby boomer segment of the population which is now reaching their peak earning years with growing discretionary income will be motorcycle prospects for the next 7-10 years. Five different companies currently have about 95% of the market share and therefore dominate the motorcycle industry in the United States. Those companies are Harley Davidson, Honda Motorcycle, Yamaha, Suzuki and Kawasaki. In spite of this array of able competitors, the market for cruiser motorcycles is unfulfilled due to a strong demand for American made product and a shortage of production capacity on the part of Harley Davidson, which has existed for the last five years. Our management believes that this product shortage has caused unusual market distortions to exist for a number of years, which include: o Harley Davidson buyers having to wait from 3-12 months for product delivery o Harley Davidson Dealers adding a large number of accessories on their product to raise prices and margins o Many Harley Davidson buyers being required to add $5-10k of aftermarket parts to new motorcycles to get a high performance product o High demand and high prices for used Harley Davidson motorcycles o Harley Davidson dealers taking on second product line in order to fulfill demand Because there is little or no competition between Harley Davidson dealers, the dealers have been taking advantage of the excess demand market condition by adding a large number of accessories on their product to arbitrarily raise the price and margin of their motorcycles. The consumer has been tolerating this because they have no competition between Harley Davidson dealers to use to drive prices back down. Harley Davidson has taken advantage of the excess market demand situation and extreme customer loyalty by being slow to make improvements to their product line, particular slow to improve engine performance. This has created large after-market industry consisting of providers of kits with which to upgrade the performance of Harley Davidson engines. Consequently, many Harley Davidson buyers end up adding $5-$10 thousand dollars of aftermarket parts to new motorcycles in order to get a high performance product with the Harley Davidson name on it. When the market leader does not satisfy neither the quantity nor the option preferences (e.g. high performance) of the market place, this creates a market vacuum which can be filled by newer, smaller competitors with less capital resources. This is the market condition today in the heavy cruiser motorcycle segment in North America. Currently, there are over 100 Harley Davidson dealerships, which have already picked up the Kawasaki, Honda or Suzuki lines in order to fulfill the unsatisfied demand of bikers who do not want to wait for their motorcycles. We believe the demographic audience that most dealerships are attempting to reach would prefer buying an American-made bike. However, the individual buyer has been limited to the above choices, or an expensive custom motorcycle selling in excess of $30,000. Now, however, the customer will have an alternative choice - American Quantum Cycle. An estimated 346,966 new motorcycles were sold in 1997 with 67% of these being in the on-highway classification. New motorcycle sales equaled a retail value of $2.7 billion in 1997. The overall motorcycle industry in the U.S. generated an estimated $8.7 billion consumer sales and services, state taxes and licenses. Included in this overall industry value are retail sales of motorcycles (new and used), parts and accessories, dealer servicing, product advertising, vehicle financing charges, insurance premium, dealer personnel salaries, state tax and licensing fees. There were 12,113 retail outlets, which sold motorcycles and related products in the U.S. in 1997. Roughly one-third (34%) of these were authorized to sell new motorcycles while the remainder specialized in related parts, accessories, riding apparel, used vehicles or service. 19 In 1996, there were $5.6 billion in retails sales generated by all franchised (authorized by a major brand manufacturer to sell new motorcycles, parts, accessories or clothing) and non-franchised motorcycle retail outlets according to the 1996 retail outlet profit survey from the Motorcycle Industry Council. Sales by franchised outlets accounted for $4.4 billion of the total retail sales volume, compared to $1.2 billion for non-franchised outlets. The estimated average motorcycle related sales and service for a franchised motorcycle outlet was $1.606 million compared to $159,000 for a non-franchised outlet. These sales for the franchised outlets were broken down, on average, at 57% for new motorcycles, 14.7% for used motorcycles, 22% for parts, accessories and riding apparel, 5.7% for service labor and 0.6% for miscellaneous. The 3.16 million motorcycles in use in 1996 were owned by 2.77 million owners according to the 1997 Motorcycle Statistical Annual from the Motorcycle Industry Council. Motorcycle owners have grown steadily in age and income over the past two decades (see Table below):
Year Median Age Median Income ---- ---------- ------------- 1980 24 years $17,500 1985 27.1 years $25,600 1990 32 years $33,100
The most rapidly growing income segment for motorcycle owners was the "over $50,000 per year" bracket growing from 2.4% in 1980 to 6.1% in 1985 to 19.9% in 1990. The fastest growing education segment for motorcycle owners was "some college education" which grew from 17% in 1980 to 25.2% in 1990. The percentage of motorcycle owners who are married has grown steadily from 44.3% in 1980 to 56.6% in 1990. In 1996, U.S. registrations of new heavyweight motorcycles increased by approximately 9.6% over 1995 registrations, and U.S. registrations of new heavyweight motorcycles have increased 59% from 1992 through 1996. American Quantum Cycles has carried out detailed demographic surveys through motorcycle registration databases, telephone surveys and face-to-face surveys to determine those demographic groups, which are owners of heavyweight cruisers. As a result of this market research, American Quantum Cycles has determined the characteristics of their target market groups and correspondingly, where they live by ZIP code, census block and trade zone. The international market for heavyweight motorcycles has seen strong growth in the last few years. The European market grew at a 7.2% rate during 1997 according to, Ferrex International, Inc. ("Ferrex") with Germany being the largest purchaser of American manufactured heavyweight motorcycles with $76.6 million in sales for 1996, followed by Canada ($67.9 million), Japan ($46.8 million), Australia ($31.1 million), and the Netherlands ($21.8 million). Motorcycle buyers today have three choices in buying a high performance cruiser or touring motorcycle: (1) to buy new American made products from small manufacturers (e.g.: Titan, Big Dog, CMC, etc.); (2) to buy a foreign made product; or (3) to buy a new Harley Davidson product and pay a large premium in order to upgrade the performance characteristics of Harley Davidson motorcycles. American Quantum Cycles intends to fill this market gap by providing an American-made and styled motorcycle with advanced engineering and high performance technology. Since its initial promotional event at the Sturgis Motorcycle Rally in Sturgis, South Dakota, we have received more than 443 dealer inquiries to sell our motorcycles and motorcycle parts. 20 STRATEGY Our goal is to continue to produce what we believe is a superior U.S.-made V-twin motorcycle using quality materials and workmanship. We will seek market share, both domestically and internationally, by offering high performance custom-built motorcycles and motorcycle products and through the development of a proprietary Intranet/Extranet system (designed to continually track and control inventory and production) for use by dealers, customers and American Quantum Cycles. See "Intranet/Extranet System." To increase our motorcycle production capacity, we recently completed a modification to our production facility, which we believe has increased our production floor space by 200%. This provided space for a second motorcycle production line which we believe will more than double our motorcycle production capabilities. PRODUCTS American Quantum Cycles first model the Liberty, a heavyweight cruiser motorcycle, has been designed to achieve major product goals including: (1) American styling; (2) handling; (3) durability; and (4) performance. o American Styling -- American Quantum Cycles believes the dimensions, angles, components and selection of materials (including the use of polished aluminum as opposed to chrome) used in the Liberty embodies the heritage of American styled motorcycles from the 1950's and, at the same time, integrates technologies of the late 1990's. For example, the painting process used by us on its motorcycle frames prevents paint from chipping, since the paint is electrically charged and baked at extremely high temperatures for a glossy, durable finish. We also believe this makes the motorcycle frame more durable. Additionally, there is a variety of customized colors and designs available through this powder coating process. o Handling -- A number of factors contribute to the ease of handling of the Liberty. The Liberty is designed to be completely balanced so that the center of gravity is in line with its rider. The inverted front forks of the Liberty model, typical on racing motorcycles, absorb shock and provide steady contact with the road. This delivers ease of handling under high performance conditions. The engine and transmission are rubber mounted to minimize vibration for smooth and easy handling. Many of the materials in the Liberty are selected for high strength-to-weights ratios. o Durability -- American Quantum Cycles believes that while competitive products in the Liberty's price class require annual repairs and continual upgrades, these repairs and upgrades are not necessary with the Liberty model. We believe that the Liberty's frame wears well through all environmental and use conditions. We polish the aluminum parts to a soft gleam and we believe that they will resist corroding or peeling. The balanced components and engine/transmission triple isolation mounts greatly reduce vibration, which adds to durability and longevity. Additionally, we make a number of components (including the oil tanks), from stainless steel, which also adds to corrosion resistance and durability. Aluminum parts dissipate heat better than the low-grade steel used by competitors, further increasing long-term durability. o Performance -- The single most outstanding feature of the American Quantum Cycles product line is its engine. The four stroke, four valve V-twin promises to deliver the greatest acceleration at low and mid-range speeds in its model class (heavyweight cruisers) on the road today. The engine, designed by American Quantum Cycles, includes designs for heads under exclusive license from Fueling Advanced Technologies. The two pistons are arranged vertically at a 45 degree angle to each other. The bore of 3 and 5/8 inches combined with a stroke of 4 and 1/4 inches provides 88 cubic inches or 1462 cc of capacity - near the top of the range for this class of motorcycle and larger than most of its competitors. Capacity, however, is only one factor in delivering power. The 4-valve technology produces greater airflow through the engine than the more common 2-valve. American Quantum Cycles has designed a unique manifold which manages the flow of air more efficiently resulting in a more complete burn cycle with less wasted fuel. The 4-value heads are equipped with two 1.575" intake valves and two 1.275" exhaust valves for 3.150" and 2.550" intake and exhaust capacity respectively. The spark plug is located in the middle of the head between the four valves in the combustion chamber, which has a semi-hemispherical pent roof design. The cam is ground to Quantum's specifications. The resulting engine design delivers greater torque, less pollutants, cooler operating temperatures and greater mileage all at the same time. 21 The 4-valve engine is expected to be the industry leader in ft-lbs. of torque per cubic inch of capacity. The American Quantum Cycles 4-Valve 88 cubic inch passed 49 state Environment Protection Agency tests and certification has been received. The power achieved by Quantum's 4-Value engine accomplishes what the motorcycle industry heretofore has failed to deliver an engine with excellent low-to-mid range (rpm) torque without sacrificing upper range power. In conclusion, the design of the Liberty Cruiser motorcycle has accomplished all four-product goals and has created a product, which will be extremely competitive in the motorcycle industry. We believe we have close and efficient relationships with all of our suppliers. Approximately 50% of our motorcycle components are manufactured to our specifications by manufacturers located throughout the United States but predominantly in Florida. We purchase the remaining 50% of the components needed to complete our motorcycle from parts manufacturers and catalog distributors (e.g. tires, wheels, seats, lights, batteries, and other off-the-shelf parts). American Quantum Cycles has and will invest in the research and development of two new product lines during the next twelve months: a touring motorcycle and a 96 cubic inch engine. The touring motorcycle will be a second product line to the existing Cruiser model and will include saddlebags and windshields/fairing. The 96 cubic inch engine will use the same 4-valve technology as American Quantum Cycles present 88 cubic inch engine. With the larger displacement, American Quantum Cycles projects an increase in peak torque in the 10-20% range. MANUFACTURING American Quantum Cycles focuses on final assembly of the engine and motorcycle in its home plant in Melbourne, Florida. American Quantum Cycles outsources all casting, machining, forging, powder coating, chrome plating and fiberglass molded processes to subcontractors, minimizing the capital investment required in heavy machinery and additional plant floor space and expenses associated with recruiting, training and retaining highly skilled personnel. American Quantum Cycles can implement this outsource focused production philosophy cost-effectively because of its location on the "Space Coast" of central Florida taking advantage of the large number of small machine shops which have evolved to support NASA and Cape Canaveral. American Quantum Cycles has designed and produced 55 motorcycles since May 1997. Of these, 41 motorcycles have been sold, 11 are used for marketing purposes, and 3 for engineering and regulatory testing. During the remainder of fiscal 2000 we expect to build and ship roughly 1000 Motorcycles this projection is based on a plan to increase production through refinement of the assembly process. This involves investing in jigs, fixtures and material handling equipment such as pneumatic hoists, lifts, and conveyor belts. We project total monthly production to increase from 20 motorcycles to 80 motorcycles in August 1999 with the addition of a second assembly line and starting two shift operations. We project that we will increase production to 160 motorcycles per month from July 1999 through April 2000. Currently, American Quantum Cycles existing manufacturing process consists of outsourcing all manufacturing of parts to subcontractors. We carry out only research and development, final assembly, testing and quality control at our facilities. American Quantum Cycles has long-term contracts with major subcontractors, vendors and backup suppliers to insure the flow of parts to our plant in Melbourne, Florida. American Quantum Cycles presently can produce five motorcycles per week or 20 motorcycles per month with a team of seven persons working one line of final assembly stations. American Quantum Cycles has plant space and much of the equipment in place for a second parallel line prior to receiving the proceeds of this offering. American Quantum Cycles has been recruiting and training additional production personnel and can increase production from 20 motorcycles per month to 40 motorcycles per month by opening up the second production line. No new additional plant space or equipment is needed to further increase monthly production via adding a full or partial second shift 4PM to Midnight. By adding a second shift on one line only, monthly production increases to 60 motorcycles per month. Two shifts, two production lines will provide 80 motorcycles per month. All of these increases are possible with no "learning curve" or increase in productivity per line, per shift, per week. Over a six to twelve month period, We will improve productivity by streamlining assembly processes, improving jigs and fixtures, weeding out low performance personnel, etc. At the end of twelve months of production refinement, We estimate that a 10-12 man team working on one line, one shift can produce five motorcycles per day or 100 motorcycles per month. American Quantum Cycles must also insure a corresponding increase in supply of parts to support a month-by -month increase in production. American Quantum Cycles works closely with all of its vendors, providing them with six month production forecasts and anticipating any needs on the part of the vendors to support our increasing parts supply needs. American Quantum Cycles gets its non- 22 proprietary products primarily from large vendors with $50 million or larger in annual revenues who can scale up to provide American Quantum Cycles its increasing parts needs. Where American Quantum Cycles uses a smaller vendor for any part, we have cultivated secondary and tertiary suppliers. This is particularly critical in machining services where American Quantum Cycles has provided proprietary drawings and multiple machining houses have developed their numerical machine control code to support us. American Quantum Cycles has invested considerable in time and money to insure that its vendors can provide the increasing supply of parts required to support substantial increases in monthly production of motorcycles. Since, we can not guarantee the performance of its vendors and subcontractors, adequate and uninterrupted supply of parts must be consider a risk factor for our success. Having grown up from its garage shop origins, much of the motorcycle industry's after market parts vendors practice an informal business philosophy. Most contracts are verbal in nature. Consequently, American Quantum Cycles has no written contracts at present with any of its parts suppliers save purchase orders with written notes concerning reorder cycles and increasing volumes over a forward looking 3-6 month period. RESEARCH AND DEVELOPMENT American Quantum Cycles' research and development efforts have been and will be focused on the engine and associated drive train. In fiscal years 1997 and 1998, the research focused on those refinements required for the 4-Valve engine design to achieve the desired durability and to pass the 49 state environmental protection agency emission tests. Different flywheel and connecting rod designs were analyzed and tested for long life durability. These designs were first tested in computer-based modeling and simulations. Three-dimensional models were developed in American Quantum's PRO/E engineering workstation and dynamic stress analysis was carried out using finite element analysis techniques. This process supported the determination of the proper neck thickness and flange width for the connecting rod. Flywheels and connecting rods were then built to these dimensions and weights and tested in bench and road tests to confirm the computer modeling results. The resulting design is a heavier flywheel and more durable connecting rod than is commonly used in the heavyweight cruiser industry. This allows American Quantum's engine to not only run more smoothly (providing greater durability), but to take more complete advantage of the additional torque produced by the 4-Valve design. In addition to the flywheel/connecting rod research, a variety of combinations of pushrods, swivel feet and rocker arms were evaluated. Adjustable pushrods and a variety of fixed-length pushrods were evaluated for smooth running of the rocker arm assembles and long life durability of the associated parts. A number of third party swivel feet were tested and compared with an American Quantum Cycles design. The smoothest running combination was identified after extensive bench and road testing included fixed pushrod lengths of specific dimensions for intake and exhaust pushrods and a selected third party swivel foot. Engine research in fiscal years 1997 and 1998 also focused heavily on those refinements necessary to pass 49 state Environmental Protection Agency emissions tests. A variety of third party carburetors and custom designed cams were evaluated via preliminary testing at an Environmental Protection Agency approved test facility. Additionally, a number of sizes and shapes of airflow plenums were tested. The test results specified a third party carburetor (and associated jet settings), a specific custom grind on a third party cam and the most efficient plenum size and shape for airflow management which produced the best mix of low emissions, excellent torque and horsepower performance along with attractive gas mileage. This combination successfully passed 49 state Environmental Protection Agency emissions requirements and American Quantum's 4-Valve engine received Environmental Protection Agency certification. These activities resulted in research and development costs of approximately $489,302 for the fiscal year ended April 30, 1998 and $209,305 for the fiscal year ended April 30, 1999. Engine research in fiscal years 1998 and 1999 focused on further refinements to American Quantum's 88 cubic inch engine and the development of a 96 cubic inch engine. Refinements to the 88 cubic inch engine design included research on hardened valve stems, valve spring design and slight modifications to the rocker arm assembly to minimize upper engine noise. A number of hardened valve stem designs were put through bench and road testing to determine that design which would provide the most durable valves and minimize shifting and settling of the rocker arm assembly due to valve wear and compression. Double and single valve springs were tested for that combination which minimized valve float and yet provided ease of starting for a cold engine. Slight variations to the machining of the rocker arm and pushrod/rocker arm geometry's were tested and evaluated for minimizing upper engine noise while maintaining torque and horsepower performance. A major research and development effort was invested in the development and testing of a 96 cubic inch 4-Valve engine. All the required changes to the dimensions of various affected parts were determined and a 96 cubic inch engine was built. This test engine was put through extensive bench and road testing including exhaustive dynamometer testing to determine improvement in torque and horsepower. Torque and horsepower improvements in the 10-15% range were verified. The durability of the 96 cubic inch engine was also verified. Entering fiscal year 1999and 2000, the 96 cubic inch engine is ready for Environmental Protection Agency emission testing and subsequent market release. 23 An embryonic research and development program was initiated in fiscal year 1998 and 1999 in the use of polymer coatings on selected engine parts to reduce friction and improve durability. Preliminary tests were carried out with polymer coatings on flywheels with inconclusive results to date. This program will be continued in fiscal year 1999 and 2000 as American Quantum maintains an aggressive research and development program to improve its product line. All of these efforts resulted in research and development costs of approximately $608,722 for the fiscal year. The research and development program planned for fiscal year 1999 and 2000 includes Environmental Protection Agency testing of the 96 cubic inch engine, evaluation of polymer coatings, evaluation of the use of exotic alloys (e.g. titanium/aluminum) for rocker arm assemblies and the development of a dual carburetor engine. INTRANET/EXTRANET SYSTEM One of our goals is to provide our customers with an efficient way of selecting an exact product design as well as to provide a method to continually track the progress of production of any specific product. We have developed a PC-based kiosk Intranet/Extranet System (the "DealerNet") for this purpose. The DealerNet uses an interactive CD-ROM (or DVD) storing two and three-dimensional images of our products. A prototype was reviewed by dealers and consumers for ease-of-use and effectiveness at the Sturgis and Daytona Beach Motorcycle shows. Management of American Quantum Cycles believes that both dealers and customers have responded favorably to the Internet software. We sent a mailer of the completed DealerNet library of bike selections (on CD) to 2,000 prospective dealers during the week of July 24, 1998 as a promotional tool and as an invitation to visit American Quantum Cycles booth at the Sturgis, South Dakota Rally. The DealerNet system displays alternate motorcycle choices on a computer screen allowing, a customer to select a precise motorcycle design with options tailored to the customer's requirements. The customer will also know the cost of each option, and have a graphic image of the bike, which he can easily modify. Once a customer agrees to purchase our motorcycle, we will assign a unique bar code to each order. This serves as an order and tracking number for the dealer, the customer and American Quantum Cycles production plant. This also allows everyone to monitor the progress of the production of product. We have completed the DealerNet system and intend to install it at our dealer locations beginning in spring 1999. MARKETING Our marketing program will focus on two major objectives (1) corporate/product name identification; and (2) lead generation for the sales and distribution channels. o Corporate product name and product identification will use advertising, promotions, public relations and participation in major motorcycle events (such as the Sturgis Race and Rally in Sturgis, SD and the Daytona Beach Bike Week). We also will sponsor racing activities and special promotional events and participate in most major motorcycle consumer shows and rallies. To establish our brand name among the motorcycling public, we first unveiled our prototype, the Q2 at the Sturgis Rally in August 1997. We also intend to eventually license certain of our trademarks on a broad range of consumer items to increase public exposure of our brand name. o Lead generation activities will support each product line including motorcycles, engines/parts, and accessories. They also will be matched to each sales channel, including dealers, the Internet, third party distribution partners and others. Our primary effort will be generating leads so dealers can sell motorcycles and engines. We will enter and track all leads at a local level by a corporate lead tracking and management system. This will provide sales management support to dealers. The lead management and tracking system also allows us to monitor sales progress of our dealers. We will identify geographic regions of unusually low sales productivity (with high densities) and target them for special promotional efforts. American Quantum Cycles will use print media advertising and direct marketing to generate leads to support our dealer sales programs. Print media advertising will focus on national motorcycle magazines (typically with full page, full color ads) and local newspaper ads together with dealers' local promotional activities. We will evaluate local radio and cable TV ads on a location by location basis depending on reach, frequency, and cost. 24 Our management team will evaluate the type and amount of marketing to support each of our local dealers based on our market research program. All direct marketing campaigns will feature a local focus and will be timed to support the launch of new dealers. We believe direct mail programs, including inexpensive give-always (such as promotional CD's, high quality posters and merchandise) can be cost-justified if focused on a local basis. Our ad and promotional campaigns will be available on our website. DISTRIBUTION AND SALES American Quantum Cycles distribution channels will typically consist of independently owned full-service dealerships that we will sell to directly. We will also sell directly to consumers through various media, including the Internet, but only in those geographic regions where we have no authorized dealerships. All other Internet leads will be electronically referred to the nearest American Quantum Cycles dealer. All of our dealers will carry American Quantum Cycles replacement parts and aftermarket accessories and perform servicing of our motorcycle products. We have letters of intent signed by 24 dealers located in 13 states in the US. Each dealer makes a minimum commitment to buy ten (10) motorcycles upon signing the dealer agreement. As a result, the 24 dealers represent bookings of 240 motorcycles. Other dealers have expressed a strong interest and their applications are being evaluated. Dealership requirements include favorable building locations, display area size, traffic surveys, local geo-demographics and financial condition. Each dealer will be expected to provide adequate storefront and service areas. We anticipate that a minimum of 2,000 square feet will be required and traffic exposure will need to be at not less than 3,500 cars per day. Dealers will purchase product and stock parts and engines via our dealer Intranet. We also intend to enter into distribution agreements for the sale and delivery of 4-VALVE(Registered) engine kits. These may include national catalog distributors or major parts and subassembly suppliers. We will also have a direct sales staff to promote and sell the 4-VALVE(Registered) engine to the Harley Davidson customization aftermarket. INTELLECTUAL PROPERTY RIGHTS American Quantum Cycles believes that it has the exclusive right to use the trademarks American Quantum Cycles, Q, Liberty, and QX, along with certain related word and design trademarks in the United States and certain foreign countries in connection with the manufacture and sale of motorcycles and related parts. In addition, we believe that we have the right to use certain of these marks on other merchandise and apparel. We believe that we have common law trademark rights through use of these marks on our prototype motorcycles and ancillary merchandise independent of U.S. Patent and Trademark Office "PTO" registration process. In addition, we have filed for trademark protection for the marks "American Quantum Cycles", the "Q", "Liberty" and "QX". In some instances, these rights may depend upon pending applications to register the marks in a foreign country. If we fail to get this, such registrations could impair our rights to use a mark in a particular country. We own no patents and we have not filed or been assigned any patent applications. We believe, however, that a number of elements of the Liberty series of motorcycle design have the potential to receive patents. At a future date, we intend to file patent applications for certain of the patentable elements. We will also actively license and/or purchase additional intellectual property rights to improve the market competitiveness of our product line. We are not aware of any claims of infringement against American Quantum Cycles and we have not been involved in any court proceedings regarding our intellectual property rights. In August 1997, we entered into a license agreement with Feuling Advanced Technology, Inc. As a licensee, we have a license to use certain proprietary technologies, including patents, trade secrets, and techniques, tooling designs, product designs, and trademarks. As part of this agreement, and in exchange for a royalty payment of approximately $235,000, if we comply with certain other provisions, including non-disclosure of the proprietary technology, we enjoy an exclusive license (for motorcycle applications) in perpetuity for the 4-Valve technology. This technology is being used in the manufacture of American Quantum Cycles motorcycles. 25 COMPETITION As of December 31, 1996, Harley Davidson, Honda, Suzuki, Kawasaki, and Yamaha had the largest market share of the U.S. heavyweight motorcycle market. Our primary competitor in the U.S. heavyweight market is expected to be Harley Davidson (which, in 1996, had a market share of 48% of new U.S. and 7% of European heavyweight motorcycle registrations) according to Harley Davidson's Annual Report. Harley Davidson is the only significant American heavyweight cruiser and touring motorcycle manufacturer since 1953. Several of the major foreign manufacturers compete against Harley Davidson in the domestic market by selling motorcycles with a "nostalgic" American design. Two new American made motorcycle competitors are scheduled to enter the marketplace in 1998-1999. Polaris, a one billion-dollar manufacturer of snowmobiles, jet skis and other recreational vehicles, has announced its heavyweight cruiser, the Victory, for sale through some of its dealers. Excelsior-Henderson, a publicly funded start-up, is expected to offer a heavyweight cruiser in early 1999. The market for new and customized motorcycles is extremely competitive. While there are substantial barriers to entry, we believe that competition will intensify in the future. We believe that our ability to compete successfully depends on a number of factors: (1) design and development of high performance and quality motorcycles (2) market presence; (3) timely delivery of made-to-order motorcycles; (4) the pricing policies of our competitors and suppliers; (5) the timing and introduction of new products and services by American Quantum Cycles and others; (6) our ability to support existing and emerging industry standards; and (7) industry and general economic trends. We cannot guarantee that American Quantum Cycles will be able to successfully compete with others in the business of manufacturing and marketing customized motorcycles or motorcycles in general. GOVERNMENT REGULATIONS Commercial sales of our motorcycles depend upon compliance with certain government regulations and American Quantum Cycles is designing motorcycles to comply with all such regulations. Both federal and state authorities have various environmental control requirements relating to air, water and noise pollution, which affect our business and operations. In particular, our motorcycles are subject to the emissions and noise standards of the U.S. Environmental Protection Agency and the more stringent emissions standards of the State of California Air Resources Board "CARB". The 4-VALVE engine has received Environmental Protection Agency certification in all 49 states (except California). The proprietary exhaust system on the American Quantum Cycle was designed to provide an attractive sound while complying with DOT noise standards. In spring 1999, we intend to begin testing of our motorcycles to meet the emission standards of the CARB for compliance with California Emissions Standards. We cannot guarantee that our motorcycles will meet these emission standards. Preliminary results show that the Liberty and its associated 4-VALVE(Registered) engine will pass all CARB requirements. American Quantum Cycles motorcycles are also subject to the National Traffic and Motor Vehicle Safety Act of the National Highway Traffic Safety Administration. The State of Florida requires that we be licensed as a manufacturer of motor vehicles. Each of our dealers must be licensed as a motor vehicle dealer in the jurisdictions where the businesses are located. 26 EMPLOYEES We currently have 38 full-time employees. Of these, 6 are in management and administration, 3 are in engineering and design, 18 are in production and manufacturing, 6 are in procurement and inventory management, 5 are in marketing and sales. We have a number of part and full-time consultants in the areas of management, engineering drawing maintenance, advertising artwork and website maintenance. REAL PROPERTY We currently lease approximately 17,030 square feet of warehouse and production space and an additional 6,016 square feet of office space, for a total of approximately 23,046 square feet which is adequately suited for the purpose of assembling our motorcycles, at 711-731 Washburn Road, Melbourne, Florida 32934. The current monthly rental amount is $6,189 including Florida sales tax. All required insurance coverages are also maintained and periodically audited by our insurance company, Davis Baldwin 4600 West Cypress Street, Suite 200 Tampa, Florida 33607. The lease on the property began on May 1, 1997 and continues through April 1999, with two additional three-year options for renewal at our option. If we elect to renew our lease after the first two years, the annual rental will be adjusted by an additional 5% per year, with a four-year lease and an option to vacate after two years with six months notice. LEGAL PROCEEDINGS We may from time to time become a party to various legal proceedings in the ordinary course of our business. We are not a party to any pending or to our knowledge, threatened material legal proceedings. MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table includes the names, positions with American Quantum Cycles and ages of the Executive Officers and Directors of American Quantum Cycles. Directors are elected at our annual meeting of shareholders and serve for one year or until their successors are elected. The board elects Officers and their terms of office are, unless governed by employment contract, at the discretion of the Board. EXECUTIVE OFFICERS AND DIRECTORS
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 Starke.............................. 42 Vice President and Director Gary W. Irving............................... 55 Executive Vice President, Chief Operating Officer and Director Linda Condon................................. 50 Director of Finance and Treasurer Frank Aliano................................. 38 Vice President
Richard K. Hagen has served as our Chief Executive Officer, President and Chairman of the Board and a Director since November 1, 1997 and our Chief Financial Officer since September 22, 1998. From March 1994 to November 1997, Mr. Hagen was the founder and principal of MARKTECH Group, Inc., an Internet/Extranet consulting company. Between November 1990 and March 1994, Mr. Hagen was the operating officer and general manager of Syscon Services, an engineering services and systems integration subsidiary of Harnischfeger Industries. Mr. Hagen is a 1981 graduate of the U.S. Naval Academy. Jim Cheal has been employed by us since May 1997 and has served as Vice President and Director since February 1998. From January 1995 to January 1996, Mr. Cheal was a director and Vice President of American Motor Works, Inc., a company, which designed and manufactured motorcycles. Mr. Cheal was a professional photojournalist with Time-Life Publications from 1975 to 1987. Between 1987 and 1995, Mr. Cheal operated a photography business which he founded in 1978. 27 Robert L. Guess has served as our Vice President since November 1, 1997, as our President from May 1997 to November 1, 1997, a member of the Board of Directors since July 1997 and Secretary since February 1999. From December 1996 to May 1997, Mr. Guess served as consultant to Messrs. Cheal and Starke each of whom are Vice Presidents and Directors of American Quantum Cycles, in connection with the development and implementation of the business plan of American Quantum Cycles from whom American Quantum Cycles purchased substantially all of its assets. From March 1996 to December 1996, Mr. Guess was the owner of Team Enterprise Miami, Inc., a direct product marketing company. From July 1995 to March 1996, Mr. Guess was the Southeast District Manager of marketing of Toast of the Town, Inc. a direct product marketing company. From March 1980 through September 1994, Mr. Guess served as an Officer in the United States Navy. Michael Smith has served as our Vice President since February 22, 1998. From March 1997 to February 1998, Mr. Smith was a consultant for Carl's Speed Shop in Daytona Beach, Florida. Between March 1996 and March 1997, Mr. Smith was a retail sales consultant with Arlen Ness Enterprises, Inc., a producer and marketer of motorcycle accessories and apparel located in California. From February 1995 to March 1996, Mr. Smith served as the Customer Relations Manager for Stone Ridge Motors, an automobile dealership in San Francisco, CA. From January 1993 to February 1995, Mr. Smith was a sales and leasing consultant with the Ford Motor Company dealership in Dublin, California. Jeff Starke has been a Director and Vice President of American Quantum Cycles since February 1998. Between May 1997 and February 1998, Mr. Starke served as Director of Engineering, Manufacturing and Design at American Quantum Cycles. From January 1995 to January 1996, Mr. Starke was a Director and Vice President of American Motor Works, Inc., which designed and manufactured motorcycles. From March 1992 to January 1995, Mr. Starke was Vice President of Harley Motor Works, Inc., which designed, built and sold Harley Davidson motorcycles and motorcycle parts. Gary W. Irving has served as our acting Chief Operating Officer since January 5, 1998 and became Chief Operating Officer and was appointed to the Board of Directors on October 1, 1998. Between March 1997 and December 1997, Mr. Irving was Vice President and General Manager for Strategic Product Management at Litton-PRC, a $1 billion subsidiary of Litton Industries an aerospace design and commercial electronics company where he was responsible for launching and managing their electronic commerce group. Between May 1994 to February 1997, Mr. Irving was Executive Vice President and Chief Operating Officer of the MARTECH Group, Inc., an Internet/Extranet consulting company. From June 1993 to January 1994, Mr. Irving was Vice President and General Manager at Instant Video Technologies, Inc. From December 1993 to June 1993, Mr. Irving was director for imaging system sales at I-Net. From October 1989 to October 1992, Mr. Irving was a Vice President at PRC. Mr. Irving has an M.S. Degree in systems engineering and has been awarded a patent in computer systems using CD-ROM storage devices. Mr. Irving has developed computer systems for dealer and factory floor applications and his former clients include Chrysler, Mack Trucks, John Deere and Boeing. Frank Aliano has served as our Vice President of Production since May 1998. From October 1993 until May 1998, he was Vice President of Engineering and Product Development for Big Dog Motorcycles that he helped build as a co-founder. From January 1992 to October 1993, he was the owner/operator of A&A Performance, in Wichita, Kansas, which fabricated custom Harley Davidson Motorcycles. From October 1980 to December 1991, he was the owner/ operator of Double Services, Phoenix, Arizona which custom builds and services Harley Davidson and rebuilds and repairs of trucks and heavy equipment. From 1975 to 1980, he was employed by Cummins Southwest as a journeyman mechanic. From 1972 to 1975 he was employed by R.B. Duncan trucking company as a mechanic. From 1971 to 1972, he was employed by Hartford Harley Davidson as a mechanic, which included servicing and rebuilding Harley Davidson Motorcycles. A native of Connecticut, he attended the University of Hartford. Linda Condon has served as our Director of Finance since October 1997 and Treasurer since February 1999. Between April 1994 and July 1997, Ms. Condon worked as an accountant for K.L. Smith and Associates, a Salt Lake City, Utah based accounting firm. Between January 1993 and April 1994, Ms. Condon worked as an accountant for Armstrong and Company, a Salt Lake City, Utah based accounting firm. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Florida Business Corporation Act permits the indemnification of directors, employees, officers and agents of Florida corporations. Our Articles of Incorporation allow us to indemnify our Directors and Officers to the fullest extent permitted by law. We may experience significant cash flow problems if we are required to either reimburse, or advance money to, our Officers or Directors for such purposes. At present, there is no pending litigation or proceeding involving our Directors, Officers, employees, or other agents. Insofar as indemnification for liability arising under the Securities Act of 1933, as amended, may be permitted to Directors, Officers, and controlling persons, we are aware that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is unenforceable. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth information relating to the compensation we paid during the past two fiscal years to: (1) President and Chief Executive Officer; and (2) each of our Executive Officers who earned more than $100,000 during the fiscal year ended April 30, 1999 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE -------------------------- Annual Compensation Long-Term Compensation Awards Payouts ------ ------- Securities Other Under- Annual Restricted Lying All Other Compen- Stock Options/ LTIP Compen- Name and Principal Year Salary Bonus sation Award(s) SARs Payouts sation Position ($) ($) (#) ($) ($) -------- --- --- --- --- ------- Richard Hagen 1997 $-0- $-0- $-0- $-0- -0- $-0- $-0- Chief Executive Officer and Chairman of the Board(1) 1998 $13,462 $-0- $78,577 $-0- -0- $-0- $-0- ---- ------- ---- ------- ---- --- ---- 1999 $200,000(2) $-0- $-0- $423,000(3) -0- $-0- $-0- ---- -------- ---- ---- -------- --- ---- Gary Irving 1998 $-0- $-0- $134,539(5) $-0- -0- $-0- $-0- Executive Vice President, Director and Chief Operating Officer (1) 1999 $102,308(2) $-0- $142,014(4) $282,000(3) -0- $-0- $-0- ---- -------- ---- -------- ---------- ----
(1) Mr. Hagen was appointed Chief Financial Officer on September 22, 1998. Mr. Irving was appointed Chief Operating Officer and to the Board of Directors on October 1, 1998. (2) Includes (i) $10,500 we provided to Mr. Hagen as a relocation allowance; and (ii) $68,077 we paid to Mr. Hagen under the terms of a consulting agreement. Does not include (i) 225,000 shares of common stock issued to Mr. Hagen in November 1998, and (ii) options to purchase 12,500 shares of common stock granted to Mr. Hagen in November 1998. (3) Includes compensation accrued but not paid in the amount of $75,961 for Mr. Hagen and $53,846 for Mr. Irving. (4) Represents the value of 225,000 shares of stock issued to Mr. Hagen and 150,000 shares of stock issued to Mr. Irving. The value was based on the average bid and ask price of the stock at the date of award and was recorded as compensation expense. (5) Represents payments made to Mr. Irving under the terms of a consulting agreement. 29
OPTION/SAR GRANTS IN LAST FISCAL YEAR Potential Realizable Value At Assumed Annual Rates Of Stock Price Appreciation For Option Grant Date Individual Grants Term Value ----------------- ---- ----- Percent of Number Of Total Securities Options/ Underlying SARs Granted Expiration Options/SARs To Employees Exercise Of Date Name Granted (#) In Fiscal Year Base Price (S/Sh) ---- ----------- -------------- ---------- ------ Richard Hagen N/A President, Chief Executive Officer and Chairman - -------------------- Gary Irving N/A Executive Vice President, Director and Chief Operating Officer - -----------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Securities Value Of Underlying Unexercised Unexercised In-The-Money Options/SARs Options/SARs At Fiscal Year-End At Fiscal Year- Shares Value (#) End ($) Acquired On Realized Exercisable/ Exercisable/ Name Exercise (#) ($) Unexercisable Unexercisable ---- ------------ --- ------------- ------------- Richard Hagen President, Chief Executive Officer and Chairman N/A Gary Irving N/A Executive Vice President, Director and Chief Operating Officer
Mr. Hagen was appointed Chief Financial Officer on September 22, 1998. Mr. Irving was appointed Chief Operating Officer and to the Board of Directors on October 1, 1998. We do not currently have any long term inventive plans. EMPLOYMENT AGREEMENTS Richard K. Hagen, Chief Executive Officer, President, Chief financial Officer and Chairman of the Board and Director. Pursuant to an employment agreement between American Quantum Cycles, Inc. and Mr. Hagen, Mr. Hagen receives an annual base salary of $200,000. As additional compensation, we have also (i) issued Mr. Hagen 225,000 shares of restricted common stock; and (ii) granted Mr. Hagen options to purchase up to 12,500 shares of common stock of American Quantum Cycles, at $4.00 per share exercisable through February 21, 2003. Jim Cheal, Vice President and Director. Pursuant to a verbal employment agreement between American Quantum Cycles, Inc. and Mr. Cheal, Mr. Cheal receives an annual base salary of $75,000. As additional compensation, Mr. Cheal also received options to purchase 12,500 shares of common stock at $4.00 per share exercisable through December 31, 2003. Robert L. Guess, Vice President and Secretary. Pursuant to a verbal agreement between Mr. Guess and AQC, Mr. Guess receives an annual base salary of $60,000. As additional compensation, Mr. Guess also received 6,250 shares of common stock. Michael Smith, Vice President of sales. Pursuant to a verbal employment agreement between American Quantum Cycles, Inc. and Mr. Smith, Mr. Smith receives an annual base salary of $80,000 and 2,500 shares of common stock. 30 Jeffrey Starke, Vice President and Director. Pursuant to a verbal employment agreement between Mr. Starke and American Quantum Cycles, Inc. Mr. Starke receives an annual base salary of $85,000. As additional compensation, Mr. Starke received options to purchase up to 12,500 shares of common stock at $4.00 per exercisable through December 30, 2003. Gary W. Irving, Chief Operating Officer and Director. Pursuant to an employment agreement between Mr. Irving and American Quantum Cycles, Inc., in his capacity as Chief Operating Officer, Mr. Irving receives an annual base salary of $175,000. Mr. Irving also received (i) 150,000 shares of common stock; and (ii) options to purchase 12,500 shares of common stock exercisable at $4.00 per share through December 30, 2003. Frank Aliano, Vice President of Engineering and Production. Pursuant to a verbal agreement between Mr. Aliano and American Quantum Cycles, Inc. Mr. Aliano receives an annual base salary of $90,000. As additional compensation, Mr. Aliano also received 6,250 shares of common stock, with performance options of 6,250 options each year for the subsequent three years. Linda Condon, Director of Finance and Treasurer. Pursuant to verbal employment agreement between Ms. Condon and American Quantum Cycles, Inc. Ms. Condon receives an annual base salary of $50,000 and 873 shares of common stock. 1997 AMENDED STOCK OPTION PLAN On June 15, 1997, our Board of Directors and a majority of our shareholders adopted the American Quantum Cycles 1997 Stock Option Plan. On February 21, 1998, our Board of Directors and majority shareholders amended the plan to increase the number of plan options from 125,000 to 750,000 shares. The plan works to increase the stock interest of employees, consultants and employee directors in American Quantum Cycles and to align more closely their goals with our shareholders' interests. The plan will also help us attract and retain the services of experienced and highly qualified employees. The Plan allows us to issue up to 750,000 shares of common stock to the people who we grant options. Our Board of Directors or a Committee of our Board of Directors administers the plan. Their responsibility includes the selection of the persons who will be granted plan options, the type of plan options to be granted the number of shares subject to each plan option and the plan option price. Plan options may either be options qualifying as incentive stock options under Section 422 of the Internal Revenue Code of 1986, or options that do not so qualify. In addition, the plan also allows for a reload option provision. Reload options permit an eligible person to pay the exercise price of the plan option with shares of common stock owned by the eligible person and receive a new plan option to purchase shares equal to the tendered shares. Any incentive option granted under the plan must provide for an exercise price of at least 100% of the fair market value of the underlying shares on the date of such grant. The exercise price of any incentive option granted to an eligible employee owning more than 10% of our common stock must be at least 110% of such fair market value on the date of the grant. Our Board of Directors or committee determines the term of each plan option and the way in which it may be exercised. No plan option may be exercisable more than 10 years after the date of its grant. In the case of an incentive option granted to an eligible employee owning more than 10% of our common stock, no plan option may be exercised more than five years after the date of the grant. The exercise price of non-qualified options will be determined by our board of directors or the committee. All of our officers, directors, key employees and consultants will be eligible to receive non-qualified options under the plan. Only Officers, Directors and employees of American Quantum Cycles are eligible to receive incentive options. All plan options are nonassignable and nontransferable, except by will or by the laws of descent and distribution. If we terminate an employee's employment for any reason (other than his death or disability or termination for cause), or if an optionee is not an employee of American Quantum Cycles but is a member of our Board of Directors and his service as a Director is terminated for any reason (other than death or disability), the plan option will lapse on the earlier of the expiration date or 30 days following the date of termination. If the optionee dies during the term of his employment, the plan option will lapse on the earlier of the expiration date of the plan option or the date one year following the date of the optionee's death. If the optionee is permanently and totally disabled within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, the plan option will lapse on the earlier of the expiration date of the option or one year following the date of such disability. The plan will terminate 10 years from the date of the plan's adoption. Any such termination of the plan will not affect the validity of any plan options previously granted. As of August 16, 1999, we granted an aggregate of 50,000 incentive options all of which have vested and an aggregate of 645,000 non-qualified options of which 268,750 are unexercised. We also granted 287,500 outside of the plan which are unexercised . 31 PRINCIPAL SHAREHOLDERS The following table describes certain information regarding certain individuals who beneficially owned our common stock on August 16, 1999. In general, a person is considered a "beneficial owner" of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose of such security. A person is also considered to be a beneficial owner of any securities of which the person has the right to acquire beneficial ownership within (60) days. The individuals included in the following table are: (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 August 16, 1999, we had 2,842,798 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 (10) Offering Offering -------------------- ----------------------- -------- -------- Richard Hagen, Director, Chairman, President, CFO and CEO(2) 237,500 8.4% 4.5% Jim Cheal, Vice President and Director(3) 12,500 * * Robert Guess, Vice President and Secretary 6,250 * * Michael Smith, Vice President 2,500 * * Jeffrey Starke, Vice President and Director(4) 12,500 * * Gary Irving, Executive Vice President, COO and Director(5) 162,500 5.7% 3.1% Frank Aliano, Vice President 6,250 * * Doreen Cheal(6) 151,299 5.3% 2.9% Linda Condon, Director of Finance and Treasurer(7) 1,073 * * Susquehanna Holdings Corp(7) 158,500 5.6% 3.0% Mathers Associates (8) 130,000 4.6% 2.5% Denise O'Brien(9) 163,799 5.8% 3.1% All Executive Officers and Directors 441,073 15.5% 8.4% as a group (8 persons)
* Denotes less than 1% beneficial ownership. - -------------------------------------------- (1) Unless otherwise indicated, the address of each of the persons is 711-731 Washburn Road, Melbourne, FL 32934. (2) Includes 12,500 shares of common stock issuable upon the exercise of options exercisable at $4.00 until December 20, 2003. (3) Includes (i) 151,299 shares of common stock owned by Doreen Cheal, Mr. Cheal's wife and (ii) 12,500 shares of common stock issuable upon the exercise of options exercisable at $4.00 per share until December 30, 2003. (4) Includes 12,500 shares of common stock issuable upon the exercise of options exercisable at $4.00 per share until December 20, 2003. Jeff Starke is the brother of Denise O'Brien. (5) Includes 12,500 shares issuable upon the exercise of options exercisable at $4.00 per share until December 20, 2003. (6) Jim Cheal is Doreen Cheal's husband. 32 (7) Address is 230 Mathers Road, Ambler, PA 19002. Mr. Norbert Zeelander is the sole shareholder of Susquehanna Holdings Corp. As such, Mr. Zeelander is deemed to beneficially own the 158,500 shares held in the name of Susquehanna Holdings Corp. Does not include (i) 9,500 shares of common stock owned by Mr. Zeelander individually; or (ii) 130,000 shares of common stock owned by Mathers Associates, a limited partnership in which Mr. Zeelander is a general partner. (8) Address is 230 Mathers Road, Ambler, PA 19002. Mr. Norbert Zeelander is the general partner of Mathers Associates. As such, Mr. Zeelander is deemed to beneficially own the 130,000 shares held in the name of Mathers Associates. Does not include (i) 9,500 shares of common stock owned by Mr. Zeelander individually; or (ii) 158,500 shares of common stock owned by Susquehanna Holdings Corp., a corporation in which Mr. Zeelander is sole shareholder. (9) Denise O'Brien is the sister of Jeffrey Starke. Mrs. O'Brien resigned as a director on April 30, 1999. (10) Adjusted to give effect for a one for four reverse stock split effective on June 3, 1999. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On May 9, 1997, pursuant to the terms of a purchase agreement the American Quantum Cycles issued 301,786 shares of common stock to Doreen Cheal and 301,786 shares of common stock to Denise O'Brien in exchange for a prototype motorcycle and certain equipment required to manufacture and market the prototype motorcycle. The shares of common stock issued to Ms. Cheal and Ms. O'Brien were valued at $116,608. The prototype motorcycle and related equipment was valued at $92,270. On April 9, 1998, Ms. Cheal and Ms. O'Brien returned an aggregate of 125,974 shares of common stock to us after assets transferred by Ms. Cheal and Ms. O'Brien received a valuation lower than originally anticipated. On June 5, 1998, Robert Guess, Doug Paik, Jeff Starke and Jim Cheal returned an aggregate of 175,000 shares of common stock to us for the purpose of improving the capitalization of American Quantum Cycles. In November 1998, Mr. Richard Hagen, Chairman, CEO, President, CFO and Director of American Quantum Cycles, and Mr. Gary Irving, Executive Vice President, COO and Director of American Quantum Cycles, were issued 225,000 and 150,000 shares of American Quantum Cycles common stock, respectively. Mr. Hagen and Mr. Irving voluntarily deferred salary to assist American Quantum during our development stage. As partial compensation for their services and for the progress of American Quantum over the prior 12 months, the Board of Directors authorized the issuance of these shares to Mr. Hagen and Mr. Irving CONCURRENT OFFERING Concurrent with this offering, we are registering pursuant to an alternate prospectus, for the account of the selling security holders, an additional 991,949 shares of common stock including 62,500 shares of common stock issuable upon the exercise of options. These securities are not being underwritten in this offering and we will not receive any proceeds from the sale of such shares. We will pay the expenses of the concurrent offering, other than fees and expenses of counsel to the selling security holders and the selling commissions. The resale of the securities of the selling security holders is subject to prospectus delivery and other sales at any time may have an adverse effect on the market prices of the securities or the potential of such sales at any time may have an adverse effect on the market prices of the securities offered hereby. DESCRIPTION OF SECURITIES We are authorized to issue 12,500,000 shares of common stock, par value $.001 per Share, and 2,500,000 shares of preferred stock, $.001 per share. As of August 16, 1999 there were 2,842,798 shares of common stock outstanding and no shares of preferred stock issued or outstanding. Adjusted to give effect for a one for four reverse stock split effective on June 3, 1999. COMMON STOCK The holders of our common stock are entitled to dividends, if any are declared, and are entitled to a pro rata portion of our assets if we liquidate or dissolve our business, if our assets are not first distributed to our creditors or preferred stock holders. Each share of common stock entitles the holders thereof, to one vote. Holders of common stock do not have cumulative voting rights which means that the holders of more than 50% of shares voting for the election of Directors can elect all of the Directors if they choose to do so, and in such event, the holders of the remaining shares will not be able to elect any Directors. Our bylaws require that only a majority of the issued and outstanding shares of our common stock is required to transact business at a shareholders' meeting. The common stock has no preemptive, subscription or conversion rights nor may we redeem it. 33 PREFERRED STOCK The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our Board of Directors, without further action by shareholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion rights, redemption rights, and sinking fund provisions. The issuance of any such preferred stock could adversely affect the rights of the holders of our common stock and, therefore, reduce the value of the common stock. The ability of the Board of Directors to issue preferred stock could discourage, delay, or prevent a takeover of American Quantum Cycles, Inc. CERTAIN FLORIDA LEGISLATION Florida law and American Quantum Cycles Articles and Bylaws also authorize us to indemnify our Directors, Officers, employees and agents. In addition, Florida law presently limits the personal liability of corporate Directors for monetary damages, except where the directors (i) breach their fiduciary duties and (ii) such breach constitutes or includes certain violations of criminal law, a transaction from which the Directors derived an improper personal benefit, certain unlawful distributions or certain other reckless, wanton or willful acts or misconduct. ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS Certain provisions of the articles and bylaws of American Quantum Cycles, and our ability to issue preferred stock", may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt, including attempts that might result in a premium being paid over the market price for the shares held by shareholders. The provisions in our Articles or Bylaws may not be amended without the affirmative vote of the holders of a majority of the outstanding shares of our common stock. The Articles and Bylaws provide that special meetings of shareholders of American Quantum Cycles may be called only by our Board of Directors, or holders of not less than 10% of our outstanding voting stock entitled to vote at the Special Meeting. Despite the belief of American Quantum Cycles as to the benefits to shareholders of these provisions of our Articles of Incorporation, these provisions may also have the effect of discouraging a future takeover attempt which would not be approved by our Board, but pursuant to which the shareholders may receive a substantial premium for their shares over then current market prices. As a result, shareholders who might desire to participate in such a transaction may not have any opportunity to do so. Such provisions will also render the removal of American Quantum Cycles Board of Directors and management more difficult and may tend to stabilize our stock price, thus limiting gains which might otherwise be reflected in price increases due to a potential merger or acquisition. The Board of Directors, however, has concluded that the potential benefits of these provisions outweigh the possible disadvantages. Pursuant to applicable regulations, at any annual or special meeting of its shareholders, American Quantum Cycles may adopt additional Articles of Incorporation provisions regarding the acquisition of its equity securities that would be permitted to a Florida corporation. TRANSFER AGENT Our transfer agent for our common stock is Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004. 34 SHARES ELIGIBLE FOR FUTURE SALE Immediately after the completion of this offering, American Quantum Cycles will have 5,272,798 shares of common stock outstanding, not including up to 556,250 shares of common stock that may be issued upon the exercise of options. Of the outstanding shares (i) 699,794 are freely tradable without restriction under the Securities Act of 1933 as amended (ii) 929,449 shares of common stock being registered in the alternate prospectus will be freely tradable without restriction the Act ; (iii) 772,482 shares are "Restricted Securities" but will be eligible for resale pursuant to Rule 144 between October 1999 and January 2000; and (iv) 441,073 shares held by Officers and Directors of American Quantum Cycles, all of which will be eligible for sale under Rule 144 beginning November 1999. Under Rule 144, a person (or persons whose shares are aggregated) who has beneficially owned restricted securities for at least one year, including the holding period of any prior owner except an affiliate, would be generally entitled to sell within any three month period a number of shares that does not exceed the greater of (i) 1% of the number of then outstanding shares of the common stock or (ii) the average weekly trading volume of the common stock in the public market during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about American Quantum Cycles. Any person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of American Quantum Cycles at any time during the three months preceding a sale, and who has beneficially owned shares for at least two years (including any period of ownership of preceding nonaffiliated holders), would be entitled to sell such shares under Rule 144(k) without regard to the volume limitations, manner-of-sale provisions, public information requirements or notice requirements. The availability for sale of substantial amounts of common stock subsequent to this offering could adversely affect the prevailing market price of the common stock and could impair our ability to raise additional capital through the sale of its equity securities. Prospective investors should be aware that the possibility of such sales may, in the future, have a depressive effect on the price of our common stock in any market which may develop and, therefore, the ability of any investor to market his shares may be dependent directly upon the number of shares that are offered and sold. Affiliates of American Quantum Cycles may sell their shares during a favorable movement in the market price of our common stock ,which may have a depressive effect on its price per share. UNDERWRITING Subject to the terms and conditions of the underwriting agreement, the underwriter agreed to purchase from American Quantum Cycles an aggregate of 2,430,000 shares of common stock. The securities are offered by the underwriter subject to prior sale, when, as and if delivered to and accepted by the underwriter and subject to approval of certain legal matters by counsel and certain other conditions. The underwriter is committed to purchase all securities offered by this prospectus, if any are purchased (other than those covered by the over-allotment option described below). American Quantum Cycles has been advised by the underwriter that the underwriter proposes to offer the securities to the public at the offering price set forth on the cover page of this prospectus. The underwriter has advised us that the underwriter proposes to offer the securities through members of the National Association of Securities Dealers, Inc., and may allow concessions, in its discretion, to certain selected dealers who are members of the NASD and who agree to sell the securities in conformity with the NASD's conduct rules. Such concessions will not exceed the amount of the underwriting discount that the underwriter is to receive. American Quantum Cycles has granted to the underwriter an over-allotment option, exercisable for 45 days from the effective date, to purchase up to an additional 364,500 shares at the public offering price less the underwriting discount set forth on the cover page of this prospectus. The underwriter may exercise this option solely to cover over-allotments in the sale of the securities being offered by this prospectus. Officers and Directors of American Quantum Cycles may introduce the underwriter to persons to consider this offering and to purchase securities either through the underwriter or through participating dealers. In this connection, no securities have been reserved for those purchases and officers and Directors will not receive any commissions or any other compensation. 35 American Quantum Cycles has agreed to pay to the underwriter a commission of ten percent (10%) of the gross proceeds of this offering, including the gross proceeds from the sale of the over-allotment option, if exercised. In addition, American Quantum Cycles has agreed to pay to the underwriter a non-accountable expense allowance of three percent (3%) of the gross proceeds of this offering, including proceeds from any securities purchased pursuant to the over-allotment option. The underwriter's expenses in excess of the non-accountable expense allowance will be paid by the underwriter. To the extent that the expenses of the underwriter are less than the amount of the non-accountable expense allowance received, such excess shall be deemed to be additional compensation to the underwriter. The underwriter has informed us that it does not expect sales to discretionary accounts to exceed five percent (5%) of the total number of securities offered by American Quantum Cycles hereby. American Quantum Cycles has agreed to engage the underwriter as a financial advisor at a fee of $108,000, which is payable to the underwriter on the closing date. Pursuant to the terms of a financial advisory agreement, the underwriter has agreed to provide, at our request, advice to American Quantum Cycles concerning potential merger and acquisition and financing proposals, whether by public financing or otherwise. American Quantum Cycles has also agreed that if American Quantum Cycles participates in any transaction which the underwriter has introduced to American Quantum Cycles during a period of five years after the closing (including mergers, acquisitions, joint ventures and any other business transaction for American Quantum Cycles introduced by the underwriter), and which is consummated after the closing (including an acquisition of assets or stock for which it pays, in whole or in part, with shares or other securities of American Quantum Cycles), or if we retain the services of the underwriter in connection with any such transaction, then we will pay for the underwriter's services an amount equal to 5% of up to one million dollars of value paid or received in the transaction, 4% of the next million of such value, 3% of the next million of such value, 2% of the next million of such value, and 1% of the next million dollars of such value and of all such value above $4,000,000. At the closing, American Quantum Cycles will issue to the underwriter and/or persons related to the underwriter, for nominal consideration, common stock underwriter warrants to purchase up to 243,000 shares of common stock. The underwriter warrants will be exercisable for a five-year period commencing on the effective date. The initial exercise price of each underwriter warrant shall be $______ per underlying share (165% of the public offering price) although the underwriter warrants will be restricted from sale, transfer, assignment or hypothecation for a period of twelve months from the effective date by the holder, except (i) to officers of the underwriter and members of the selling group and Officers and partners thereof; (ii) by will; or (iii) by operation of law. The underwriter warrants contain provisions providing for appropriate adjustment in the event of any merger, consolidation, recapitalization, reclassification, stock dividend, stock split or similar transaction. The underwriter warrants contain net issuance provisions permitting the holders thereof to elect to exercise the underwriter warrants in whole or in part and instruct American Quantum Cycles to withhold from the securities issuable upon exercise, a number of securities, valued at the current fair market value on the date of exercise, to pay the exercise price. Such net exercise provision has the effect of requiring American Quantum Cycles to issue shares of common stock without a corresponding increase in capital. A net exercise of the underwriter warrants will have the same dilutive effect on the interests of American Quantum Cycles shareholders as will a cash exercise. The underwriter warrants do not entitle the holders thereof to any rights as a shareholder of American Quantum Cycles until such underwriter warrants are exercised and shares of common stock are purchased thereunder. The underwriter warrants and the securities issuable thereunder may not be offered for sale except in compliance with the applicable provisions of the Securities Act of 1933, as amended. American Quantum Cycles has agreed that if it shall cause a post-effective amendment, a new registration statement, or similar offering document to be filed with the Securities and Exchange Commission, the holders shall have the right, for seven (7) years from the effective date, to include in such registration statement or offering statement the underwriter warrants and/or the securities issuable upon their exercise at no expense to the holders. Additionally, American Quantum Cycles has agreed that, upon request by the holders of 50% or more of the underwriter warrants during the period commencing one year from the effective date and expiring four years thereafter, American Quantum Cycles will, under certain circumstances, register the underwriter warrants and/or any of the securities issuable upon their exercise. In order to facilitate the offering of the common stock, the underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of the shares. Specifically, the underwriter may sell or allot, more shares than the ______ shares American Quantum Cycles has agreed to sell to the underwriter. This over-allotment would create a short position in the shares for the account of the underwriter. To cover any over-allotments or to stabilize the price of the shares, the underwriter may bid for, and purchase, shares in the open market. Finally, the underwriter may reclaim selling concessions allowed to dealers for distributing the shares in the offering, if the underwriter repurchases previously distributed shares in transactions to cover short positions, in stabilization transactions or 36 otherwise. The underwriter has reserved the right to reclaim selling concessions in order to encourage dealers to distribute the shares for investment, rather than for short-term profit taking. Increasing the proportion of the offering held for investment may reduce the supply of shares available for short-term trading. Any of these activities may stabilize or maintain the market price of the shares above independent market levels. The underwriter is not required to engage in these activities, and may end any of these activities at any time. American Quantum Cycles has agreed to indemnify the underwriter against any costs or liabilities incurred by the underwriter by reason of misstatements or omissions to state material facts in connection with the statements made in the registration statement filed by American Quantum Cycles and this prospectus. The underwriter has in turn agreed to indemnify American Quantum Cycles against any costs or liabilities by reason of misstatements or omissions to state material facts in connection with the statements made in the registration statement and this prospectus, based on information relating to the underwriter and furnished in writing by the underwriter. To the extent that these provisions may purport to provide exculpation from possible liabilities arising under the federal securities laws, in the opinion of the commission, such indemnification is contrary to public policy and therefore unenforceable. The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to copies of each such agreement, which are filed as exhibits to the registration statement. LEGAL MATTERS The validity of the issuance of the securities offered hereby will be passed upon for American Quantum Cycles by Atlas, Pearlman, Trop & Borkson, P.A., Fort Lauderdale, Florida. Certain members of the firm of Atlas, Pearlman, Trop & Borkson own 3,750 shares of common stock. Certain matters will be passed upon for the underwriter by David A. Carter, P.A., Boca Raton, Florida. EXPERTS The financial statements of American Quantum Cycles appearing in this prospectus have been audited by Pricher and Company, independent certified public accountants, to the extent and for the periods set forth in their report appearing elsewhere herein, and are included in reliance upon such report given upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION American Quantum Cycles intends to furnish to its shareholders annual reports, which will include financial statements audited by independent accountants, and such other periodic reports as it may determine to furnish or as may be required by law, including sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. American Quantum Cycles has filed with the Securities and Exchange Commission (the "Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a registration statement on Form SB-2 under the Securities Act with respect to the securities offered hereby. This prospectus does not contain all the information set forth in the registration statement and the exhibits thereto, as permitted by the rules and regulations of the Commission. For further information, reference is made to the registration statement and to the exhibits filed therewith. Statements contained in this prospectus as to the contents of any contract or other document which has been filed as an exhibit to the registration statement are qualified in their entirety by reference to such exhibits for a complete statement of their terms and conditions. The registration statement and the exhibits thereto may be inspected without charge at the offices of the Commission and copies of all or any part thereof may be obtained from the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 or at certain of the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the fees prescribed by the Commission. Electronic reports and other information filed through the Electronic Data Gathering, Analysis, and Retrieval System are publicly available through the Commission's website (http://www.sec.gov.). 37 AMERICAN QUANTUM CYCLES, INC. FINANCIAL STATEMENTS APRIL 30, 1999 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Certified Public Accountant............................................................................... F-2 Balance Sheets as of April 30, 1999 and 1998........................................................................ F-3 Statements of Operations for the Years Ended April 30 1999, 1998 and 1997 .......................................... F-4 Statements of Cash Flows for the Years Ended April 30, 1999 1998 and 1997 .......................................... F-5 Statements of Shareholders' Deficit for the Years Ended April 30, 1999 1998 and 1997................................ F-6 Notes to Financial Statements........................................................................................ F-7-F-17
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, 1999 and 1998, and the related statements of operations, stockholders' deficit, and cash flows for each of the years in the three year period ended April 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Quantum Cycles, Inc. as of April 30, 1999 and 1998 and the results of its operations and its cash flows for each of the years in the three year period ended April 30, 1999 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about the entity's ability to continue as a going concern. Management's plans regarding those matters are also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Pricher and Company Orlando, Florida June 24, 1999 F-2 AMERICAN QUANTUM CYCLES, INC. BALANCE SHEET April 30, 1999 and 1998
1999 1998 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 15,397 $ 48,768 Accounts receivable 94,439 35,602 Other current assets 35,734 39,308 Inventories 791,084 763,158 ----------- ----------- Total current assets 936,654 886,836 ----------- ----------- Property and equipment 1,666,661 649,499 Less accumulated depreciation 331,630 62,486 ----------- ----------- 1,335,031 587,013 ----------- ----------- Other assets: Deposits 45,555 40,700 Licenses and intellectual rights, less accumulated amortization of $36,714 and $12,565 325,518 349,667 ----------- ----------- 371,073 390,367 ----------- ----------- $ 2,642,758 $ 1,864,216 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 1,149,882 $ 370,658 Accrued liabilities 921,835 317,103 Current maturities of long-term debt 15,558 20,183 Current capital lease obligations 147,560 24,006 Lines of credit 1,093,893 Notes payable 2,188,753 2,317,500 ----------- ----------- Total current liabilities 5,517,481 3,049,450 ----------- ----------- Capital lease obligations, less current maturities 81,341 75,598 Long-term debt, less current maturities 1,386,418 42,378 ----------- ----------- 1,467,759 117,976 ----------- ----------- Stockholders' deficit: Common stock, par value $.001 per share; authorized 50,000,000 shares, issued and outstanding 2,300,586 and 617,761 shares 2,301 618 Preferred stock, par value $.001 per share; authorized 2,500,000 shares, no shares issued Additional paid-in capital 5,076,353 1,330,517 Deficit (9,421,136) (2,634,345) ----------- ----------- Total stockholders' deficit (4,342,482) (1,303,210) ----------- ----------- $ 2,642,758 $ 1,864,216 =========== ===========
See accompanying notes to financial statements. F-3 AMERICAN QUANTUM CYCLES, INC. STATEMENT OF OPERATIONS Years Ended April 30, 1999, 1998 and 1997
1999 1998 1997 ----------- ----------- ----------- Sales $ 975,780 $ 192,856 $ ----------- ----------- ----------- Cost and expenses: Cost of goods sold 1,539,728 173,424 General and administrative 5,144,615 2,453,062 1,542 ----------- ----------- ----------- 6,684,343 2,626,486 1,542 ----------- ----------- ----------- Loss from operations (5,708,563) (2,433,630) (1,542) ----------- ----------- ----------- Other income (expense): Loss on disposition of property and equipment (13,956) Interest and other income 1,724 3,107 Interest expense (1,079,952) (187,232) (1,092) ----------- ----------- ----------- (1,078,228) (198,081) (1,092) ----------- ----------- ----------- Net loss $(6,786,791) $(2,631,711) $ (2,634) =========== =========== =========== Loss per common share: Weighted average shares outstanding 1,212,503 501,961 147,929 =========== =========== =========== Net loss $ (5.597) $ (5.243) $ (0.018) =========== =========== ===========
See accompanying notes to financial statements. F-4 AMERICAN QUANTUM CYCLES, INC. STATEMENT OF CASH FLOWS Years Ended April 30, 1999, 1998 and 1997
1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Reconciliation of net loss to net cash used in operating activities: Net loss $(6,786,791) $(2,631,711) $ (2,634) Items not requiring (providing) cash: Loss on disposition of equipment 13,956 Depreciation and amortization 293,293 75,051 1,092 Issuance of common stock for compensation, services and interest 3,069,270 304,409 275 Changes in assets and liabilities: Receivables (62,471) (35,602) 500 Inventories (27,926) (763,158) Prepaid expenses 7,208 (35,143) Other assets (4,855) (40,700) Accounts payable 779,224 370,658 Accrued liabilities 604,731 316,336 767 ----------- ----------- ----------- Net cash used in operating activities (2,128,317) (2,425,904) ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures (1,017,162) (615,950) Investment in licenses and intellectual rights (362,232) ----------- ----------- ----------- Net cash used in investing activities (1,017,162) (978,182) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from issuance of notes payable 2,488,519 2,317,500 244,985 Repayment of notes payable (54,661) (221,770) Long-term borrowing 175,159 Repayment of long-term debt (12,994) Proceeds from issuance of common stock 678,250 949,974 ----------- ----------- ----------- Net cash provided by financing activities 3,112,108 3,207,869 244,985 ----------- ----------- ----------- Net increase (decrease) in cash (33,371) (196,217) 244,985 Cash, beginning of year 48,768 244,985 ----------- ----------- ----------- Cash, end of year $ 15,397 $ 48,768 $ 244,985 =========== =========== =========== Supplemental cash flow information: Amounts paid for: Interest $ 257,551 $ 5,332 $ =========== =========== =========== Income taxes $ $ $ =========== =========== ===========
See accompanying notes to financial statements. F-5 AMERICAN QUANTUM CYCLES, INC. STATEMENT OF SHAREHOLDERS' DEFICIT Years Ended April 30, 1999, 1998 and 1997
Common Stock ----------------------- Additional Total Number of Par Paid-In Stockholders' Shares Value Capital Deficit Deficit ---------- ----------- -------------- --------------- --------------- Balance, April 30, 1996 125 $ 125 $ 375 $ $ 500 1,000 for 1 stock split 124,875 Stock issued for consulting services 68,750 69 206 275 Stock issued to bridge loan participants 31,250 31 28,441 28,472 Net loss for the year ended April 30, 1997 (2,634) (2,634) ---------- -------- ----------- ------------ ------------ Balance, April 30, 1997 225,000 225 29,022 (2,634) 26,613 Stock issued in exchange for equipment and services 315,269 315 94,694 95,009 Private placement of common stock for cash 61,436 61 949,913 949,974 Employee stock bonuses recorded as compensation expense 12,825 13 205,188 205,201 Stock issued to a dealership for promotional expense 2,500 3 39,997 40,000 Stock issued to lenders for interest on bridge loans 731 1 11,703 11,704 Net loss for the year ended April 30, 1998 (2,631,711) (2,631,711) - ----------------------------------------------------------- -------- ----------- ------------ ------------ Balance, April 30, 1998 617,761 618 1,330,517 (2,634,345) (1,303,210) Private placement of common stock for cash 62,500 63 254,937 255,000 Stock issued upon exercise of stock options 399,375 400 422,850 423,250 Employee stock bonuses recorded as compensation expense 375,350 375 706,285 706,660 Stock issued in exchange for consulting and other services 237,350 237 913,523 913,760 Stock issued to lenders for interest on bridge loans and lines of credit 608,250 608 1,448,241 1,448,849 Net loss for the year ended April 30, 1999 (6,786,791) (6,786,791) - ----------------------------------------------------------- -------- ----------- ------------ ------------ Balance, April 30, 1999 2,300,586 $ 2,301 $ 5,076,353 $ (9,421,136) $ (4,342,482) ========== ======== =========== ============ ============
See accompanying notes to financial statements. F-6 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of business and organization - American Quantum Cycles, Inc., a Florida corporation, ("The Company") designs, produces, markets, distributes and sells American-made, high performance V-twin engine cruiser and touring style motorcycles. These motorcycle products include stock models and motorcycles built to customer specified configurations. The Company was originally incorporated on March 20, 1986 as "Norbern, Inc." and was inactive until March 1997 when it began developing and implementing its business and financing plans. On May 8, 1997 the Company changed its name to American Quantum Cycles, Inc. and its fiscal year end to April 30. The accompanying financial statements for years prior to 1998 are presented on an April 30 fiscal year end which does not require restatement since the Company had no operations prior to March 1997. Basis of presentation - For years prior to the fiscal year ended April 30, 1999 the Company was considered to be in the development stage. During the current year the Company commenced planned operations, however, substantial efforts are still being made to raise capital, enter into dealership agreements and implement its business plan. Cash and cash equivalents - For purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Inventories - Inventories are carried at the lower of cost or market, with cost principally determined under the average cost method. Property and equipment - Property and equipment are carried at cost. Depreciation is recorded principally on the straight-line method at rates based on the estimated useful lives of the assets that range from three to seven years. The book value of obsolete assets is charged to depreciation expense when they are scrapped. Profits or losses from the sale of assets are included in other income. Repairs and maintenance are charged to expense as incurred. Intangible Assets - Intangible assets consist of licenses and intellectual rights and are amortized on the straight-line method over fifteen years. Income taxes - Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statements and income tax purposes. The differences relate primarily to depreciable assets (using accelerated depreciation methods for income tax purposes), the allowance for doubtful accounts (deductible for financial statement purposes but not for income tax purposes), stock-based compensation, and net operating loss carryforwards. Concentration of credit risk - The Company occasionally maintains deposits in excess of federally insured limits. Statement of Financial Accounting Standards No. 105 identifies these items as a concentration of credit risk requiring disclosure, regardless of the degree of risk. The risk is managed by maintaining all deposits in high quality financial institutions. F-7 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Sales returns and warranty allowances - The Company establishes an allowance for product warranties and sales returns based on experience with customers' claims arising from the sale of defective merchandise and a study of the experiences of other companies engaged in the sale of similar products. Changes in the allowance are charged to selling expense. 2 INVENTORIES Inventories at April 30, 1999 and 1998 are comprised as follows:
Description 1999 1998 --------------------------------------------------------------- -------------- -------------------- Finished goods $ 27.573 $ 13,787 Work in process 24,032 66,796 Purchased raw materials 739,479 682,575 ============== ================= Total inventory $ 791,084 $ 763,158 ============== =================
3 PROPERTY AND EQUIPMENT Property and equipment includes the following:
Description 1999 1998 --------------------------------------------------------------- -------------- ----------------- Leasehold improvements $ 559,742 $ 52,750 Manufacturing tools and equipment 251,159 142,805 Office furniture, equipment and software 696,055 308,025 Vehicles 159,705 145,919 =============== =============== Total $ 1,666,661 $ 649,499 =============== ===============
Depreciation expense for the years ended April 30, 1999 and 1998 amounted to $269,144 and $62,486, respectively. As of April 30, 1997, the Company had not yet acquired any property and equipment, accordingly, there was no depreciation expense for years prior to 1998. F-8 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 4 LICENSES AND INTELLECTUAL PROPERTY Licenses and intellectual property are comprised of the following: Proprietary technology license $ 235,000 Intellectual property rights 127,232 ------- 362,232 Less accumulated amortization (36,714) $ 325,518 In August 1997, the Company entered into a license agreement (the "Agreement") with Feuling Advanced Technologies, Inc. whereby the Company obtained a license to use certain proprietary technologies including, among other things, patents, trade secrets, techniques, tooling designs, product designs, and trademarks. Pursuant to the terms of the Agreement, as long as the Company complies with certain other provisions including non-disclosure of the proprietary technology, the Company has an exclusive license, for motorcycle applications, in perpetuity for the 4-Valve technology. This technology is used in connection with the Company motorcycles and bolt-on kits for the Harley Davidson motorcycles which feature the evolution engine, evolution big twin, other Harley Davidson clones and aftermarket parts. 5 NOTES PAYABLE AND LINES OF CREDIT Notes payable at April 30, 1999 consist of: 10% Subordinated Notes - The Company issued nine unsecured promissory notes dated March 30, 1998 to individuals providing bridge loan financing. The aggregate principal balance of the notes at April 30, 1999 is $700,000 with interest payable at 10% at maturity (originally September 30, 1998). The terms of the loan agreements provide for the Company to issue a total of 35,500 shares of common stock to the note holders at maturity in order to obtain a favorable interest rate and repayment terms. Additional interest expense (equal to the fair value of the common stock to be issued minus the conversion price) is being recognized over the term of the loans. The note holders of $320,000 of the outstanding notes subsequently agreed to convert the notes and accrued interest thereon into common stock at a conversion price equal to the offering price of shares of the Company's common stock in a proposed public offering as discussed in Note 8 ("the proposed stock offering"). The note holders will also receive two common stock warrants for each share of common stock to be received upon conversion. Note holders representing the remaining $380,000 of the outstanding notes have agreed to extend the maturity date of their notes until the completion of the proposed stock offering. F-9 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 5 NOTES PAYABLE AND LINES OF CREDIT (Continued) Convertible Debentures - The Company has issued two separate series of unsecured convertible notes to investors: Beginning in October 1997, the Company issued forty 8% Subordinated Notes, for an aggregate of $1,524,500. The notes were scheduled to mature one year from date of issue and were convertible at $8.00 per share. Interest was also convertible at the same rate as the principal, at the discretion of the note holder. As of April 30, 1999 the outstanding principal balance of these notes is $1,327,000. The note holders of $706,500 of the outstanding notes subsequently agreed to convert the notes and accrued interest thereon into common stock at a conversion price equal to the offering price of shares of the Company's common stock in the proposed stock offering and will also receive one common stock warrant for each share of common stock to be received upon conversion. Note holders representing $297,500 of the outstanding notes have agreed to extend the maturity date of their notes until the completion of the proposed stock offering. The remaining note holders representing $323,000 of the outstanding notes have not agreed to convert or extend the maturity date of their notes and the notes are, therefore, in default. Beginning in April 1998, the Company issued twenty-seven 7% Subordinated Notes, for an aggregate of $549,500. The notes were scheduled to mature one year from the date of issue and were convertible at $8.00 per share. Interest is payable in cash or convertible at the same rate as the principal, at the discretion of the Company. A warrant is attached at 10% above the final price of a proposed stock offering. As of April 30, 1999 the outstanding principal balance of these notes is $517,000. The note holders of $337,000 of the outstanding notes subsequently agreed to convert the notes and accrued interest thereon into common stock at a conversion price equal to the offering price of shares of the Company's common stock in the proposed stock offering and will also receive one common stock warrant for each share of common stock to be received upon conversion. Note holders representing the remaining $180,000 of the outstanding notes have agreed to extend the maturity date of their notes until the completion of the proposed stock offering. Senior Promissory Notes - Between November 1998 and January 1999 the Company issued thirty-five units at a price of $25,000 per unit. Each unit consisted of a non-interest bearing, unsecured $25,000 senior promissory note and common stock warrants for a number of shares of stock determined by dividing $12,500 by the public offering price of shares of common stock of the Company to be issued in the proposed stock offering. The warrants are exercisable at the offering price of the proposed stock offering. The outstanding principal balance of the senior promissory notes at April 30, 1999 is $870,000. 8% Subordinated Demand Notes - Between January and April 1999 the Company issued seven unsecured 8% subordinated demand notes for an aggregate principal amount of $587,000. These notes remain outstanding at April 30, 1999. F-10 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 5 NOTES PAYABLE AND LINES OF CREDIT (Continued) Bank Note - In January 1999, the Company assumed a $61,005 bank note in default from one of its dealers and regained title to five motorcycles. The Company has agreed to repay the note at $5,000 per month commencing in February 1999. As of April 30, 1999, the remaining principal balance on the note is $46,005. Lines of Credit at April 30, 1999 consist of: Investor Group Line of Credit - In February 1999 the Company contracted with a group of six individuals for an unsecured line of credit in the aggregate amount of $500,000. The loans bear interest at 8% per annum plus the note holders received 28,125 shares of common stock valued at $125,000. Principal and interest are payable upon the completion of the proposed stock offering. Revolving Line of Credit - In March 1999, the Company contracted for a $750,000 secured line of credit. Interest is payable monthly at 10% plus the lender received 187,500 shares of common stock valued at $187,500. The loan is secured by inventory, accounts receivable and general intangibles and matures on June 30, 1999. Borrowing under the agreement is based on firm purchase orders for motorcycles received by the Company. As of April 30, 1999, the Company had drawn $220,000 on this line of credit. Line of Credit - In December 1998, the Company contracted for a $755,000 secured line of credit. Interest is payable quarterly at 10% per annum plus the lender received 188,750 shares of common stock valued at $188,750. The loan is secured by inventory, accounts receivable, general intangibles and equipment and is due on demand. As of April 30, 1999, the Company had drawn $755,000 on this line of credit. Outstanding notes payable and lines of credit as of April 30, 1999 are summarized as follows: 10% Subordinated Notes $ 700,000 8% Subordinated Notes 1,327,000 7% Subordinated Notes 517,000 Senior Promissory Notes 870,000 8% Subordinated Demand Notes 587,000 Bank Note 46,005 Lines of Credit 1,475,000 ----------- 5,522,005 Less unamortized discount (875,859) ----------- Total notes payable and lines of credit $ 4,646,146 =========== F-11 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 5 NOTES PAYABLE AND LINES OF CREDIT (Continued) Notes payable and lines of credit are included in the accompanying balance sheet under the following captions: Lines of credit $ 1,093,893 Notes payable 2,188,753 Long term debt 1,363,500 ----------- Total $ 4,646,146 =========== The shares of common stock issued to note holders and line of credit lenders, as discussed above, were valued at the market value at the date of issue. The value of the shares, which aggregated $1,448,850, has been recorded as a discount from the face value of the related debt and is being amortized over the term of the debt using the interest method. During the year ended April 30, 1999, $572,991 of such discount has been amortized and charged to interest expense. These transactions result in an effective interest rate on the notes payable and lines of credit of 31.2% and 61%, respectively. 6 LONG-TERM DEBT Long-term debt at April 30, 1999 is as follows:
Installment loan, monthly payments of $618 including interest at 8.75%, matures September, 2002, secured by a vehicle $ 21,822 Installment note payable for the purchase of intellectual property rights, monthly payments of $783 including interest at 8%, matures January, 2001, secured by property rights 16,654 Short-term obligations expected to be refinanced (see note 5) 1,363,500 ---------- 1,401,976 Less current maturities 15,558 ---------- Total long-term debt $1,386,418 ==========
The aggregate maturities of long-term debt as of April 30, 1999 are $15,558 in 2000, $13,073 in 2001, $6,822 in 2002 and $3,023 in 2003. F-12 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 7 LEASES Capital leases - The Company leases various manufacturing, production, telephone and computer equipment under capital lease agreements with terms of three to five years through May, 2003. The economic substance of the leases is that the Company is financing the acquisition of the assets, and accordingly, they are capitalized as property and equipment. The leases contain bargain purchase options at the end of the lease terms. The following is an analysis of the leased assets included in property and equipment as of April 30, 1999: Telephone equipment $ 16,452 Computer equipment 255,611 Machinery and production equipment 41,479 ----------- 313,542 Less accumulated amortization (35,531) ----------- $ 278,011 =========== The following is a schedule of future minimum payments required under the leases together with their present value as of April 30, 1999: Year ending April 30, Amount -------------------- ------------------ 2000 $ 95,710 2001 92,945 2002 52,667 2003 32,866 2004 4,908 --------------- Total minimum lease payments 279,096 Less amount representing interest ( 50,195) --------------- Present value of minimum lease payments $ 228,901 =============== Operating leases - The Company leases its administration and production facilities under noncancelable operating leases with terms of four years expiring in February, 2002. The Company is also responsible for real estate taxes on the leased facilities. Rent expense under operating leases was $69,756 and $83,155 for the years ended April 30, 1999 and 1998, respectively. The following is a schedule of future minimum lease payments required under operating leases: Year ending April 30, Amount -------------------- ------------------- 2000 $ 69,756 2001 $ 69,756 2002 $ 58,130 F-13 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 8 CONTINGENCIES The Company has suffered recurring losses since its inception and at April 30, 1999 has a capital deficiency of $9,421,136 and a working capital deficiency of $4,580,827. As described in note 5, the Company has negotiated with its lenders to convert certain loans to common stock and stock warrants and to defer payment on certain loans until completion of a proposed stock offering planned for July 1999. The proposed stock offering of up to 1,840,000 shares of the Company's common stock is expected to provide sufficient net proceeds to repay all delinquent obligations and provide working capital to sustain operations until such time as positive cash flow and profits can be generated. Results of operations in the future will be influenced by numerous factors including technological developments, competition, regulation, increases in expenses associated with sales growth, market acceptance of the products of the Company, the capacity of the Company to expand and maintain the quality of its motorcycles and related services, continued development of the dealer organization, favorable sourcing of supplies, recruitment of highly skilled employees and integration of such persons into a cohesive organization, and the ability of the Company to raise funds and control costs. Management believes that it will be successful in completing the stock offering and achieving profitable operations, however, there is no assurance that such efforts will be successful. 9 SECURITY TRANSACTIONS Following is a summary of security transactions during the years ended April 30, 1999 and 1998: On May 21, 1997 the Company issued 315,269 shares of common stock valued at $95,009 for management services, equipment and other assets. In September, 1997 the Company issued 61,436 shares of common stock in a private placement. The net proceeds of the offering of $949,974 were used to repay debt of $250,000 and provide working capital. On October 24, 1997 and December 31, 1997, 12,825 shares of common stock valued at $205,201 were issued to key employees as performance bonuses. On December 15, 1997, 2,500 shares of common stock valued at $40,000 were issued to a dealership and recorded as promotional expense and 732 shares valued at $11,704 were issued to bridge lenders and recorded as interest expense. At various dates during the year ended April 30, 1999 the Company issued 62,500 shares of common stock for cash at prices ranging from $4.00 to $4.20 per share and an additional 399,375 shares were issued upon exercise of stock options at prices ranging from $.40 to $4.00 per share. F-14 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 9 SECURITY TRANSACTIONS (Continued) In October and November, 1998 the Company issued 375,350 shares of common stock valued at $706,660 to management and other employees as performance bonuses. At various dates between October, 1998 and January, 1999 the Company issued 237,350 shares valued at $913,760 for consulting and other services. As discussed in note 5, the Company issued 35,500 shares of common stock valued at $177,500 during December, 1998 to certain 10% note holders to obtain a favorable interest rate and repayment terms. Additionally, in January and April, 1999, in connection with agreements to provide $2,005,000 in secured and unsecured lines of credit, the lenders were issued 572,750 shares of common stock valued at $1,271,350. The value of the shares issued to the 10% note holders and the line of credit lenders is being amortized as additional interest expense over the original terms of the debt. 10 PREFERRED STOCK The Company is authorized to issue up to 2,500,000 shares of $.001 par value Preferred Stock. Preferred Stock is designated as the "Series A 7% Convertible Preferred Stock" and has a stated value of $6.00 per share. Dividends of 7% of the stated value accrue and are payable semi-annually. Each share of Preferred Stock is convertible into one share of common stock at the option of the shareholder. No preferred shares have been issued. 11 INCOME TAXES The Company has adopted Statement of Financial Accounting Standards No. 109, "Accounting For Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires that the Company use the liability method which attempts to recognize the future tax consequences of temporary differences between the book and tax bases of assets and liabilities. At April 30, 1999, the Company has net operating loss carryforwards totaling approximately $9,400,000 that may be offset against future taxable income through 2012. No tax benefit has been reported in the accompanying financial statements, however, because the Company believes there is at least a 50% chance that the carryforwards will expire unused. Accordingly, a $3,760,000 tax benefit of the loss carryforward has been offset by a valuation allowance of the same amount. During the years ended April 30, 1999 and 1998, the valuation allowance increased by $2,720,000 and $1,040,000, respectively. The expected tax benefit that would result from applying federal statutory tax rates to the pretax loss differs from amounts reported in the financial statements primarily because of the increase in the valuation allowance. The company paid no income taxes since its inception. F-15 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 12 LOSS PER COMMON SHARE Loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. All share and per share data, except shares authorized, have been retroactively adjusted to reflect a 1,000 for 1 stock split effective March 25, 1997 and a 4 for 1 reverse stock split effective June 3, 1999. 13 STOCK OPTIONS On May 9, 1997 (and as amended June 3, 1997) the Company entered into a consulting agreement with Greenstone Financial Corp. ("GFC") to assist the Company with corporate development and strategic business planning. Under terms of the agreement, the Company granted GFC an option to purchase up to 62,500 shares of Company common stock based upon the successful completion of a private placement of Company common stock, with each option exercisable at $16.00 per share. Also under the terms of the agreement, as amended, the Company granted GFC an option to purchase 75,000 shares of Company common stock at an exercise price of $0.40 per share. GFC exercised this option in October, 1998. On June 15, 1998, the Company adopted the "1997 Stock Option Plan" (the "Plan"). Under the Plan, 750,000 shares of common stock are reserved for issuance upon exercise of options granted to management, key employees and consultants. The plan provides for the granting of either "incentive stock options" or "non-qualified stock options", as defined under the Internal Revenue Code. Options may be granted at prices not less than 100 percent of the fair market value at the date of grant and may be exercisable with a term not exceeding ten years. As of April 30, 1999, the Company has granted common stock options to plan participants as follows: Exercise Price Number of Options -------------- ----------------- $ .40 37,500 $ 1.00 142.500 $ 2.00 146,250 $ 2.32 75,000 $ 2.80 105,000 $ 3.20 225,000 $ 4.00 212,500 ------- Total options granted 943,750 ======= F-16 AMERICAN QUANTUM CYCLES, INC. Notes to Financial Statements 13 STOCK OPTIONS (Continued) In addition to the 75,000 options exercised by GFC, an additional 324,375 options were exercised during the year ended April 30, 1999. As of April 30, 1999 the following options are exercisable: Exercise Price Number of Options $ 2.00 103,125 $ 2.80 101,250 $ 3.20 225,000 $ 4.00 190,000 $ 16.00 62,500 ------- Total options exercisable 681,875 ======= 14 COMPREHENSIVE INCOME As of May 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net loss or shareholders' deficit for any of the periods presented in the accompanying financial statements. SFAS No. 130 requires other comprehensive income to include foreign currency translation adjustments and minimum pension liability adjustments, which prior to adoption were reported separately in shareholders' equity. 15 SUBSEQUENT EVENTS On June 3, 1999, the Company declared a one for four reverse stock split. All share and per share data have been retroactively restated in the accompanying financial statements. F-17 No dealer, sales representative, or any other person has been authorized to give any information or to make any representations other than those contained in this prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by American Quantum Cycles or the underwriter. This prospectus does not constitute an offer or any securities other than those to which it relates or an offer to sell, or a solicitation of any offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create an implication that the information set forth herein is correct as of any time subsequent to the date hereof. AMERICAN QUANTUM CYCLES, INC. [LOGO] 2,430,000 Shares of Common Stock PROSPECTUS BARRON CHASE SECURITIES, INC. 7700 West Camino Real Boca Raton, Florida 33433 (561) 347-1200 Beverly Hills, California Boston, Massachusetts Brooklyn, New York Buffalo, New York Chicago, Illinois Clearwater, Florida Duluth, Georgia Edison, New Jersey Eureka Springs, Arkansas Fort Lauderdale, Florida Hasbrook Heights, New Jersey La Jolla, California Naples, Florida New York, New York Orlando, Florida Sarasota, Florida Tampa, Florida West Boca Raton, Florida _____, 1999 PROSPECTUS (ALTERNATE) AMERICAN QUANTUM CYCLES, INC. 991,949 Shares of Common Stock This is an offering of 991,949 shares of common stock (1)of American Quantum Cycles, Inc., a Florida corporation, held by certain of our shareholders the "Selling Security Holders". Of the 991,949 shares being offered by the selling security holders, 62,500 shares are issuable upon the exercise of options owned by certain of the selling security holders. We will not receive any proceeds from the sale of the shares but we will receive proceeds from the selling security holders if they exercise their options. Our common stock is quoted on the OTC Bulletin Board under the symbol "AMQC". On August 16, 1999, the closing bid price per share of the common stock as reported by the OTC Bulletin Board was $3.56. This investment involves a high degree of risk. You should purchase shares only if you can afford a complete loss of your investment. See "High Risk Factors" beginning on page __. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is ____________, 1999
THE OFFERING Shares of our common stock offered by the selling security holders(1)........................................................ 991,949 shares of common stock Use of proceeds............................................................ We will not receive any proceeds from the - re-sale of the shares offered by the selling security holders. Common stock outstanding: Prior to the offering (2)........................................... 2,842,798 After the offering (3).............................................. 5,335,298 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 62,500 shares of our common stock issuable upon the exercise of options held by the selling security holders. The options are exercisable at $16.00 per share. (2) Does not include 2,430,000 Shares of common stock which are being offered in a concurrent underwritten offering. (3) Includes the 991,949 shares being offered by the selling security holders and the 2,430,000 shares of common stock being offered in the concurrent offering. Does not include (i) 243,000 shares of common stock issuable to the underwriters in the concurrent offering; and (ii) up to 493,750 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 2,430,000 shares of our common stock was declared effective by the Securities and Exchange Commission. Sales of securities under this prospectus by the selling security holders, and in the underwritten public offering, or even the potential of such sales may have an adverse effect on the market price of our common stock. SELLING SECURITY HOLDERS Unless otherwise indicated, none of the selling security holders holds any office or position with us or has a material relationship with us or our affiliates.
SHARES SHARES OF SHARES OF THAT MAY COMMON COMMON BE OFFERED STOCK STOCK BENEFICIALLY PURSUANT OWNED SELLING OWNED PRIOR TO TO THIS AFTER SECURITY HOLDER THIS OFFERING(1) PROSPECTUS(4) OFFERING --------------- ---------------- ------------- -------- Violetta Dwyer 41,250(2) 25,000 16,250 Terri Grundstedt 63,525(2) 25,000 38,525 Laine Moskowitz 38,137(3) 12,500 25,637 Jefferson Hen 3,000 3,000 0 Colson Construction 1,500 1,500 0 Todd Hemm 4,500 4,500 0 Allen Solomon 1,250 1,250 0 Wayne Laglia 1,250 1,250 0 Chase Construction 2,500 2,500 0 Dante Greco 108,821 105,071 3,750 Bridget McMahon 18,750 18,750 0 Carl Domino 18,750 18,750 0 Abe Goldberger 6,250 6,250 0 Catherine Hass 17,468 17,468 0 Michael Howell 16,782 16,782 0 Harvey Stober 9,375 9,375 0 Jerry Lowry 5,000 5,000 0 Arthur Gronbach 12,500 12,500 0 Sheldon Miller 21,875 21,875 0 Andrew Friss 21,875 21,875 0 J.W. Hammond 28,125 21,875 6,250 Parkplace Consulting 25,000 25,000 0 Whitehall Trust 6,250 6,250 0 RWH and Co., Ltd. 156,250 156,250 0 Gerald Frisen 77,167 77,167 0 Harry Newton 33,584 33,584 0 Anchor Capital 187,500 187,500 0 John Pollock 36,946 36,946 0 David Friedman 3,695 3,695 0 Norman Cannella 1,478 1,478 0 Lori Smith Bajorek 1,478 1,478 0 Edward Oxley 3,695 3,695 0 Rahmat Simani 7,389 7,389 0 Richard Dwelle 14,778 14,778 0 Robert Smith 3,695 3,695 0 Terrell Kirksey 14,778 14,778 0 Richard Heidt 3,695 3,695 0 Kimberly DeCamp 40,000 40,000 0 Amil Fleysher 3,750 3,750 0 Clifford Fruithandler 444 375 69 Newburry Realty Co. 1,500 1,500 0 Alphonso Petti 2,500 2,500 0 Karen Pisani 13,394 9,644 3,750 Atlas Partners 3,750 3,750 0 Douglas Paik 6,500 981 5,519
Gives effect to the 1 for 4 reverse stock split of our issued and outstanding common stock effective June 3, 1999. Includes 25,000 shares of common stock issuable upon the exercise of options exercisable at $16.00 per share. Includes 12,500 shares of common stock issuable upon the exercise of options exercisable at $16.00 per share. Subject to a six month restriction on transfer beginning on the date our underwritten public offering closes. 3 PLAN OF DISTRIBUTION The selling security holders may offer their Shares at various times in one or more of the following transactions: in the over-the-counter market where our common stock is listed; transactions other than in the over-the-counter market; in connection with short sales of American Quantum Cycles common stock; by pledges 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. We have advised the selling security holders that during such time as they may be engaged in a distribution of the shares they are required to comply with Regulation M under the Securities Exchange Act of 1934. Regulation M generally precludes any selling security holders, any affiliated purchasers and any broker-dealer or other person who participates in such distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchase made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the common stock. It is anticipated that the selling security holders will offer all of the shares for sale. Further, because it is possible that a significant number of shares could be sold at the same time hereunder, such sales, or the possibility thereof, may have a depressive effect on the market price of American Quantum Cycles common stock. 4 NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AMERICAN QUANTUM CYCLES OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. 991,949 SHARES OF COMMON STOCK AMERICAN QUANTUM CYCLES, INC. PROSPECTUS ________________, 1999 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS The Florida Business Corporation Act contains provisions entitling American Quantum Cycles directors and officers to indemnification from judgments, settlements, penalties, fines, and reasonable expenses (including attorney's fees) as the result of an action or proceeding in which they may be involved by reason of having been a director or officer of American Quantum Cycles. In its Articles of Incorporation, American Quantum Cycles has included a provision that limits, to the fullest extent now or hereafter permitted by the Florida Act, the personal liability of its directors to American Quantum Cycles or its shareholders for monetary damages arising from a breach of their fiduciary duties as directors. Under the Florida Act as currently in effect, this provision limits a director's liability except where such director breaches a duty. American Quantum Cycles Articles of Incorporation and By-Laws provide that American Quantum Cycles shall indemnify its directors and officers to the fullest extent permitted by the Florida Act. The Florida Act provides that no director or officer of American Quantum Cycles shall be personally liable to American Quantum Cycles or its shareholders for damages for breach of any duty owed to American Quantum Cycles or its shareholders, except for liability for (i) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (ii) any unlawful payment of a dividend or unlawful stock repurchase or redemption in violation of the Florida Act, (iii) any transaction from which the director received an improper personal benefit or (iv) a violation of a criminal law. This provision does not prevent American Quantum Cycles or its shareholders from seeking equitable remedies, such as injunctive relief or rescission. If equitable remedies are found not to be available to shareholders in any particular case, shareholders may not have any effective remedy against actions taken by directors or officers that constitute negligence or gross negligence. The Articles of Incorporation also include provisions to the effect that (subject to certain exceptions) American Quantum Cycles shall, to the maximum extent permitted from time to time under the law of the State of Florida, indemnify and upon request shall advance expenses to, any director or officer to the extent that such indemnification and advancement of expenses is permitted under such law, as may from time to time be in effect. Insofar as indemnification for liabilities arising under the Securities Act of 1933 as amended may be permitted to directors, officers and controlling persons of American Quantum Cycles pursuant to any charter provision, by-law, contract, arrangement, statute or otherwise, American Quantum Cycles has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses payable by American Quantum Cycles in connection with the issuance and distribution of the securities being registered (other than underwriting discounts and commissions and the underwriter's non-accountable expense allowance and advisory fee) are as follows: II-1
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, American Quantum Cycles issued an aggregate of $250,000 in promissory notes to seven investors (the "April 1997 Notes") three of whom were accredited and four were non-accredited. The April 1997 notes yielded interest at 8% annually and matured at the earlier of April 8, 1998 or upon receipt by American Quantum Cycles of $1,000,000 or more in any public or private financing. The interest on the April 1997 notes was payable by American Quantum Cycles, at its option, either (i) in cash; or (ii) in common stock of American Quantum Cycles based on the lower of (A) $2.00 per share; or (B) the average closing bid price of the common stock of American Quantum Cycles for the five trading days preceding one date prior to the date of interest on the note the "Interest Provision"). Pursuant to the interest provision, American Quantum Cycles issued 732 shares of common stock to the April 1997 note holders in December 1997 as interest on the April 1997 Notes. As of the date hereof, all the April 1997 notes have been repaid and cancelled by American Quantum Cycles. Each investor was provided with or had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act. In May 1997, American Quantum Cycles acquired assets totaling $92,270 in exchange for an aggregate of 477,598 shares of common stock of American Quantum Cycles, of which 238,799 shares were issued to Doreen Cheal, a principal shareholder of American Quantum Cycles, and 238,799 shares were issued to Denise O'Brien, a Director and principal shareholders of American Quantum Cycles. Each investor was non-accredited, but was provided with or had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act. In June 1997, American Quantum Cycles commenced an offering of common stock at $4.00 per share pursuant to Rule 504 of Regulation D under the Act. An aggregate of 61,436 shares of common stock for an aggregate of $949,974 were sold by management to two accredited and thirteen non-accredited sophisticated investors. Each of the investors were provided with and had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 3(b) of the Act. In January 1998, American Quantum Cycles granted options to purchase an aggregate of 142,500 shares of common stock to a consultant who was a sophisticated investor. The options are exercisable until October 2004 and are exercisable at $1.00 per share. Each investor was provided with or had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act. Beginning in October 1997, American Quantum Cycles issued an aggregate of forty 8% subordinated notes to 32 note holders, eleven of which were accredited and twenty-one of which were non-accredited but sophisticated, in the aggregate principal amount of $1,407,000 (the "8% Notes"). Each note holder was provided II-2 with or had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act. The notes matured one year from date of issue. Nine of the 8% note holders, representing an aggregate of $247,500 of the outstanding principal balance of the 8% notes, agreed to extend the maturity date of their 8% notes until the close of this offering. Eighteen of the 8% note holders, representing an aggregate of $756,500 of the aggregate outstanding principal amount of the 8% Notes agreed to convert the principle balance plus accrued interest of their respective notes into (i) common stock of American Quantum Cycles at the a price per share equal to $3.50, (the "8% Note Shares"); and (ii) warrants to purchase an equal number of shares of American Quantum Cycles common stock equal at an exercise price of $3.50 per share. American Quantum Cycles redeemed two of the 8% Notes with a principal balance of $80,000. The remaining three 8% note holders have not agreed to either extend the terms of, or convert, their respective 8% notes. As a result, if the remaining six 8% note holders, representing an aggregate of $323,000 of the outstanding principal balance of the 8% notes, send American Quantum Cycles notice informing American Quantum Cycles that it is in default of its repayment obligations on the 8% notes, American Quantum Cycles will be considered in default of the 8% notes. Between May 1997 and June 1997, American Quantum Cycles granted options to purchase an aggregated 137,500 shares to a consultant who was an accredited investor. Of the options 75,000 are exercisable at $.40 per share and 62,500 are exercisable at $16.00 per share. The options are exercisable until September 2003. The consultant was provided with or had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act. Beginning in April 1998, American Quantum Cycles issued an aggregate of twenty-seven 7% subordinated notes to 24 investors, 6 of whom were accredited investors and eighteen of whom were non-accredited but sophisticated investors, in return for which American Quantum Cycles received proceeds of , for an aggregate of $549,500 (the "7% Notes"). Each investor was provided with or had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act. The 7% notes mature one year from the date of issuance and are convertible into shares of common stock of American Quantum Cycles at $8.00 per share. Interest is payable in cash or shares of common stock of American Quantum Cycles, at the discretion of American Quantum Cycles. The notes matured one year from date of issue. Seventeen of the 7% note holders, representing an aggregate of $367,000 of the aggregate outstanding principal amount of the 7% notes agreed to convert the principle balance plus accrued interest of their respective notes into (i) common stock of American Quantum Cycles at the a price per share equal to $3.50, (the "7% Note Shares"); and (ii) warrants to purchase an equal number of shares of American Quantum Cycles common stock at an exercise price of $3.50 per share. American Quantum Cycles redeemed two of the 7% notes which had an aggregate principal balance of $32,500. Six of the 7% note holders, representing an aggregate of $150,000 of the outstanding principal balance of the 7% notes, have agreed to extend the maturity date of their respective 7% notes until the close of this offering. In May 1998, American Quantum Cycles completed an offering of an aggregate of $700,000 of 10% subordinated promissory notes (the "10% Notes") and an aggregate of 35,500 shares of Common Stock to nine accredited investors. The 10% Notes mature one year from the date of issuance and are convertible into shares of common stock of American Quantum Cycles at $8.00 per share. Interest is payable in cash or shares of common stock of American Quantum Cycles, at the discretion of American Quantum Cycles. II-3 All of the 10% note holders agreed to convert the principle balance plus accrued interest of their respective notes into (i) common stock of American Quantum Cycles at the a price per share equal to $3.50, (the "10% Note Shares"); and (ii) two warrants to purchase an equal number of shares of American Quantum Cycles common stock at an exercise price of $3.50 per share. Each of the note holders was provided with, or had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act. Between September 1998 and November 1998, American Quantum Cycles granted options to purchase an aggregate of 676,250 shares of common stock to 14 consultants, 3 of whom were accredited and eleven of whom were non-accredited but sophisticated, in connection with services rendered regarding the promotion of American Quantum Cycles motorcycles. The options are exercisable until December 2004. The exercise price for the options ranges between $2.00 and $4.00 with the exception of 37,500 options which are exercisable at $.40. Each investor was provided with or had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act. In November 1998, American Quantum Cycles issued an aggregate of 375,000 shares of common stock and granted options to purchase an aggregate of 50,000 shares of common stock exercisable at $4.00 per share until December 31, 2003 to four Executive Officers of American Quantum Cycles pursuant to the exemption from the registration requirements of the Act provided by Section 4(2) of the Act. Between November 1998 and January 1999, American Quantum Cycles completed a Regulation D Rule 506 private offering of approximately 35 Units of its securities (the "Units") to 10 accredited investors and 1 sophisticated investor from which American Quantum Cycles received gross proceeds of $870,000. Each Unit consisted of (i) a senior promissory note in the principal amount of $25,000 and (ii) the right to receive a number of shares of common stock of American Quantum Cycles determined by dividing $12,500 by the subsequent public offering price per share of American Quantum Cycles common stock in an underwritten public offering from which American Quantum Cycles receives at least $5,000,000 gross proceeds. Barron Chase Securities, Inc., ("Barron") acted as the selling agent for the offering. In consideration for acting as selling agent, Barron received a placement fee equal to ten percent (10%) of the proceeds received from this offering and an unaccountable expense allowance equal to 3% of the proceeds received from this offering. Between December 1998 and February 1999, American Quantum Cycles obtained lines of credit in the aggregate amount of $1,405,000 from nine accredited investors. The line of credit accrues interest at 10% and 8% respectively. In connection with obtaining the lines of credit, American Quantum Cycles agreed to issue an aggregate of 318,750 shares of common stock to the providers of the credit lines. Each line of credit provider was provided with or had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act. As of June 14, 1999, American Quantum Cycles issued an aggregate of five (5) 8% subordinated notes in the aggregate principal amount of $284,181 to five investors, one of whom was accredited and four of whom were non-accredited but sophisticated. The notes mature October 1, 1999 with interest and principal payable in cash. Each noteholder was provided with or had access to financial and other information concerning American Quantum Cycles and had the opportunity to ask questions concerning American Quantum Cycles and its operations. Accordingly, the issuance of these securities was exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act.
ITEM 27. EXHIBITS Exhibits Description of Document - -------- ----------------------- 1.1 Form of Underwriting Agreement (2) 1.2 Form of Selected Dealer Agreement (2) 2.1 Amended and Restated Articles of Incorporation of American Quantum Cycles, Inc., filed November 21, 1997(1) 2.2 Amended Articles of Incorporation of American Quantum Cycles, Inc. filed April 6, 1998, creating "Series A 7% Convertible Preferred Stock"(1) II-4 2.3 Amended and Restated Bylaws of American Quantum Cycles, Inc.(1) 2.4 Amended Articles of Incorporation of American Quantum Cycles, Inc. filed June 3, 1999 (2) 3.2 American Quantum Cycles, Inc. Amended 1997 Stock Option Plan(1) 4.1 Form of Common Stock Certificate (2) 4.2 Warrant Agreement between American Quantum Cycles and Barron Chase Securities, Inc. (2) 4.3 Form of Warrant Certificate (2) 5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. (3) 10.1 Consulting Agreement between American Quantum Cycles, Inc. and Greenstone Financial Corporation dated May 9, 1997(1) 10.2 License Agreement between Feuling Advanced Technologies, Inc. and American Quantum Cycles, Inc. dated as of August 19, 1997(1) 10.3 Agreement between the Company and Ferrex International, Inc.(1) 10.4 Sample Dealer Agreement(1) 10.5 Lease Agreement between American Quantum Cycles and Bruce and Karen Weiss effective May 1, 1997(1) 10.6 Amendment to Lease Agreement between American Quantum Cycles and Bruce and Karen Weiss dated January 29, 1998(1) 10.7 Employment Agreement with Richard K. Hagen (2) 10.8 Employment Agreement with Gary W. Irving (2) 10.9 Financial Advisory Agreement between American Quantum Cycles and Barron Chase Securities, Inc.(2) 10.10 Merger and Acquisition Agreement between American Quantum Cycles and Barron Chase Securities, Inc.(2) 10.11 Forms of the letter of intent between American Quantum Cycles and Dealers(2) 10.12 Consulting Agreement with Richard K. Hagen(2) 10.13 10% Secured Promissory Note issued by American Quantum Cycles to Skippack Capital Corp.(3) 10.14 Security Agreement between American Quantum Cycles and Skippack Capital Corp.(3) 10.15 8% Subordinated Note issued by American Quantum Cycles to Carl Domion(3) 10.16 8% Subordinated Note issued by American Quantum Cycles to Andrew Friss(3) 10.17 8% Subordinated Note issued by American Quantum Cycles to Dante Greco(3) 10.18 8% Subordinated Note issued by American Quantum Cycles to Bridget McMahon(3) 10.19 8% Subordinated Note issued by American Quantum Cycles to Sheldon Miller(3) 10.20 8% Subordinated Note issued by American Quantum Cycles to Harvey Stober(3) 10.21 8% Subordinated Note issued by American Quantum Cycles to Abe Goldberger(3) 10.22 10% Secured Promissory Note issued by American Quantum Cycles to Anchor Capital Corporation(3) 10.23 Loan and Security Agreement between American Quantum Cycles and Anchor Capital Corporation(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) (3) 27 Financial Data Schedule (2)
(1) Incorporated by reference from American Quantum Cycles Registration Statement on Form 10-SB filed April 24, 1998 (File No. 000-24083). (2) Previously filed (3) Filed herewith ITEM 28. UNDERTAKINGS. The undersigned Company hereby undertakes to: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act. (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in the registration statement. (iii) Include any additional or changed material information on the plan of distribution;
(2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration of the securities offered, and the offering of such securities at that time to be the initial bona fide offering; and (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) American Quantum Cycles will provide to the underwriter at the closing specified in the underwriter's agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of American Quantum Cycles pursuant to the foregoing provisions, or otherwise, American Quantum Cycles has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by American Quantum Cycles of expenses incurred or paid by a director, officer or controlling person of American Quantum Cycles in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, American Quantum Cycles will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. For the purpose of determining any liability under the Securities Act, American Quantum Cycles will treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by American Quantum Cycles pursuant to Rule 424(b)(1), or (4), or 497(h) under the Securities Act as part of this registration statement as of the time the Securities and Exchange Commission declares it effective. For the purpose of determining any liability under the Securities Act, American Quantum Cycles will treat such post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement therein, and treat the offering of the securities at that time as the initial bona fide offering of those securities. II-6 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing of this Amendment No. 4 to the Form SB-2 and authorizes this registration statement to be signed on its behalf by the undersigned, in the city of Melbourne, State of Florida on August 17, 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 August 17, 1999 Richard Hagen and President /s/Jim Cheal Vice President - ------------------------- and Director August 17, 1999 Jim Cheal /s/Jeffrey W. Starke Vice President - ------------------------- and Director August 17, 1999 Jeffrey W. Starke /s/Gary Irving Executive Vice President, Chief - ------------------------- Operating Officer and Director August 17, 1999 Gary Irving /s/Linda Condon Principal Accounting Officer - ------------------------- and Treasurer August 17, 1999 Linda Condon
II-7 EXHIBIT LIST EXHIBIT NUMBER DESCRIPTION - ------ ----------- 5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A. 10.13 10% Secured Promissory Note issued by American Quantum Cycles to Skippack Capital Corp. 10.14 Security Agreement between American Quantum Cycles and Skippack Capital Corp. 10.15 8% Subordinated Note issued by American Quantum Cycles to Carl Domion 10.16 8% Subordinated Note issued by American Quantum Cycles to Andrew Friss 10.17 8% Subordinated Note issued by American Quantum Cycles to Dante Greco 10.18 8% Subordinated Note issued by American Quantum Cycles to Bridget McMahon 10.19 8% Subordinated Note issued by American Quantum Cycles to Sheldon Miller 10.20 8% Subordinated Note issued by American Quantum Cycles to Harvey Stober 10.21 8% Subordinated Note issued by American Quantum Cycles to Abe Goldberger 10.22 10% Secured Promissory Note issued by American Quantum Cycles to Anchor Capital Corporation 10.23 Loan and Security Agreement between American Quantum Cycles and Anchor Capital Corporation 23.1 Consent of Independent Certified Public Accountants Pricher and Company 23.2 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (contained in such firm's opinion filed as Exhibit 5.1) EX-5.1 2 American Quantum Cycles, Inc. August 17, 1999 Page 1 ATLAS, PEARLMAN, TROP & BORKSON, P.A. 200 East Las Olas Boulevard, Suite 1900 Fort Lauderdale, Florida 33301 August 17, 1999 American Quantum Cycles, Inc. 731 Washburn Road Melbourne, Florida 32934 Re: Registration Statement on Form SB-2; American Quantum Cycles, Inc. (the "Company") Gentlemen: This opinion is submitted pursuant to the applicable rules of the Securities and Exchange Commission with respect to the public offering by the Company of 2,794,500 shares of Common Stock, $.001 par value (including up to 364,500 shares of Common Stock issuable in connection with the Underwriters' over-allotment option) (the "Underwritten Shares"), warrants issued to the Underwriter to purchase 243,000 shares of the Company's Common Stock (the "Underwriter's Warrants"), 243,000 shares of the Company's Common Stock issuable upon the exercise of the Underwriter's Warrants and 991,949 shares of the Company's Common Stock (including 62,500 shares of the Company's Common Stock issuable upon the exercise of options (the "Options") held by certain of the Company's selling security holders (the "Option Shares")) being registered by the Company on behalf of the selling security holders listed in the Company's Form SB-2 Registration Statement (the "Selling Security Holder Shares"). In connection therewith, we have examined and relied upon original, certified, conformed, photostat or other copies of (i) the Articles of Incorporation, as amended, and Bylaws of the Company; (ii) resolutions of the Board of Directors of the Company authorizing the offering and the issuance of the Common Stock and related matters; (iii) the Registration Statement and the exhibits thereto; and (iv) such other matters of law as we have deemed necessary for the expression of the opinion herein contained. In all such examinations, we have assumed the genuineness of all signatures on original documents, and the conformity to originals or certified documents of all copies submitted to us as conformed, photostat or other copies. In passing upon certain corporate records and documents of the Company, we have necessarily assumed the correctness and completeness of the statements made or included therein by the Company, and we express no opinion thereon. As to the various questions of fact material to this opinion, we have relied, to the extent we deemed reasonably appropriate, upon representations or certificates of officers or directors of the Company American Quantum Cycles, Inc. August 17, 1999 Page 2 and upon documents, records and instruments furnished to us by the Company, without independently checking or verifying the accuracy of such documents, records and instruments. Based upon the foregoing, we are of the opinion that the Underwritten Shares, the Underwriter's Warrants (including the Underwriter's Shares when issued in accordance with the Underwriter's Warrants upon receipt of valid consideration by the Company) and the Selling Security Holder Shares (including the Option Shares when issued in accordance with the Options upon receipt of valid consideration by the Company) upon issuance, will be legally issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to use our name under the caption "Legal Matters" in the prospectus comprising part of the Registration Statement. Sincerely, ATLAS, PEARLMAN, TROP & BORKSON, P.A. /s/ Atlas, Pearlman, Trop & Borkson, P.A. EX-10.13 3 10% SECURED PROMISSORY NOTE This Note has not been registered under the Securities Act of 1933, as amended (the "1933 Act"), or under the provisions of any applicable state securities laws, but has been acquired by the registered holder hereof for purposes of investment and in reliance on statutory exemptions under the 1933 Act, and under any applicable state securities laws. Note may not be sold, pledged, transferred or assigned except in a transaction which is exempt under provisions of the 1933 Act and any applicable state securities laws or pursuant provisions to an effective registration statement; and in the case of an exemption, only if the Company (as defined) has received an opinion of counsel reasonably acceptable to the Company that such transaction does not require registration of this Note. AMERICAN QUANTUM CYCLES, INC. December __, 1998 $755,000 10% SECURED PROMISSORY NOTE FOR VALUE RECEIVED, AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Company") hereby promises to pay to the order of SKIPPACK CAPITAL CORP., or registered assigns (the "Holder"), on a date which shall be 30 days after DEMAND for payment shall have been given by Holder to the Company, at the offices of the Holder, the principal sum equal to the lesser of Seven Hundred Fifty-Five Thousand ($755,000) Dollars, or the then aggregate unpaid principal amount of advances made hereunder by Holder to the Company. The Company further promises to pay interest on the outstanding amount of all advances made under this Note at the rate of ten percent (10%) per annum, commencing from the date of the initial advance hereunder and until all amounts of principal and interest accrued thereon are paid in full, subject to increase in the rate of interest as provided in Section 3(c). The Company acknowledges having received an advance of $68,200 in respect of this Note on December 18, 1998. Interest hereunder shall be payable quarterly in arrears, commencing March 31, 1999. 1. Prepayment. Outstanding principal under this Note may be prepaid by the Company, in whole or in part, without premium or penalty, at any time, together with all accrued but unpaid interest on the amount of such prepayment. 2. Covenants of Company. The Company covenants and agrees with the Holder that, so long as any amounts of principal or interest remain unpaid under this Note, it will: (i) not incur any indebtedness for borrowed money, except for such indebtedness as is outstanding on the date of this Note and indebtedness incurred by the Company after the date hereof in connection with the financing 1 of inventory, or permit any lien, security interest or encumbrance to be created in or with respect to any asset of the Company, whenever acquired, except for any such as are in effect on the date of this Note and except for purchase money security interests in assets acquired by the Company after the date of this Note; (ii) promptly pay and discharge all amounts as and when due and to become due on all indebtedness of the Company and all taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become a lien upon the Company's assets or property, as well as all lawful claims for labor, materials and supplies which, if unpaid, would become a lien or charge upon such properties or any part thereof; provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall have set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested; (iii) not issue any shares of its Common Stock, or any securities convertible into or exercisable with respect to its Common Stock, except for securities sold in an underwritten public offering or securities insured to the underwriter with respect to any such offering; (iv) not merge with or into any other corporation or dispose of its assets other than in the ordinary course of business; (v) maintain insurance for its assets and business operations in amounts of coverage not less than the amounts in effect on the date of this Note; (vi) use its best efforts to conform to the Company's Business Plan/Cash Flow Projections delivered by the Company to the Holder contemporaneously with the execution and delivery of this Note; and (vii) comply fully with its obligations under that certain Purchase Agreement of even date herewith between the Company and the Holder ("Purchase Agreement"). 3. Events of Default (a) This Note shall become due and payable, without notice or demand by Holder, immediatel upon the occurrence of any of the following events, herein called "Events of Default": (i) Company's failure to pay any principal or accrued interest on this Note, when and as the same shall become due and payable, whether by acceleration or otherwise; 2 (ii) Company's failure to observe or perform any covenant or agreement set forth herein to be observed or performed by the Company; (iii) the occurrence of an Event of Default by the Company under the Purchase Agreement; (iv) the entry of a final judgment, arbitration award or order not subject to further appeal against the Company in an amount exceeding $100,000 which shall remain unsatisfied for thirty (30) days after the date of such entry; (v) Company's admission in writing of its inability to pay its debts as they mature, or the Company's making a general assignment for the benefit of creditors, or the filing by or against the Company of a petition seeking relief under the Bankruptcy Code or a petition or an answer seeking reorganization, or an arrangement with creditors. (b) The Company shall give notice to the Holder by certified mail, of the occurrence of any Event of Default within five (5) days after such Event of Default shall have occurred. (c) Upon the occurrence of an Event of Default, interest shall accrue under this Note on all unpaid amounts of principal at the rate of 18 percent per annum until all such amounts of principal, and all interest accrued thereon, shall have been paid in full. After the occurrence of an Event of Default, all payments made in respect to this Note shall be applied, first, in respect of the Origination Fee, as defined in the Purchase Agreement, to the extent that the same shall not have been paid in full, and second, to reimburse Holder for all of its expenses of collection; any payment in excess of such amounts shall first be applied to accrued but unpaid interest to the date of any such payment until all such interest shall have been paid in full. 4. Subordination. Payment of the principal of and accrued interest on this Note is hereby made expressly subject and subordinated to the payment in full of all principal of and accrued interest on all indebtedness of the Company, whenever created, which shall have been incurred by the Company, on regular commercial terms to banks and other institutional lenders ("Senior Indebtedness"). The Company shall not remit any payments of principal to the Holder of this Note in respect of the obligations hereunder unless and until all obligations to the holders of Senior Indebtedness have been paid in full or such holders of Senior Indebtedness shall otherwise have consented in writing. The provisions of this subordination shall not, however, affect or limit the Company's obligations to pay, when due, all principal of and accrued interest on this Note, nor shall such subordination be deemed to limit or otherwise affect any rights and remedies which the Holder of this Note shall be entitled to receive or assert 3 upon the occurrence of any Event of Default hereunder, other than to set forth the priority of payments as between the indebtedness created hereunder and any Senior Indebtedness. 5. Miscellaneous (a) The performance by the Company of its obligations under this Note shall be secured by, and the Holder of this Note shall have the benefit of, that certain Security Agreement of even date herewith between the Holder and the Company. (b) The Holder of this Note shall have the right to transfer this Note by assignment, and the transferee thereof shall become vested with all the powers and rights of the transferor. Registration of any new owners shall take place upon presentation of this Note to the Company at its principal offices, together with a duly authenticated instrument of assignment. (c) Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date. (d) This Note shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. (e) Upon the occurrence of an Event of Default or a threatened Event of Default, the Company shall pay all costs and expenses incurred by the Holder to enforce any of the provisions of this Note, including attorneys' fees and other expenses of collection. IN WITNESS WHEREOF, AMERICAN QUANTUM CYCLES, INC. has caused this Note to be signed in its name by its President. AMERICAN QUANTUM CYCLES, INC. By /s/ Illegible ---------------------- 4 EX-10.14 4 SECURITY AGREEMENT SECURITY AGREEMENT This Security Agreement is made and entered into as of the _____ day of December 1998 by and between AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Debtor"), and SKIPPACK CAPITAL CORP. (the "Secured Party"). Background The Debtor has executed and delivered to the Secured Party its Promissory Note (the "Note"), bearing even date herewith, wherein the Debtor promises to pay to the Secured Party the principal sum of Seven Hundred Fifty-Five Thousand Dollars ($755,000). Pursuant to the terms of the Note, the parties agreed to execute and deliver this Security Agreement (the "Security Agreement"). NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto, each intending to be legally bound hereby, agree as follows: Section 1. Definitions. As herein used: 1.1 "Account Debtor" means the Person who is obligated on an Account. 1.2 "Account" means any account as that term is defined in the Uniform Commercial Code as in effect in any jurisdiction in which any of the Collateral may at the time be located (the "U.C.C.") and includes any right of the Debtor to payment for goods sold or leased or for services rendered or money loaned which is not evidenced by an instrument or chattel paper (as those terms are defined in the U.C.C.) whether or not it has been earned by performance. 1.3 "Chattel Paper" means any chattel paper as that term is defined in the U.C.C. 1.4 "Collateral" means (i) all of the Debtor's Accounts, General Intangibles, Chattel Paper and Instruments now existing or hereafter arising; (ii) all guarantees of Debtor's existing and future Accounts, General Intangibles, Chattel Paper and Instruments and all other security held by the Debtor for the payment and satisfaction thereof; (iii) all of the Debtor's Inventory now owned or hereafter acquired; (iv) all of the Debtor's Equipment now owned or hereafter acquired; (v) all of the Debtor's books and records which relate to the Debtor's 1 Inventory, Equipment, Accounts, General Intangibles, Chattel Paper and Instruments or guarantees thereof; (vi) all insurance on all of the foregoing and the proceeds of that insurance; and (vii) all cash and noncash proceeds and products of all of the foregoing and the proceeds and products of other proceeds and products. Notwithstanding anything to the contrary contained herein, "Collateral" shall not include any of the following assets or rights of the Debtor: 1.5 "Equipment" means any equipment as that term is defined in the U.C.C. and shall include, without limitation, all equipment, machinery, appliances, tools, furniture and tangible personal property, whether or not the same are or may become fixtures, used or bought for use primarily in the Debtor's business or leased by the Debtor to others, of every nature, presently existing or hereafter acquired or created, wherever located, additions, accessories and improvements thereto and substitutions therefor and all parts which may be attached to or which are necessary for the operation and use of such personal property or fixtures, whether or not the same shall be deemed to be affixed to real property, and all rights under or arising out of present or future contracts relating to the foregoing. All equipment is and shall remain personal property irrespective of its use or manner of attachment to real property. 1.6 "General Intangibles" means all general intangibles as that term is defined in the U.C.C., including, without limitation, all books, correspondence, credit files, records and other documents, computer programs, computer tapes and cards and other paper and documents in the possession or control of the Debtor or in the possession or control of any affiliate or computer service bureau, and all contract rights, claims, chooses in action, judgments, patents, patent applications, trademarks, license agreements, royalty payments, copyrights, service names, service marks, logos, goodwill and deposit accounts. 1.7 "Instruments" means all instruments as that term is defined in the U.C.C. 1.8 "Inventory" means any inventory as that term is defined in the U.C.C. and shall include tangible personal property held for sale or lease or to be furnished under contracts of service, tangible personal property which the Debtor has so leased or furnished, and raw materials, work in process and materials used, produced or consumed in the Debtor's business, and shall include tangible personal property returned to the Debtor by a purchaser or lessor thereof following the sale or lease thereof by the Debtor. All equipment, accessories and parts related to, attached to or added to items of Inventory or used in connection therewith and all accessions thereto shall be deemed to be part of the Inventory. 2 1.9 "Obligations" means all existing and future liabilities and obligations of the Debtor to the Secured Party, whether absolute or contingent of any nature whatsoever, now existing or hereafter incurred arising out of or provided for in the Note and all obligations of the Debtor to the Secured Party created or referred to herein. 1.10 "Person" means an individual, a corporation, a govemment or governmental subdivision or agency or instrumentality, a business trust, an estate, a trust, a partnership, a cooperative, an association, two or more Persons having a joint or common interest or any other legal or commercial entity. 1.11 "Proceeds" means whatever is received when Collateral is sold, exchanged, collected or otherwise disposed of. Section 2. Security Interest in Collateral. 2.1 The Debtor hereby assigns to the Secured Party and grants to the Secured Party a lien upon and a security interest in the Collateral as security for the payment and performance of the Obligations. Section 3. Collection of Accounts. 3.1 Upon occurrence of an event of default as set forth in Section 5 hereof, the Secured Party shall have the right at any time, acting if it so chooses in the Debtor's name, to collect the Debtor's Accounts itself, to sell, assign, compromise, discharge or extend the time for payment of any Account, to institute legal action for the collection of any Account, and to do all acts and things necessary or incidental thereto and the Debtor hereby ratifies all such acts. The Secured Party may at any time after the occurrence of such event of default and without notice to the Debtor, notify any Account Debtor or guarantor thereof that the Account payable by such Account Debtor has been assigned to the Secured Party and is to be paid directly to the Secured Party. At the Secured Party's request the Debtor will so notify Account Debtors and shall indicate on all billings to Account Debtors that payments thereon are to be made to the Secured Party. In the event Account Debtors are so notified, the Debtor shall not compromise, discharge, extend the time for payment or otherwise grant any indulgence or allowance with respect to any Account without the prior written consent of the Secured Party. Section 4. Warranties and Covenants as to Collateral. 4.1 The Debtor warrants that it has and at all times will have good title to the Collateral free of any prior lien (except for Permitted Liens, as defined) and that all Accounts included in the Collateral are bona fide existing 3 obligations created by the sale and delivery of merchandise or the rendering of services to customers and arose in the ordinary course of business; and that such Accounts are not subject to defense, set-off or counterclaim which in the aggregate would materially impair the value of such Accounts as collateral for the Obligations. As used in this Agreement, "Permitted Liens", means 4.2 The Debtor will promptly notify the Secured Party if there is any adverse change in the status of the Collateral that materially impairs its value or collectibility, or if any defenses, set-offs or counterclaims are asserted by Account Debtors which in the aggregate materially impair the value or collectibility of the Accounts. 4.3 The Debtor will preserve the Collateral and its rights against Account Debtors free and clear of any liens or encumbrances (except for Permitted Liens) and will keep the Inventory and Equipment in good condition, insured by insurers authorized to do business in the jurisdictions where such Collateral is located from time to time against fire or other casualty loss (with extended coverage in the broadest form), liability and such other hazards as are customary with companies in the same or similar business and in the same area, and will cause Secured Party's security interest to be endorsed on all policies of insurance thereon in such manner that all payments for losses will be paid to Secured Party as its interest may appear and will furnish Secured Party upon request with evidence of such insurance. Section 5. Default. The Debtor shall be in default hereunder upon the occurrence of any of the following events: 5.1 The occurrence of any Event of Default as defined under the Note. 5.2 The failure of the Debtor to observe or perform any of the covenants or obligations contained in this Security Agreement and such failure shall remain uncured twenty (20) days after notice thereof from the Secured Party. Section 6. Remedies. 6.1 Whenever the Debtor shall be in default as aforesaid, the Secured Party may, at its option, exercise from time to time any or all rights and remedies available to it under the U.C.C. or otherwise available to it, including the right to collect, receipt for, settle, compromise, adjust, sue for, foreclose or otherwise realize upon any of the Collateral and to dispose of any of 4 the Collateral at public or private sale(s) or other proceedings, and the Debtor agrees that the Secured Party or its nominee may become the purchaser at any such sale(s). 6.2 The Proceeds of any Collateral received by the Secured Party at any time before or after default, whether from the sale of Collateral or otherwise, shall be applied to the payment of the Obligations in such order as the Secured Party may elect. Section 7. Further Assurances. 7.1 The Debtor will execute and deliver financing and continuation statements for filing and recording under the U.C.C. or other applicable law, landlord waivers, mortgagee waivers and other papers which the Secured Party reasonably may request, and which the Debtor is able to obtain using its best efforts, in order to perfect, preserve or enforce the Secured Party's security interest in the Collateral or to enable the Secured Party to exercise any of its rights hereunder, and will pay all reasonable attorney fees and reasonable expenses in connection therewith. Section 8. Successors and Assigns. 8.1 All provisions herein shall inure to and become binding upon the successors, representatives, receivers, trustees and assigns of the parties. Section 9. Termination. 9.1 This Agreement and the liens and security interests created hereby shall terminate upon payment in full of all of the Obligations. Upon termination of this Agreement, the Secured Party shall promptly furnish to the Debtor, in form for recordation, such executed UCC termination statements and other instruments, if any, as may be requested by the Debtor and in the Secured Party's judgment necessary to evidence of record the termination of the liens and security interests created hereby. Section 10. Miscellaneous. 10.1 This Agreement has been executed pursuant to and shall be governed by and be construed in accordance with, the laws of the Commonwealth of Pennsylvania, except as required by mandatory provisions of law and except to the extent that remedies provided by the laws of any state other than Pennsylvania are governed by the laws of such state. 5 IN WITNESS WHEREOF, this Agreement has been duly executed under seal on the day and year first above written. [CORPORATE SEAL] AMERICAN QUANTUM CYCLES, INC. Attest: /s/ Illegible By: /s/ Illegible ---------------------- ------------------------- Secretary President SKIPPACK CAPITAL CORP. By: /s/ Illegible ------------------------- President 6 Attachment Security Interest in Collateral. -------------------------------- The Debtor hereby assigns to the Secured Party and grants to the Secured Party a lien upon and a security interest in the Collateral as security for the payment and performance of the Obligations. As herein used: "Account Debtor" means the Person who is obligated on an Account. "Account" means any account as that term is defined in the Uniform Commercial Code as in effect in any jurisdiction in which any of the Collateral may at the time be located (the "U.C.C.") and includes any right of the Debtor to payment for goods sold or leased or for services rendered or money loaned which is not evidenced by an instrument or chattel paper (as those terms are defined in the U.C.C.) whether or not it has been earned by performance. "Chattel Paper" means any chattel paper as that term is defined in the U.C.C. "Collateral" means (i) all of the Debtor's Accounts, General Intangibles, Chattel Paper and Instruments now existing or hereafter arising; (ii) all guarantees of Debtor's existing and future Accounts, General Intangibles, Chattel Paper and Instruments and all other security held by the Debtor for the payment and satisfaction thereof; (iii) all of the Debtor's Inventory now owned or hereafter acquired; (iv) all of the Debtor's Equipment now owned or hereafter acquired; (v) all of the Debtor's books and records which relate to the Debtor's Inventory, Equipment, Accounts, General Intangibles, Chattel Paper and Instruments or guarantees thereof; (vi) all insurance on all of the foregoing and the proceeds of that insurance; and (vii) all cash and noncash proceeds and products of all of the foregoing and the proceeds and products of other proceeds and products. "Equipment" means any equipment as that term is defined in the U.C.C. and shall include, without limitation, all equipment, machinery, appliances, tools, furniture and tangible personal property, whether or not the same are or may become fixtures, used or bought for use primarily in the Debtor's business or leased by the Debtor to others, of every nature, presently existing or hereafter acquired or created, wherever located, additions, accessories and improvements thereto and substitutions therefor and all parts which may be attached to or which are necessary for the operation and use of such personal property or fixtures, whether or not the same shall be deemed to be affixed to real property, and all rights under or arising out of present or future contracts A-1 relating to the foregoing. All equipment is and shall remain personal property irrespective of its use or manner of attachment to real property. "General Intangibles" means all general intangibles as that term is defined in the U.C.C., including, without limitation, all books, correspondence, credit files, records and other documents, computer programs, computer tapes and cards and other paper and documents in the possession or control of the Debtor or in the possession or control of any affiliate or computer service bureau, and all contract rights, claims, chooses in action, judgments, patents, patent applications, trademarks, license agreements, royalty payments, copyrights, service names, service marks, logos, goodwill and deposit accounts. "Instruments" means all instruments as that term is defined in the U.C.C. "Inventory" means any inventory as that term is defined in the U.C.C. and shall include tangible personal property held for sale or lease or to be furnished under contracts of service, tangible personal property which the Debtor has so leased or furnished, and raw materials, work in process and materials used, produced or consumed in the Debtor's business, and shall include tangible personal property returned to the Debtor by a purchaser or lessor thereof following the sale or lease thereof by the Debtor. All equipment, accessories and parts related to, attached to or added to items of Inventory or used in connection therewith and all accessions thereto shall be deemed to be part of the Inventory. "Obligations" means all existing and future liabilities and obligations of the Debtor to the Secured Party, whether absolute or contingent of any nature whatsoever, now existing or hereafter incurred arising out of or provided for in the Note and all obligations of the Debtor to the Secured Party created or referred to herein. A-2 EX-10.15 5 8% SUBORDINATED NOTE THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. AMERICAN QUANTUM CYCLES, INC. 8% SUBORDINATED NOTE DUE October 1, 1999 $100,000 February 25, 1999 AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Company"), for value received, hereby promises to pay to Carl Domino registered assigns (the "Holder") on demand or prior thereto as hereinafter provided (the "Maturity Date") at the principal offices of the Company, the principal sum of one hundred thousand dollars ($100,000) in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on the outstanding principal balance at the rate of eight percent (8%) per annum from the date hereof until the Company's obligation with respect to the payment of such principal sum shall be discharged as herein provided. Interest hereunder shall accrue from the date of this Note and shall be payable together with principal at the Maturity Date, in like coin or currency to the Holder hereof at the office of the Company as hereinabove set forth. 1. Transfers of Note to Comply with the Securities Act of 1933. ------------------------------------------------------------ The Holder agrees that the Note may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (1) to a person who, in the opinion of counsel to the Company, is a person to whom the Note may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act of 1933, as amended (the "1933 Act"), or (2) to any person upon delivery of a prospectus then meeting the requirements of the 1933 Act relating to such Note and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 2. Covenants of Company -------------------- A. The Company covenants and agrees that, so long as this Note shall be outstanding, it will: (i) Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof, provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested. 1 (ii) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company as its counsel may advise, (iii) Keep adequately insured, by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations and (iv) At all times keep true and correct books, records and accounts. 3. Events of Default ----------------- A. This Note shall become and be due and payable upon written demand made by the Holder hereof if one or more of the following events, herein called "events of default", shall happen and be continuing: (i) Default in the payment of the principal and accrued interest on this Note when and as the same shall become due and payable, whether by acceleration or otherwise, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (ii) Default in the due observance or performance of any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (iii) Application for, or consent to, the appointment of a receiver, trustee or liquidator of the Company or of its property; (iv) Admission in writing of the Company's inability to pay its debts as they mature; (v) General assignment by the Company for the benefit of creditors; (vi) Filing by the Company of a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors; or (vii) Entering against the Company of a court order approving a petition filed against it under the Federal bankruptcy laws, which order shall not have been vacated or set aside or otherwise terminated within 30 days. B. The Company agrees that notice of the occurrence of any event of default will be promptly given to the Holder at his or her registered address by certified mail. C. In case any one or more of the events of default specified above shall happen and be continuing, the Holder may proceed to protect and enforce his, her or its rights by suit in the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable fights as such Holder. 4. Miscellaneous ------------- A. This Note has been issued by the Company pursuant to authorization of the Board of Directors of the Company, which provides for an aggregate of up to $100,000 in face amount of identical Notes to be issued (subject to increase in certain circumstances). 2 B. The Company may consider and treat the person in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. The registered owner of this Note shall have the right to transfer it by assignment, subject to the provisions elsewhere contained herein, and the transferee thereof shall, upon his registration as owner of this Note, become vested with all the powers and rights of the transferor. Registration of any new owner shall take place upon presentation of this Note to the Company at its principal offices, together with a duly authenticated assignment. In case of transfer by operation of law, the transferee agrees to notify the Company of such transfer and of his address, and to submit appropriate evidence regarding the transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the Holder hereof, in person or by his attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all holders or transferees of the Note not registered at the time of sending the communication. C. Payments of interest shall be made as specified above to the registered owner of this Note. Payment of principal shall be made to the registered owner of this Note upon presentation of this Note upon or after maturity. No interest shall be due on this Note for such period of time that may elapse between the maturity of this Note and its presentation for payment. D. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Note. E. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date. Any such new Note executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Note so loss, stolen, destroyed or mutilated shall be at any time enforceable by anyone. F. This Note shall be construed and enforced in accordance with the laws of the State of Florida. G. No recourse shall be had for the payment of the principal or interest of this Note against any incorporator or any past, present or future stockholder, officer, director or agent of the Company or of any successor corporation, either directly or through the Company or any successor corporation under any statute or by the enforcement of any assessment or otherwise, all such liability of the incorporators, stockholders, officers, directors and agents being waived, released and surrendered by the Holder hereof by acceptance of this Note. IN WITNESS WHEREOF, AMERICAN QUANTUM CYCLES, INC. has caused this Note to be signed in its name by its President. AMERICAN QUANTUM CYCLES, INC. a Florida corporate By: /s/ Richard Hagen ------------------------------ Richard Hagen Chairman & CEO 3 EX-10.16 6 8% SUBORDINATED NOTE THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. AMERICAN QUANTUM CYCLES, INC. 8% SUBORDINATED NOTE DUE October 1, 1999 $100,000 March 18, 1999 AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Company"), for value received, hereby promises to pay to Andrew Friss registered assigns (the "Holder") on demand or prior thereto as hereinafter provided (the "Maturity Date") at the principal offices of the Company, the principal sum of one hundred thousand dollars ($100,000) in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on the outstanding principal balance at the rate of eight percent (8%) per annum from the date hereof until the Company's obligation with respect to the payment of such principal sum shall be discharged as herein provided. Interest hereunder shall accrue from the date of this Note and shall be payable together with principal at the Maturity Date, in like coin or currency to the Holder hereof at the office of the Company as hereinabove set forth. 1. Transfers of Note to the Company with the Securities Act of 1933. ----------------------------------------------------------------- The Holder agrees that the Note may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (1) to a person who, in the opinion of counsel to the Company, is a person to whom the Note may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act of 1933, as amended (the "1933 Act"), or (2) to any person upon delivery of a prospectus then meeting the requirements of the 1933 Act relating to such Note and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 2. Covenants of Company -------------------- A. The Company covenants and agrees that, so long as this Note shall be outstanding, it will: (i) Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof, provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested. 1 (ii) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company as its counsel may advise; (iii) Keep adequately insured, by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations; and (iv) At all times keep true and correct books, records and accounts. 3. Events of Default ----------------- A. This Note shall become and be due and payable upon written demand made by the Holder hereof if one or more of the following events, herein called "events of default", shall happen and be continuing: (i) Default in the payment of the principal and accrued interest on this Note when and as the same shall become due and payable, whether by acceleration or otherwise, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (ii) Default in the due observance or performance of any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (iii) Application for, or consent to, the appointment of a receiver, trustee or liquidator of the Company or of its property; (iv) Admission in writing of the Company's inability to pay its debts as they mature; (v) General assignment by the Company for the benefit of creditors; (vi) Filing by the Company of a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors; or (vii) Entering against the Company of a court order approving a petition filed against it under the Federal bankruptcy laws, which order shall not have been vacated or set aside or otherwise terminated within 30 days. B. The Company agrees that notice of the occurrence of any event of default will be promptly given to the Holder at his or her registered address by certified mail. C. In case any one or more of the events of default specified above shall happen and be continuing, the Holder may proceed to protect and enforce his, her or its rights by suit in the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable rights as such Holder. 4. Miscellaneous ------------- A. This Note has been issued by the Company pursuant to authorization of the Board of Directors of the Company, which provides for an aggregate of up to $100,000 in face amount of identical Notes to be issued (subject to increase in certain circumstances). 2 B. The Company may consider and treat the person in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. The registered owner of this Note shall have the right to transfer it by assignment, subject to the provisions elsewhere contained herein, and the transferee thereof shall, upon his registration as owner of this Note, become vested with all the powers and rights of the transferor. Registration of any new owner shall take place upon presentation of this Note to the Company at its principal offices, together with a duly authenticated assignment. In case of transfer by operation of law, the transferee agrees to notify the Company of such transfer and of his address, and to submit appropriate evidence regarding the transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the Holder hereof in person or by his attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all holders or transferees of the Note not registered at the time of sending the communication. C. Payments of interest shall be made as specified above to the registered owner of this Note. Payment of principal shall be made to the registered owner of this Note upon presentation of this Note upon or after maturity. No interest shall be due on this Note for such period of time that may elapse between the maturity of this Note and its presentation for payment. D. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Note. E. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date. Any such new Note executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Note so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. F. This Note shall be construed and enforced in accordance with the laws of the State of Florida. G. No recourse shall be had for the payment of the principal or interest of this Note against any incorporator or any past, present or future stockholder, officer, director or agent of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any statute or by the enforcement of any assessment or otherwise, all such liability of the incorporators, stockholders, officers, directors and agents being waived, released and surrendered by the Holder hereof by acceptance of this Note. IN WITNESS WHEREOF, AMERICAN QUANTUM CYCLES, INC. has caused this Note to be signed in its name by its President. AMERICAN QUANTUM CYCLES, INC. a Florida corporation By: /s/ Richard Hagen ------------------------------------ Richard Hagen, Chairman & CEO 3 EX-10.17 7 8% SUBORDINATED NOTE THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. AMERICAN QUANTUM CYCLES, INC. 8% SUBORDINATED NOTE DUE October 1, 1999 $100,000 February 25, 1999 AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Company"), for value received, hereby promises to pay to Dr. Dante Greco registered assigns (the "Holder") on demand or prior thereto as hereinafter provided (the "Maturity Date") at the principal offices of the Company, the principal sum of one hundred thousand dollars ($100,000) in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on the outstanding principal balance at the rate of eight percent (8%) per annum from the date hereof until the Company's obligation with respect to the payment of such principal sum shall be discharged as herein provided. Interest hereunder shall accrue from the date of this Note and shall be payable together with principal at the Maturity Date, in like coin or currency to the Holder hereof at the office of the Company as hereinabove set forth. 1. Transfers of Note to Comply with the Securities Act of 1933. The Holder agrees that the Note may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (1) to a person who, in the opinion of counsel to the Company, is a person to whom the Note may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act of 1933, as amended (the "1933 Act"); or (2) to any person upon delivery of a prospectus then meeting the requirements of the 1933 Act relating to such Note and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 2. Covenants of Company A. The Company covenants and agrees that, so long as this Note shall be outstanding, it will: (i) Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof, provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested. 1 (ii) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company as its counsel may advise; (iii) Keep adequately insured, by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations; and (iv) At all times keep true and correct books, records and accounts. 3. Events of Default A. This Note shall become and be due and payable upon written demand made by the Holder hereof if one or more of the following events, herein called "events of default", shall happen and be continuing: (i) Default in the payment of the principal and accrued interest on this Note when and as the same shall become due and payable, whether by acceleration or otherwise, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (ii) Default in the due observance or performance of any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (iii) Application for, or consent to, the appointment of a receiver, trustee or liquidator of the Company or of its property; (iv) Admission in writing of the Company's inability to pay its debts as they mature; (v) General assignment by the Company for the benefit of creditors; (vi) Filing by the Company of a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors; or (vii) Entering against the Company of a court order approving a petition filed against it under the Federal bankruptcy laws, which order shall not have been vacated or set aside or otherwise terminated within 30 days. B. The Company agrees that notice of the occurrence of any event of default will be promptly given to the Holder at his or her registered address by certified mail. C. In case any one or more of the events of default specified above shall happen and be continuing, the Holder may proceed to protect and enforce his, her or its rights by suit in the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable rights as such Holder. 4. Miscellaneous A. This Note has been issued by the Company pursuant to authorization of the Board of Directors of the Company, which provides for an aggregate of up to $100,000 in face amount of identical Notes to be issued (subject to increase in certain circumstances). 2 B. The Company may consider and treat the person in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. The registered owner of this Note shall have the right to transfer it by assignment subject to the provisions elsewhere contained herein, and the transferee thereof shall, upon his registration as owner of this Note, become vested with all the powers and rights of the transferor. Registration of any new owner shall take place upon presentation of this Note to the Company at its principal offices, together with a duly authenticated assignment. In case of transfer by operation of law, the transferee agrees to notify the Company of such transfer and of his address, and to submit appropriate evidence regarding the transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the Holder hereof, in person or by his attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all holders or transferees of the Note not registered at the time of sending the communication. C. Payments of interest shall be made as specified above to the registered owner of this Note. Payment of principal shall be made to the registered owner of this Note upon presentation of this Note upon or after maturity. No interest shall be due on this Note for such period of time that may elapse between the maturity of this Note and its presentation for payment. D. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Note. E. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date. Any such new Note executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Note so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. F. This Note shall be construed and enforced in accordance with the laws of the State of Florida. G. No recourse shall be had for the payment of the principal or interest of this Note against any incorporator or any past, present or future stockholder, officer, director or agent of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any statute or by the enforcement of any assessment or otherwise, all such liability of the incorporators, stockholders, officers, directors and agents being waived, released and surrendered by the Holder hereof by acceptance of this Note. IN WITNESS WHEREOF, AMERICAN QUANTUM CYCLES, INC. has caused this Note to be signed in its name by its President. AMERICAN QUANTUM CYCLES, INC. a Florida corporation By: /s/ Richard Hagen ----------------------------- Richard Hagen, Chairman & CEO 3 EX-10.18 8 8% SUBORDINATED NOTE THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. AMERICAN QUANTUM CYCLES, INC. 8% SUBORDINATED NOTE DUE October 1, 1999 $100,000 February 25, 1999 AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Company"), for value received, hereby promises to pay to Bridget McMahon registered assigns (the "Holder") on demand or prior thereto as hereinafter provided (the "Maturity Date") at the principal offices of the Company, the principal sum of one hundred thousand dollars ($100,000) in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on the outstanding principal balance at the rate of eight percent (8%) per annum from the date hereof until the Company's obligation with respect to the payment of such principal sum shall be discharged as herein provided. Interest hereunder shall accrue from the date of this Note and shall be payable together with principal at the Maturity Date, in like coin or currency to the Holder hereof at the office of the Company as hereinabove set forth. 1. Transfers of Note to Comply with the Securities Act of 1933. The Holder agrees that the Note may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (1) to a person who, in the opinion of counsel to the Company, is a person to whom the Note may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act of 1933, as amended (the "1933 Act"); or (2) to any person upon delivery of a prospectus then meeting the requirements of the 1933 Act relating to such Note and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 2. Covenants of Company A. The Company covenants and agrees that, so long as this Note shall be outstanding, it will: (i) Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof, provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested. 1 (ii) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company as its counsel may advise, (iii) Keep adequately insured, by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations; and (iv) At all times keep true and correct books, records and accounts. 3. Events of Default A. This Note shall become and be due and payable upon written demand made by the Holder hereof if one or more of the following events, herein called "events of default", shall happen and be continuing: (i) Default in the payment of the principal and accrued interest on this Note when and as the same shall become due and payable, whether by acceleration or otherwise, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (ii) Default in the due observance or performance of any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (iii) Application for, or consent to, the appointment of a receiver, trustee or liquidator of the Company or of its property; (iv) Admission in writing of the Company's inability to pay its debts as they mature; (v) General assignment by the Company for the benefit of creditors; (vi) Filing by the Company of a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors; or (vii) Entering against the Company of a court order approving a petition filed against it under the Federal bankruptcy laws, which order shall not have been vacated or set aside or otherwise terminated within 30 days. B. The Company agrees that notice of the occurrence of any event of default will be promptly given to the Holder at his or her registered address by certified mail. C. In case any one or more of the events of default specified above shall happen and be continuing, the Holder may proceed to protect and enforce his, her or its rights by suit in the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable rights as such Holder. 4. Miscellaneous A. This Note has been issued by the Company pursuant to authorization of the Board of Directors of the Company, which provides for an aggregate of up to $100,000 in face amount of identical Notes to be issued (subject to increase in certain circumstances). 2 B. The Company may consider and treat the person in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. The registered owner of this Note shall have the right to transfer it by assignment, subject to the provisions elsewhere contained herein, and the transferee thereof shall, upon his registration as owner of this Note, become vested with all the powers and rights of the transferor. Registration of any new owner shall take place upon presentation of this Note to the Company at its principal offices, together with a duly authenticated assignment. In case of transfer by operation of law, the transferee agrees to notify the Company of such transfer and of his address, and to submit appropriate evidence regarding the transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the Holder hereof, in person or by his attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all holders or transferees of the Note not registered at the time of sending the communication. C. Payments of interest shall be made as specified above to the registered owner of this Note. Payment of principal shall be made to the registered owner of this Note upon presentation of this Note upon or after maturity. No interest shall be due on this Note for such period of time that may elapse between the maturity of this Note and its presentation for payment. D. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Note. E. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date. Any such new Note executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Note so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. F. This Note shall be construed and enforced in accordance with the laws of the State of Florida. G. No recourse shall be had for the payment of the principal or interest of this Note against any incorporator or any past, present or future stockholder, officer, director or agent of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any statute or by the enforcement of any assessment or otherwise, all such liability of the incorporators, stockholders, officers, directors and agents being waived, released and surrendered by the Holder hereof by acceptance of this Note. IN WITNESS WHEREOF, AMERICAN QUANTUM CYCLES, INC. has caused this Note to be signed in its name by its President. AMERICAN QUANTUM CYCLES, INC. a Florida corporation By: /s/ Richard Hagen ----------------------------- Richard Hagen, Chairman & CEO 3 EX-10.19 9 8% SUBORDINATED NOTE THIS NOTE HAS BEEN ACQUIRFD FOR INVESTMENT PURPOSES ONLY AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. AMERICAN QUANTUM CYCLES, INC. 8% SUBORDINATED NOTE DUE October 1, 1999 $150,000 May 19, 1999 AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Company"), for value received, hereby promises to pay to Sheldon Miller registered assigns (the "Holder") on demand or prior thereto as hereinafter provided (the "Maturity Date") at the principal offices of the Company, the principal sum of one hundred fifty thousand dollars ($150,000) in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on the outstanding principal balance at the rate of eight percent (8%) per annum from the date hereof until the Company's obligation with respect to the payment of such principal sum shall be discharged as herein provided. Interest hereunder shall accrue from the date of this Note and shall be payable together with principal at the Maturity Date, in like coin or currency to the Holder hereof at the office of the Company as hereinabove set forth. 1. Transfers of Note to Comply with the Securities Act of 1933. The Holder agrees that the Note may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (1) to a person who, in the opinion of counsel to the Company, is a person to whom the Note may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act of 1933, as amended (the "1933 Act"); or (2) to any person upon delivery of a prospectus then meeting the requirements of the 1933 Act relating to such Note and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 2. Covenants of Company A. The Company covenants and agrees that, so long as this Note shall be outstanding, it will: (i) Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof, provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested. 1 (ii) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company as its counsel may advise; (iii) Keep adequately insured, by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations; and (iv) At all times keep true and correct books, records and accounts. 3. Events of Default A. This Note shall become and be due and payable upon written demand made by the Holder hereof if one or more of the following events, herein called "events of default", shall happen and be continuing: (i) Default in the payment of the principal and accrued interest on this Note when and as the same shall become due and payable, whether by acceleration or otherwise, if such default shall continue uncured for 30 days after written notice, specifying such default shall have been given to the Company by the Holder of the Note; (ii) Default in the due observance or performance of any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (iii) Application for, or consent to, the appointment of a receiver, trustee or liquidator of the Company or of its property; (iv) Admission in writing of the Company's inability to pay its debts as they mature; (v) General assignment by the Company for the benefit of creditors; (vi) Filing by the Company of a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors; or (vii) Entering against the Company of a court order approving a petition filed against it under the Federal bankruptcy laws, which order shall not have been vacated or set aside or otherwise terminated within 30 days. B. The Company agrees that notice of the occurrence of any event of default will be promptly given to the Holder at his or her registered address by certified mail. C. In case any one or more of the events of default specified above shall happen and be continuing, the Holder may proceed to protect and enforce his, her or its rights by suit in the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable rights as such Holder. 4. Miscellaneous A. This Note has been issued by the Company pursuant to authorization of the Board of Directors of the Company, which provides for an aggregate of up to $150,000 in face amount of identical Notes to be issued (subject to increase in certain circumstances). 2 B. The Company may consider and treat the person in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. The registered owner of this Note shall have the right to transfer it by assignment, subject to the provisions elsewhere contained herein, and the transferee thereof shall, upon his registration as owner of this Note, become vested with all the powers and rights of the transferor. Registration of any new owner shall take place upon presentation of this Note to the Company at its principal offices, together with a duly authenticated assignment. In case of transfer by operation of law, the transferee agrees to notify the Company of such transfer and of his address, and to submit appropriate evidence regarding the transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the Holder hereof, in person or by his attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all holders or transferees of the Note not registered at the time of sending the communication. C. Payments of interest shall be made as specified above to the registered owner of this Note. Payment of principal shall be made to the registered owner of this Note upon presentation of this Note upon or after maturity. No interest shall be due on this Note for such period of time that may elapse between the maturity of this Note and its presentation for payment. D. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Note. E. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date. Any such new Note executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Note so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. F. This Note shall be construed and enforced in accordance with the laws of the State of Florida. G. No recourse shall be had for the payment of the principal or interest of this Note against any incorporator or any past, present or future stockholder, officer, director or agent of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any statute or by the enforcement of any assessment or otherwise, all such liability of the incorporators, stockholders, officers, directors and agents being waived, released and surrendered by the Holder hereof by acceptance of this Note. IN WITNESS WHEREOF, AMERICAN QUANTUM CYCLES, INC. has caused this Note to be signed in its name by its President. AMERICAN QUANTUM CYCLES, INC. a Florida corporation By: /s/ Richard Hagen ----------------------------- Richard Hagen, Chairman & CEO 3 EX-10.20 10 8% SUBORDINATED NOTE THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. AMERICAN QUANTUM CYCLES, INC. 8% SUBORDINATED NOTE DUE October 1, 1999 $50,000 February 25, 1999 AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Company"), for value received, hereby promises to pay to Harvey Stober registered assigns (the "Holder") on demand or prior thereto as hereinafter provided (the "Maturity Date") at the principal offices of the Company, the principal sum of fifty thousand dollars ($50,000) in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on the outstanding principal balance at the rate of eight percent (8%) per annum from the date hereof until the Company's obligation with respect to the payment of such principal sum shall be discharged as herein provided. Interest hereunder shall accrue from the date of this Note and shall be payable together with principal at the Maturity Date, in like coin or currency to the Holder hereof at the office of the Company as hereinabove set forth. 1. Transfers of Note to Comply with the Securities Act of 1933. The Holder agrees that the Note may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (1) to a person who, in the opinion of counsel to the Company, is a person to whom the Note may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act of 1933, as amended (the "1933 Act"), or (2) to any person upon delivery of a prospectus then meeting the requirements of the 1933 Act relating to such Note and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 2. Covenants of Company A. The Company covenants and agrees that, so long as this Note shall be outstanding, it will: (i) Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof, provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested. 1 (ii) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company as its counsel may advise, (iii) Keep adequately insured, by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations; and (iv) At all times keep true and correct books, records and accounts. 3. Events of Default A. This Note shall become and be due and payable upon written demand made by the Holder hereof if one or more of the following events, herein called "events of default", shall happen and be continuing: (i) Default in the payment of the principal and accrued interest on this Note when and as the same shall become due and payable, whether by acceleration or otherwise, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (ii) Default in the due observance or performance of any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (iii) Application for, or consent to, the appointment of a receiver, trustee or liquidator of the Company or of its property; (iv) Admission in writing of the Company's inability to pay its debts as they mature; (v) General assignment by the Company for the benefit of creditors; (vi) Filing by the Company of a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors; or (vii) Entering against the Company of a court order approving a petition filed against it under the Federal bankruptcy laws, which order shall not have been vacated or set aside or otherwise terminated within 30 days. B. The Company agrees that notice of the occurrence of any event of default will be promptly given to the Holder at his or her registered address by certified mail. C. In case any one or more of the events of default specified above shall happen and be continuing, the Holder may proceed to protect and enforce his, her or its rights by suit in the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable rights as such Holder. 4. Miscellaneous A. This Note has been issued by the Company pursuant to authorization of the Board of Directors of the Company, which provides for an aggregate of up to $50,000 in face amount of identical Notes to be issued (subject to increase in certain circumstances). 2 B. The Company may consider and treat the person in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. The registered owner of this Note shall have the right to transfer it by assignment, subject to the provisions elsewhere contained herein, and the transferee thereof shall, upon his registration as owner of this Note, become vested with all the powers and rights of the transferor. Registration of any new owner shall take place upon presentation of this Note to the Company at its principal offices, together with a duly authenticated assignment. In case of transfer by operation of law, the transferee agrees to notify the Company of such transfer and of his address, and to submit appropriate evidence regarding the transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the Holder hereof, in person or by his attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all holders or transferees of the Note not registered at the time of sending the communication. C. Payments of interest shall be made as specified above to the registered owner of this Note. Payment of principal shall be made to the registered owner of this Note upon presentation of this Note upon or after maturity. No interest shall be due on this Note for such period of time that may elapse between the maturity of this Note and its presentation for payment. D. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Note. E. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date. Any such new Note executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Note so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. F. This Note shall be construed and enforced in accordance with the laws of the State of Florida. G. No recourse shall be had for the payment of the principal or interest of this Note against any incorporator or any past, present or future stockholder, officer, director or agent of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any statute or by the enforcement of any assessment or otherwise, all such liability of the incorporators, stockholders, officers, directors and agents being waived, released and surrendered by the Holder hereof by acceptance of this Note. IN WITNESS WHEREOF, AMERICAN QUANTUM CYCLES, INC. has caused this Note to be signed in its name by its President. AMERICAN QUANTUM CYCLES, INC. a Florida corporation By: /s/ Richard Hagen ---------------------------- Richard Hagen, Chairman & CEO 3 EX-10.21 11 8% SUBORDINATED NOTE THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. AMERICAN QUANTUM CYCLES, INC. 8% SUBORDINATED NOTE DUE October 1, 1999 $50,000 February 25, 1999 AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Company"), for value received, hereby promises to pay to Abe Goldberger registered assigns (the "Holder") on demand or prior thereto as hereinafter provided (the "Maturity Date") at the principal offices of the Company, the principal sum of fifty thousand dollars ($50,000) in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on the outstanding principal balance at the rate of eight percent (8%) per annum from the date hereof until the Company's obligation with respect to the payment of such principal sum shall be discharged as herein provided. Interest hereunder shall accrue from the date of this Note and shall be payable together with principal at the Maturity Date, in like coin or currency to the Holder hereof at the office of the Company as hereinabove set forth. 1. Transfers of Note to Comply with the Securities Act of 1933. The Holder agrees that the Note may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (1) to a person who, in the opinion of counsel to the Company, is a person to whom the Note may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act of 1933, as amended (the "1933 Act"); or (2) to any person upon delivery of a prospectus then meeting the requirements of the 1933 Act relating to such Note and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 2. Covenants of Company A. The Company covenants and agrees that, so long as this Note shall be outstanding, it will: (i) Promptly pay and discharge all lawful taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become in default, as well as all lawful claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof, provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested. 1 (ii) Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company as its counsel may advise; (iii) Keep adequately insured, by financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations; and (iv) At all times keep true and correct books, records and accounts. 3. Events of Default A. This Note shall become and be due and payable upon written demand made by the Holder hereof if one or more of the following events, herein called "events of default", shall happen and be continuing: (i) Default in the payment of the principal and accrued interest on this Note when and as the same shall become due and payable, whether by acceleration or otherwise, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (ii) Default in the due observance or performance of any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof, if such default shall continue uncured for 30 days after written notice, specifying such default, shall have been given to the Company by the Holder of the Note; (iii) Application for, or consent to, the appointment of a receiver, trustee or liquidator of the Company or of its property; (iv) Admission in writing of the Company's inability to pay its debts as they mature; (v) General assignment by the Company for the benefit of creditors; (vi) Filing by the Company of a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors; or (vii) Entering against the Company of a court order approving a petition filed against it under the Federal bankruptcy laws, which order shall not have been vacated or set aside or otherwise terminated within 30 days. B. The Company agrees that notice of the occurrence of any event of default will be promptly given to the Holder at his or her registered address by certified mail. C. In case any one or more of the events of default specified above shall happen and be continuing, the Holder may proceed to protect and enforce his, her or its rights by suit in the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable rights as such Holder. 4. Miscellaneous A. This Note has been issued by the Company pursuant to authorization of the Board of Directors of the Company, which provides for an aggregate of up to $50,000 in face amount of identical Notes to be issued (subject to increase in certain circumstances). 2 B. The Company may consider and treat the person in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. The registered owner of this Note shall have the right to transfer it by assignment, subject to the provisions elsewhere contained herein, and the transferee thereof shall, upon his registration as owner of this Note, become vested with all the powers and rights of the transferor. Registration of any new owner shall take place upon presentation of this Note to the Company at its principal offices, together with a duly authenticated assignment. In case of transfer by operation of law, the transferee agrees to notify the Company of such transfer and of his address, and to submit appropriate evidence regarding the transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the Holder hereof, in person or by his attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all holders or transferees of the Note not registered at the time of sending the communication. C. Payments of interest shall be made as specified above to the registered owner of this Note. Payment of principal shall be made to the registered owner of this Note upon presentation of this Note upon or after maturity. No interest shall be due on this Note for such period of time that may elapse between the maturity of this Note and its presentation for payment, D. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Note. E. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date. Any such new Note executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Note so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. F. This Note shall be construed and enforced in accordance with the laws of the State of Florida. G. No recourse shall be had for the payment of the principal or interest of this Note against any incorporator or any past present or future stockholder, officer, director or agent of the Company or of any successor corporation, either directly or through the Company or any successor corporation, under any statute or by the enforcement of any assessment or otherwise, all such liability of the incorporators, stockholders, officers, directors and agents being waived, released and surrendered by the Holder hereof by acceptance of this Note. IN WITNESS WHEREOF, AMERICAN QUANTUM CYCLES, INC. has caused this Note to be signed in its name by its President. AMERICAN QUANTUM CYCLES, INC. a Florida corporation By: /s/ Richard Hagen ----------------------------- Richard Hagen, Chairman & CEO 3 EX-10.22 12 10% SECURED PROMISSORY NOTE AMERICAN QUANTUM CYCLES, INC. March 31, 1999 $750,000.00 10% SECURED PROMISSORY NOTE FOR VALUE RECEIVED, AMERICAN QUANTUM CYCLES, INC., a Florida corporation ("the "Company"), hereby promises to pay to the order of ANCHOR CAPITAL CORPORATION, a Maryland corporation (the "Lender"), at the offices of the Lender at 1607 Spring Ridge Road, Potomac, Maryland 20854 or such other place as the Lender may specify, the principal sum equal to the lesser of SEVEN HUNDRED FIFTY THOUSAND AND NO/1OO DOLLARS ($750,000.00) or the then aggregate unpaid principal amount of all advances made hereunder by Lender to the Company, together with interest as specified herein. This Note evidences advances made and to be made by the Lender from time to time under a revolving line of credit governed by a certain Loan and Security Agreement of even date herewith made by the Company and the Lender (the "Loan Agreement"). Capitalized terms used herein but not defined herein shall have the respective meanings given them in the Loan Agreement. The Company may borrow, repay, and re-borrow advances from time to time under said revolving line of credit, subject to the terms and conditions set forth in the Loan Agreement. The Company further promises to pay interest on the outstanding amount of all advances made under this Note at the rate of ten percent (10%) per annum, commencing from the date of the initial advance hereunder and until all amounts of principal and interest accrued thereon are paid in full, except that during the existence of any Event of Default, the principal outstanding under this Note shall bear interest at the rate of eighteen percent (18%) per annum at the option of the Lender. Interest hereunder shall be payable monthly in arrears, commencing May 1, 1999. Outstanding principal under this Note may be prepaid by the Company, in whole or in part, without premium or penalty at any time. The entire outstanding principal balance of this Note, together with all accrued but unpaid interest, shall be due and payable on the "Maturity Date" as defined in the Loan Agreement. At the option of Lender, the entire unpaid principal balance of this Note, together with all unpaid interest accrued thereon and all other sums owing under this Note or the Loan Agreement, shall become immediately due and payable, without notice or demand, upon the occurrence of any of Event of Default as defined in the Loan Agreement. If any such Event of Default shall occur, then Lender shall be entitled to pursue any and all rights and remedies provided by applicable law and/or under the terms of this Note or the Loan Agreement, including without limitation the foreclosure of any security interest and realization against any collateral for this Note, all of which rights and remedies shall be cumulative and may be exercised successively or concurrently. Lender's delay in exercising or failure to exercise any rights or remedies to which Lender may be entitled in the event of any default shall not constitute a waiver of any of Lender's rights or remedies with respect to that or any subsequent default, whether of the same or a 1 different nature, nor shall any single or partial exercise of any right or remedy by Lender preclude any other or further exercise of that or any other right or remedy. The Company does hereby: (a) waive demand, presentment, protest, notice of dishonor, suit against or joinder of any other person, and all other requirements necessary to charge or hold the Company liable with respect to this Note; (b) waive any right to trial by jury in any legal action or proceeding to enforce their obligations hereunder, waive any right to immunity from any such action or proceeding and waive any immunity or exemption of any property, wherever located, from garnishment, levy, execution, seizure or attachment prior to or in execution of judgment, or sale under execution or other process for the collection of debts; (c) waive any right to interpose any set-off or non-compulsory counterclaim or to plead laches or any statute of limitations as a defense in any such action or proceeding, and waive (to the extent lawfully waivable) all provisions and requirements of law for the benefit of the Company now or hereafter in force; (d) submit to the jurisdiction of the state and federal courts in the State of Maryland for purposes of any such action or proceeding; (e) agree that the venue of any such action or proceeding may be laid in Montgomery County, Maryland (in addition to any county in which any collateral for this Note is located), and waive any claim that the same is an inconvenient forum; and (f) stipulate that service of process in any such action or proceeding shall be properly made if mailed by any form of registered or certified mail (airmail if international), postage prepaid, to the address then registered in Lender's records for the Company, and that any process so served shall be effective ten days after mailing. No provision of this Note shall limit Lender's right to serve legal process in any other manner permitted by law or to bring any such action or proceeding in any other competent jurisdiction. The Company agrees to pay all filing fees and similar charges and all costs incurred by Lender in collecting or securing or attempting to collect or secure this Note, including attorney's fees, whether or not involving litigation and/or appellate, administrative or bankruptcy proceedings. The Company agrees to pay any documentary stamp taxes, intangible taxes, sales taxes or other taxes (except for federal or Maryland franchise or net income taxes) which may now or hereafter apply to this Note or the Loan Agreement or any security therefor, and the Company agrees to indemnify and hold Lender harmless from and against any liability, costs, attorney's fees, penalties, interest or expenses relating to any such taxes, as and when the same may be incurred. This Note is secured by the Collateral described in the Loan Agreement. As additional security for the payment of this Note and any other indebtedness, liability or obligation arising in connection therewith, the Company hereby pledges and assigns to Lender and grants Lender a security interest in, and a right to set off against, any and all monies, accounts, balances, credits, deposits, collections, drafts, bills, notes and other property of the Company of every kind (whether tangible or intangible) from time to time in the actual or constructive possession of (or in transit to) Lender or its correspondents or agents in any capacity (excluding, however, any Individual Retirement Accounts and/or Keogh accounts), in addition to and not in substitution for any other collateral or security Lender may have for this Note. 2 This Note shall be governed, construed and enforced in accordance with the laws of the State of Maryland. The Company represents and warrants to the Lender that the advances to be made under this Note shall be used by the Company for the commercial purposes described in the Loan Agreement, and that because of the commercial nature of the transaction evidenced hereby this Note and the advances hereunder are exempt from any usury law of the State of Maryland or any other Maryland law imposing a maximum amount of interest that may be charged by the Lender for extending credit to the Company. In no event shall any agreed to or actual exaction charged, reserved or taken as an advance or forbearance by Lender as consideration for the advances under this Note exceed the limits (if any) imposed or provided by the law applicable from time to time to this Note for the use or detention of money or for forbearance in seeking its collection; Lender hereby waives any right to demand such excess. In the event that the interest provisions of this Note or any exactions provided for in this Note or the Loan Agreement or any other document shall result at any time or for any reason in an effective rate of interest that transcends the maximum interest rate permitted by applicable law (if any), then without further agreement or notice the obligation to be fulfilled shall be automatically reduced to such limit and all sums received by Lender in excess of those lawfully collectible as interest shall be applied against principal immediately upon Lender's receipt thereof, with the same force and effect as though the payor had specifically designated such extra sums to be so applied to principal and Lender had agreed to accept such extra payment(s) as a premium-free prepayment or prepayments. During any time that this Note bears interest at the maximum lawful rate, interest shall be calculated on the basis of the actual number of days in the respective calendar year rather than an assumed year of 360 days. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date. Any provision of this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction only, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction, and to this end the provisions of this Note are declared to be severable. All of the terms of this Note shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Lender and its successors and assigns. The Company and the Lender hereby severally, voluntarily, knowingly and intentionally WAIVE ANY AND ALL RIGHTS TO TRIAL BY JURY in any legal action or proceeding arising under this Note or the Loan Agreement or any other document concerning this Note and/or any collateral therefor or pertaining to any transaction related to or contemplated in the Loan Agreement, regardless of whether such action or proceeding concerns any contractual or tortious or other claim. The Company acknowledges that this waiver of jury trial is a material 3 inducement to Lender in extending the credit described herein, that Lender would not have extended such credit without this jury trial waiver, and that the Company has been represented by an attorney or has had an opportunity to consult with an attorney in connection with this Note and understands the legal effect of this jury trial waiver. IN WITNESS WHEREOF, AMERICAN QUANTUM CYCLES, INC. has caused this Note to be signed in its name by its President. AMERICAN QUANTUM CYCLES, INC. By /s/ Illegible ---------------------- STATE OF NEW YORK ) ) SS: COUNTY OF NEW YORK ) I hereby certify that the foregoing promissory note was executed and acknowledged before me, the undersigned authority, this 31st day of March 1999 in the state and county aforesaid, by Richard K. Hagen, as CEO of the maker named herein, who personally appeared before me, is personally known to me or produced a driver's license as identification, and did not take an oath. Notary: /s/ Keith E. Reich ---------------------------------------- [NOTARIAL SEAL] Print Name: Notary Public, State of ------------------------- My commission expires: -------------------------- KEITH E. REICH Notary Public, State of New York No. 31-4760868 Qualified in Westchester County Commission Expires May 2, 2000 4 EX-10.23 13 LOAN AND SECURITY AGREEMENT LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of March 31, 1999 between AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Company"), having its address at 731 Washburn Road, Melbourne, Florida 32934, and ANCHOR CAPITAL CORPORATION, a Maryland corporation (the "Lender"), having its address at 11607 Spring Ridge Road, Potomac, Maryland 20854. WITNESSETH: WHEREAS, the Company is in the business of manufacturing and assembling motorcycles at its plant in Melbourne, Florida, and has requested the Lender to finance the Company's purchase of certain parts inventory from the Company's vendors for such manufacture and assembly; WHEREAS, the Lender is prepared to establish a line of credit to finance such inventory purchases provided that the advances therefor are secured by a purchase-money security interest in such inventory and the accounts and proceeds generated thereby and provided that the Company meets certain performance projections represented by the Company to the Lender; NOW, THEREFORE, in consideration of the sum of $10.00 and other good and valuable considerations, the Company and the Lender agree as follows: 1. DEFINITIONS. As used in this Agreement, the following capitalized terms shall have the meanings set forth below: (a) "Account Debtor" means the motorcycle dealer or other person who is obligated on an Account. (b) "Account" means any account as that term is defined in the Uniform Commercial Code as in effect in any jurisdiction in which any of the Collateral may at the time be located (the "U.C.C.") and includes any right of the Company to payment for goods sold or leased or for services rendered or money loaned which is not evidenced by an instrument or chattel paper (as those terms are defined in the U.C.C.) whether or not it has been earned by performance. (c) "Anchor Account" means a deposit account in the name of the Company over which the Lender shall have sole signature authority, established at a depositary institution approved by the Lender and pledged to the Lender as additional security for the Obligations. (d) "Cash Flow Projections" means the Company's cash flow projections for the term of this Agreement, attached hereto as Exhibit "A". (e) "Chattel Paper" means any chattel paper as that term is defined in the U.C.C. 1 (f) "Collateral" means (i) all of the Company's Purchase Orders, Accounts, General Intangibles, Chattel Paper and Instruments now existing or hereafter arising; (ii) all guarantees of Company's existing and future Accounts, General Intangibles, Chattel Paper and Instruments and all other security held by the Company for the payment and satisfaction thereof; (iii) all of the Company's Inventory now owned or hereafter acquired; (iv) all of the Company's books and records which relate to the Company's Inventory, Accounts, General Intangibles, Chattel Paper and Instruments or guarantees thereof; (v) all insurance on all of the foregoing and the proceeds of that insurance; (vi) the Anchor Account and all funds deposited therein from time to time; and (vii) all cash and noncash proceeds and products of all of the foregoing and the proceeds and products of other proceeds and products. The Collateral does not include any of the Company's equipment as that term is defined in the U.C.C. (g) "Collateral Base" means, for any week during the term of this Agreement, the sum of (i) seventy-five percent (75%) of "Net Receivables Outstanding" (shown as line item 233 in attached Exhibit "A") plus (ii) one-third (1/3) of "Net Gordon Inventory at End of Week" (shown as line item 213 in attached Exhibit "A") as shown in the respective Weekly Report. (h) "Commitment" means the obligation of the Lender to make Loans up to but not exceeding the aggregate principal amount of $750,000 at any one time outstanding, subject to the terms and conditions of this Agreement. (i) "Cumulative Cash Collected" means the cumulative amount of funds received in the Anchor Account from dealers or from any Floor Plan Lender as payment for motorcycles built and shipped pursuant to Purchase Orders approved for funding by the Lender, computed on a weekly basis and included in each Weekly Report by the Company; the amount of "Cumulative Cash Collected" is projected in the Cash Flow Projections as line item 232. (j) "Cumulative Sales" means the cumulative amount of the Company's sales to dealers of motorcycles built and shipped pursuant to Purchase Orders approved for funding by the Lender, expressed in dollars based on the actual sales price, computed on a weekly basis and included in each Weekly Report by the Company; the amount of "Cumulative Sales" is projected in the Cash Flow Projections as line item 230. (k) "Default Rate" is defined in Section 3(h). (1) "Event of Default" is defined in Subsection 8(a). (m) "Floor Plan Lender" means Bombardier Capital Inc. or Transamerica Commercial Finance Corporation or another commercial floor plan lender reasonably acceptable to the Lender who agrees in writing to extend floor plan financing to dealers of the Company's motorcycles. (n) "General Intangibles" means all general intangibles as that term is defined in the U.C.C., including, without limitation, all books, correspondence, credit files, records and other documents, computer programs, computer tapes and cards and other paper and documents in the 2 possession or control of the Company or in the possession or control of any affiliate or computer service bureau, and all contract rights, claims, chooses in action, judgments, patents, patent applications, trademarks, license agreements, royalty payments, copyrights, service names, service marks, logos, goodwill and deposit accounts. (o) "Instruments" means all instruments as that term is defined in the U.C.C. (p) "Inventory" means any inventory as that term is defined in the U.C.C. and shall include tangible personal property held for sale or lease or to be furnished under contracts of service, tangible personal property which the Company has so leased or furnished, and raw materials, work in process and materials used, produced or consumed in the Company's business, and shall include tangible personal property returned to the Company by a purchaser or lessor thereof following the sale or lease thereof by the Company. All equipment, accessories and parts related to, attached to or added to items of Inventory or used in connection therewith and all accessions thereto shall be deemed to be part of the Inventory. (q) "Loan" or "Loans" means an advance or advances of funds made by the Lender from time to time to or for the benefit of the Company as set forth in this Agreement. (r) "Maturity Date" means June 30, 1999, or such later date to which the Lender may in its sole discretion extend the final date for payment of the Company's Obligations to the Lender. (s) "Note" means that certain 10% Secured Promissory Note of even date herewith made by the Company payable to the Lender in the maximum principal amount of $750,000 to evidence the Loans, and any renewal, replacement or substitute note made with respect thereto. (t) "Obligations" means all existing and future liabilities and obligations of the Company to the Lender, whether absolute or contingent of any nature whatsoever, now existing or hereafter incurred arising out of or provided for in this Agreement or the Note and all obligations of the Company to the Lender created or referred to in the Purchase Agreement. (u) "Offering" means the proposed public offering by the Company of 1,600,000 shares of its common stock (excluding the underwriter's over-allotment option) and the proposed public offering by certain selling shareholders of 928,000 shares of common stock. (v) "Permitted Liens" means all liens and security interests against the Collateral of record on the date of this Agreement. (w) "Proceeds" means whatever is received when Collateral is sold, exchanged, collected or otherwise disposed of. (x) "Purchase Agreement" means the Purchase Agreement of even date herewith made by and between the Company and the Lender regarding the Lender's purchase of common stock in the Company. 3 (y) "Purchase Order" means an unconditional valid and binding written purchase order for one or more motorcycles submitted to the Company by a dealer, substantially in the form attached hereto as Exhibit "B" (or another form reasonably acceptable to the Lender), which purchase order either (i) is approved by a Floor Plan Lender for funding under the Company's dealer financing program or (ii) is supported by a deposit for at least one-third of the purchase price of the motorcycle(s) ordered. (z) "Termination Date" means June 30, 1999 or the termination of the Commitment pursuant to Section 8(b) hereof, whichever is earlier. (aa) "Weekly Report" means a report prepared for the Lender by the Company and certified by its chief operating officer for each week during the term of this Agreement, showing the actual operating results achieved by the Company for each line item in the Cash Flow Projections, compared to the amounts projected for each such line item. 2. LINE OF CREDIT AND LOANS. The Lender agrees, on the terms and subject to the conditions of this Agreement, to establish a revolving line of credit for the Company and to advance Loans to the Company until the Termination Date at the rate of up to $10,000 per motorcycle ordered under Purchase Orders submitted by the Company and approved by the Lender in its reasonable discretion. (a) Purchase Orders. Purchase Orders shall be submitted to the Lender once each week together with the Weekly Report by the Company described hereinbelow. Each submission of a Purchase Order by the Company to the Lender shall constitute a representation by the Company that (i) the copy of the Purchase Order delivered to the Lender is true, correct and complete, (ii) the Purchase Order represents a valid and binding order from a dealer for the immediate delivery of the number of motorcycles identified therein, (iii) the Purchase Order is in full force and effect and has not been modified, amended, rescinded or revoked, (iv) the dealer named in the Purchase Order is obligated to pay for the motorcycle(s) identified therein, and (v) either the Purchase Order has been approved for floor plan financing by a Floor Plan Lender, or the Company has received a deposit for one-third of the purchase price and has deposited the same in the Anchor Account. In addition, the Company may submit to the Lender for funding a Purchase Order for a cash sale of a motorcycle to a dealer that is neither covered by a Floor Plan Lender nor by a deposit, provided that (A) the dealer is obligated under a written dealer agreement to pay the initial one-third deposit when the Company commences assembly of the motorcycle, (B) the dealer's credit is acceptable to the Lender, and (C) the Lender shall not be required to advance Loan funds for more than one such motorcycle without a deposit at any one time. To the extent that the dealer's purchase price for any such motorcycle covered by a Purchase Order is less than $17,588, the Lender may reduce the $10,000 Loan amount for that motorcycle proportionately. The Lender shall not be required to approve any Purchase Order from a dealer that has refused to accept delivery from the Company under any previous Purchase Order or (if the Purchase Order is to be covered by floor plan financing) that is in default under the floor plan financing provided by a Floor Plan Lender. If any Purchase Order against which 4 the Lender has advanced Loans is thereafter canceled by the respective dealer, then the amount of subsequent Loans otherwise available to the Company shall be reduced by $10,000. (b) Weekly Limits. Regardless of the number of motorcycles covered by approved Purchase Orders submitted to the Lender from time to time, the Lender shall not be required to advance Loans in excess of the following weekly limits with respect to the maximum principal balance outstanding from time to time and the maximum cumulative amount of Loans advanced during the term of this Agreement: Maximum Maximum Week Beginning Outstanding Balance Cumulative Loans -------------- ------------------- ---------------- March 29, 1999 $250,000 $ 250,000 April 5, 1999 $250,000 $ 250,000 April 12, 1999 $250,000 $ 250,000 April 19, 1999 $250,000 $ 250,000 April 26, 1999 $250,000 $ 250,000 May 3, 1999 $400,000 $ 350,000 May 10, 1999 $400,000 $ 450,000 May 17, 1999 $400,000 $ 550,000 May 24, 1999 $400,000 $ 650,000 May 31, 1999 $750,000 $ 830,000 June 7, 1999 $750,000 $1,010,000 June 14, 1999 $750,000 $1,190,000 June 21, 1999 $750,000 $1,400,000 June 28, 1999 $750,000 $1,400,000 Maturity Date $ 0 N/A Within such limits, the Company may borrow, repay, and reborrow Loans at any time or from time to time from the date hereof to and including the Termination Date. To the extent the aggregate principal amount outstanding hereunder may, from time to time, exceed the foregoing maximum outstanding amount, such excess shall not constitute or be deemed a waiver or increase of the amount of the Commitment and shall, at the option of the Lender, be payable on demand and shall bear interest at the Default Rate specified herein. (c) Performance Requirements. The Lender has agreed to advance Loans to the Company in substantial reliance on the Company's Cash Flow Projections attached to this Agreement as Exhibit "A". At the beginning of each week during the term of this Agreement, the Company shall deliver to the Lender a Weekly Report showing the actual operating results achieved by the Company for the immediately preceding week in comparison to the amount projected for each line item in the Cash Flow Projections. Each Weekly Report shall include copies of all relevant Purchase Orders, Floor Plan Lender approvals, parts orders, sales invoices, shipping papers, and other back-up documentation as the Lender may request to substantiate the results shown in the Weekly Report. If in any week during the term of this Agreement the Company fails to achieve the projected amount of Cumulative Sales or Cumulative Cash Collected as shown in the Cash Flow Projections, then in the following week: (i) the Lender shall 5 not be required to advance any Loan funds if the amount achieved for the line item for Cumulative Sales or Cumulative Cash Collected is less than eighty percent (80%) of the amount projected in the Cash Flow Projections for that line item; and (ii) if the lowest percentage of achievement for the line item for Cumulative Sales or Cumulative Cash Collected is between eighty percent (80%) and one hundred percent (100%) of the amount so projected, then the Loan otherwise available for that following week shall be reduced to the percentage actually achieved for the lowest such line item. Amounts achieved in excess of 100% of the projected amount for Cumulative Sales or Cumulative Cash Collected shall not operate to increase the Loan that the Lender would otherwise be required to fund in the following week. (d) Collateral Base Limitations. Commencing with the Weekly Report for the week of April 19, 1999 and continuing with each Weekly Report thereafter, the aggregate principal amount of all Loans then outstanding must not exceed the Collateral Base in order to require the Lender to fund the full amount of the Loan otherwise available under this Agreement for the following week. To the extent that the outstanding Loan amount exceeds the Collateral Base in any such Weekly Report, then Loan to be funded by the Lender in the following week shall be reduced by the amount of such excess. 3. MANNER OF BORROWING AND PAYMENT. Each Loan shall be disbursed by the Lender directly to vendors or suppliers of the Company to pay for the purchase of parts Inventory from such vendors or suppliers in accordance with the instructions of the Company contained in a Loan request delivered to the Lender. No Loan funds shall be disbursed directly to the Company unless the Lender determines to do so in its sole and absolute discretion, in which event the funds so disbursed shall be used only for the purpose(s) approved by the Lender in each instance. (a) Loan Requests. Loans shall be disbursed by the Lender once each week during the term of this Agreement. Three (3) business days prior to the date on which the Company desires Lender to disburse Loan funds to the respective vendors or suppliers, the Company shall deliver to the Lender a completed Loan request substantially in the form attached hereto as Exhibit "C", together with an original or copy of the Company's purchase orders to such vendors or suppliers for the parts Inventory being purchased with the requested Loan. With respect to any portions of the weekly Loan that are to be disbursed by checks drawn on the Anchor Account, the Company shall prepare for the Lender's signature and include with the Loan request all necessary checks payable to the vendors or suppliers. If any portion of the weekly Loan is to be disbursed by a wire transfer or cashier's check or certified check, then all instructions for such other methods of payment shall be included in the Loan request. Lender shall not be responsible for any errors, mistakes, omissions or inaccuracies in any such Loan request, parts order, check or payment instructions prepared by the Company, and the Company shall be solely responsible for the accuracy and completeness of the same and shall indemnify and hold the Lender harmless from and against any losses, liabilities, damages, claims, costs or expenses (including reasonable attorneys fees) incurred by any person as a result of any such errors, mistakes, omissions or inaccuracies. Subject to the satisfaction of the respective conditions to each such Loan set forth in Section 4, the Lender shall disburse the weekly Loan in accordance with the Company's instructions included in the Loan Request within three (3) business days after the Lender's receipt 6 of the completed Loan request. If the Lender determines that the Loan request is incomplete or inaccurate or ambiguous in any respect, the Lender shall promptly contact the Company for further instructions and shall be relieved of any obligation to fund the requested Loan until receipt of such further instructions resolving the incompleteness, inaccuracy or ambiguity. (b) Disbursement Fees and Expenses. The Company shall pay the Lender a $400 disbursement fee for handling and disbursing each weekly Loan request submitted by the Company (regardless of how many separate vendor payments are required), and the Company shall reimburse the Lender for all out-of-pocket costs incurred by the Lender in connection with any such Loan disbursement, including without limitation any wire transfer charges, certified check fees, postage and express delivery charges, or other expenses incurred by the Lender in order to disburse the Loan in the manner requested by the Company. Such disbursement fees and costs may at the Lendees option be charged against funds of the Company in the Anchor Account. (c) Deposits in Anchor Account. The Company shall establish a restricted deposit account in the name of the Company at a depositary institution approved by the Lender, to be known as the "Anchor Account," which shall be assigned to the Lender and for which the Lender alone shall have the authority to withdraw funds. If the Anchor Account is established as an interest-bearing account, then all interest earned on the funds deposited therein from time to time shall be reported as interest earned by the Company, and the Company shall be responsible for providing the depositary institution with its federal employer identification number and any other information or documents necessary to earn interest on the deposited funds. The Company shall instruct all dealers submitting Purchase Orders against which Lender advances Loans to remit directly to the Anchor Account all payments (including any deposits) for motorcycles covered by such Purchase Order, and the Company shall instruct the respective Floor Plan Lender financing any such dealer's Purchase Order (if applicable) to remit payment for the motorcycles by wire transfer of federal funds directly to the Anchor Account. If any such payments are nevertheless received by the Company, the Company shall hold the same in trust for the Lender and shall deposit such payments in the Anchor Account, in the same form received and together with any necessary endorsements, on the same business day on which such payments are received by the Company. (d) Disbursements from Anchor Account. All disbursements of Loans shall be made from the Anchor Account, whether by checks drawn directly on the Anchor Account and signed by the Lender, or by other payment methods specified by the Company in the respective Loan request and funded from monies drawn by the Lender from the Anchor Account. The Company shall have no authority to withdraw or disburse funds from the Anchor Account without the signature of the Lender. All Loans shall be funded first from the monies then on deposit in the Anchor Account, and to the extent that the collected balance in the Anchor Account is insufficient to cover any Loan that the Lender is otherwise required to advance under this Agreement, then the Lender shall credit or deposit sufficient monies to the Anchor Account to fund the Loan completely. All monies in the Anchor Account from time to time shall be applied as follows: (i) first, to reimburse the Lender for any costs or expenses incurred by the Lender that the Company is required to pay under this Agreement; (ii) next, to pay the Lender's disbursement 7 fees for handling and disbursing the Loan request; (iii) next, to pay any unpaid interest accrued on the Loans that is then due and payable; (iv) next, to pay down the outstanding principal balance of the Loans; and (v) last, provided the principal balance of the Loans is then zero and no Event of Default then exists, the balance (if any) in the Anchor Account shall be remitted to the Company weekly for its use in its business. (e) Responsibility by the Lender. The Company acknowledges that the Lender (unlike the Company) is not engaged in the business of manufacturing or assembling motorcycles or in ordering parts therefor from the Company's vendors and suppliers, that the Lender will be acting completely in reliance upon the Company's preparation of checks or parts orders and the Company's instructions to the Lender included in the Loan requests, and that the Lender does not have any responsibility whatsoever to determine the accuracy or completeness of any such matters submitted by the Company to the Lender. The Company agrees that the Lender shall not be responsible or liable to the Company or to any third party for, and the Company shall indemnify and hold the Lender harmless against, any losses, liabilities, damages, claims, costs or expenses, including reasonable attorney's fees, arising from the Lender's actions or omissions in connection with this Agreement, except to the extent that a court of competent jurisdiction holds that the Lender acted fraudulently or with willful misconduct. (f) Security Interest. As collateral security for the Obligations, the Company hereby grants the Lender a lien upon and a security interest in the Anchor Account and all funds held therein from time to time. If requested by the Lender, the Company shall execute a blocked account agreement, a lockbox agreement, an account assignment agreement and/or such other documentation as the Lender may require to evidence and perfect its lien, security interest and control over the Anchor Account. During the existence of any Event of Default, the Lender may at its option apply any funds in the Anchor Account in payment of the Obligations of the Company, and even if the Obligations are then zero the Lender may refuse to release funds held in the Anchor Account until either the Event of Default is cured or the Lender's Commitment to advance Loan funds is released. (g) Repayment of Principal. Unless repayment is sooner required because of an Event of Default hereunder, the Company shall repay to the Lender the aggregate unpaid principal amount of all Loans outstanding on the Maturity Date. The Loans may be prepaid at any time without premium or penalty. (h) Interest. The Company agrees (i) to pay interest on the outstanding principal balance of Loans hereunder at the rate of TEN PERCENT (10%) per annum; and (ii) to pay interest on any amount of principal which is not paid when due (whether at stated maturity, by acceleration or otherwise), on demand, at a rate equal to EIGHTEEN PERCENT (18%) per annum (the "Default Rate"), provided that in no event shall the rate of interest on Loans hereunder be in excess of the rate authorized by applicable law. Interest on the Loans accruing during each month shall be paid by debit to the Anchor Account, and the Lender will furnish the Company advices setting forth the amount of interest accrued and debited for each month in which there is an outstanding principal balance of Loans hereunder. Interest shall be computed on a 360-day year basis. Whenever any payment to be made hereunder shall be stated to be due 8 on a Saturday, Sunday, or a public holiday under the laws of the State of Maryland, such payment may be made on the next succeeding business day, and such extension of time shall in such case be included in computing interest and premiums (if any) in connection with such payment. (i) Commercial Transaction. The Company represents and warrants to the Lender that the Loans to be advanced under this Agreement shall be used by the Company for the commercial purposes described in this Agreement, and that because of the commercial nature of the transaction evidenced hereby this Agreement the Purchase Agreement, the Note and the Loans advanced hereunder are exempt from any usury law of the State of Maryland or any other Maryland law imposing a maximum amount of interest that may be charged by the Lender for extending credit to the Company. Notwithstanding any contrary provision of this Agreement, the Purchase Agreement, the Note or any other document, in no event shall any agreed to or actual exaction charged, reserved or taken as an advance or forbearance by the Lender as consideration for the Obligations exceed the limits (if any) imposed or provided by the law applicable from time to time to the Obligations for the use or detention of money or for forbearance in seeking its collection; the Lender hereby waives any right to demand such excess. In the event that any provisions of the Note, this Agreement, the Purchase Agreement or any other document, or any exactions required thereunder, shall result at any time or for any reason in an effective rate of interest that transcends the maximum interest rate permitted by applicable law (if any), then without further agreement or notice the obligation to be fulfilled shall be automatically reduced to such limit and all sums received by the Lender in excess of those lawfully collectible as interest shall be applied against the principal of the Obligations immediately upon the Lender's receipt thereof, with the same force and effect as though the payor had specifically designated such extra sums to be so applied to principal and the Lender had agreed to accept such extra payment(s) as a premium-free prepayment or prepayments. During any time that any of the Obligations bear interest at the maximum lawful rate (whether by application of this paragraph or otherwise), interest shall be computed on the basis of the actual number of days elapsed and the actual number of days in the respective calendar year. 4. CONDITIONS OF LENDING. (a) Initial Loan. The obligation of the Lender to make the initial Loan to be made by it hereunder is subject to the following conditions precedent: (i) The Lender shall have received a certified copy of all corporate actions taken by the Company to authorize the execution, delivery and performance of this Agreement and the borrowing by the Company hereunder; (ii) The Company shall have executed and delivered to the Lender the Note, the Purchase Agreement, the common stock sold to the Lender pursuant to the Purchase Agreement, and a U.C.C. financing statement describing the Collateral for filing with the Florida Secretary of State; 9 (iii) The Lender shall have received a satisfactory subordination and intercreditor agreement executed by Skippack Capital Corp. subordinating its security interest in those portions of the Collateral pertaining to Purchase Orders against which the Lender advances Loans; (iv) The Lender shall have received a satisfactory landlord's waiver or subordination agreement from the landlord(s) of the premises where the Inventory of the Company will be kept, agreeing to waive or subordinate any statutory or contractual landlord's lien against such Inventory; and (v) The Lender shall have received and approved a copy of all documents filed with the Securities and Exchange Commission by the Company, including any such documents pertaining to the Offering. (b) Each Loan. The obligation of the Lender to make each Loan hereunder (including the initial Loan) is subject to the following conditions precedent: (i) No Event of Default, and no event which with notice or lapse of time or both would become such an Event of Default, shall have occurred and be continuing; (ii) The representations and warranties of the Company hereunder shall be true on and as of the date of the making of such Loan with the same force and effect as if made on and as of such date; (iii) There shall have been no material adverse change to the financial condition or operations of the Company; (iv) All Inventory financed with Loans shall have been segregated from other Inventory on the Company's premises, or otherwise physically identified as being subject to the Lender's first-priority security interest in a manner reasonably satisfactory to the Lender; (v) The Offering shall not have been withdrawn or canceled by the Company, and there shall have been no material change in the terms, feasibility or timing of the Offering adverse to the interests of Lender as a purchaser of the common stock of the Company under the Purchase Agreement; and (vi) The Company shall have delivered to the Lender not less than three (3) business days prior to the date of disbursement a Loan request in the form attached hereto as Exhibit "C" setting forth the amount of such Loan and containing a certification by a senior officer of the Company, in form and substance satisfactory to the Lender, as to the matters specified in the preceding clauses (i), (ii), (iii), (iv) and (v). 5. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Lender as follows: 10 (a) Existence, Authority, Non-Contravention. The Company is a corporation duly authorized, validly existing, and in good standing under the laws of the State of Florida, and has all requisite power and authority to own, lease and operate its properties, to carry on its business as it is now being conducted, to enter into this Agreement, to issue the Note and to consummate the transactions contemplated hereby. All actions of the Company necessary to authorize it to execute, deliver and consummate this Agreement, and to perform its obligations hereunder and under the Note have been duly and validly taken and no other further actions or authorizations are required. This Agreement and the Note constitute the valid, legally binding obligations of the Company and are enforceable in accordance with their respective terms. The execution and delivery of this Agreement and the Note and the consummation of the transactions contemplated herein and therein will not (i) result in any breach of, or constitute a default under the Articles of Incorporation or By-Laws of the Company, or any instrument or obligation to which the Company is a party or by which it is bound; or (ii) violate any existing statute, order, writ, injunction or decree of any court, administrative agency or governmental body. (b) SEC Matters. The Company has filed all reports and statements required to be filed by the Company with the Securities and Exchange Commission and no such report or statement contains a misstatement of a material fact or omits to state a material fact necessary to make the statements made therein not misleading. The Offering complies and will comply with all applicable securities laws, and to the best of the Company's knowledge the Securities and Exchange Commission staff has required no changes or corrections in the prospectus or other materials for the Offering that cannot be accomplished by the Company at a reasonable cost. (c) Financial Statements. The balance sheets and statements of income and retained earnings of the Company, and all other documents and information furnished to the Lender, are complete and correct and fairly represent the financial condition of the Company as of the dates of said financial statements and results of operations for the periods ending on said dates. The Company has no contingent obligations, liabilities for taxes, long-term leases, or unusual forward or long-term commitments not disclosed by, or reserved against in, said balance sheets or the notes thereto, and at the present time there are no material unrealized or anticipated losses from any unfavorable commitments of the Company. Said financial statements were prepared in accordance with generally accepted accounting principles and practices of accounting and consistently maintained throughout the periods. Since the date of the latest of such statements there have been no material adverse changes in the financial condition of the Company other than as disclosed in writing to the Lender. (d) Litigation. There are no suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company which, if adversely determined, would have a material adverse effect on the financial condition or business of the Company, and there are no proceedings pending or to the knowledge of the Company threatened before any governmental commission, board, bureau or agency against the Company. (e) Ownership of Properties. With the exception of any security interest granted to the Lender, and other than as disclosed and described in writing to the Lender, the Company owns its respective properties free and clear of all liens, mortgages, pledges, assignments, 11 security interests or other encumbrances with the exception of liens for taxes not yet due or being contested in good faith by the Company by appropriate proceedings. (f) Fictitious Names, Etc. Except as disclosed to the Lender in writing, the Company does not now use and has not used in the past any trade or fictitious name in the conduct of its business, has not changed its name, and has not been the surviving entity in a merger or consolidation or acquired any business. 6. COVENANTS. The Company covenants and agrees with the Lender that, so long as the Commitment and the Lender's obligations thereunder shall remain outstanding, or there shall be any principal balance of Loans outstanding hereunder, or any interest accrued or other amounts due or to become due hereunder remain unpaid, the Company will: (a) Financial Statements. Deliver to the Lender a satisfactory annual financial statement and supporting documentation for the Company, prepared by an independent certified public accountant acceptable to the Lender, within sixty (60) days after the end of the Company's fiscal year. The Company shall also promptly deliver any other information requested by the Lender from time to time regarding the respective financial conditions or business operations of the Company. All financial statements of the Company previously delivered to the Lender have been prepared in accordance with generally accepted accounting principles consistently applied and fairly present the correct respective financial conditions of the Company as of their respective dates, and the foregoing shall be true with respect to all financial statements of the Company delivered to the Lender hereafter. (b) Books and Records. Keep proper books of record and account. (c) Indebtedness and Liens. Not incur any indebtedness for borrowed money, except for such indebtedness as is outstanding on the date of this Agreement and indebtedness incurred by the Company after the date hereof in connection with the financing of inventory other than inventory financed by the Lender, or permit any lien, security interest or encumbrance to be created in or with respect to any asset of the Company, whenever acquired, except for any such as are in effect on the date of this Agreement and except for purchase money security interests in assets acquired by the Company after the date of this Agreement. (d) Payments. Promptly pay and discharge all amounts as and when due and to become due on all indebtedness of the Company and all taxes, assessments and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become a lien upon the Company's assets or property, as well as all lawful claims for labor, materials and supplies which, if unpaid, would become a lien or charge upon such properties or any part thereof, provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall have set aside on its books adequate reserves with respect to any such tax, assessment, charge, levy or claim so contested. 12 (e) Common Stock. Not issue any shares of its Common Stock, or any securities convertible into or exercisable with respect to its Common Stock, except to the Lender and except for securities sold in an underwritten public offering or securities issued to the underwriter with respect to any such offering. (f) Existence: Mergers; Dispositions. Preserve and maintain its corporate existence and its rights, privileges and franchises, and not merge with or into any other corporation or dispose of its assets other than in the ordinary course of business. Without first notifying the Lender in writing, the Company shall not change the Company's chief place of business or the office(s) where the Company's books, papers and records concerning the Collateral are kept, nor change the Company's name, identity or corporate structure, nor do business, under any fictitious or assumed name. (g) Cash Flow Projections. Use its best efforts to conform to the Company's Cash Flow Projections. (h) Purchase Agreement. Comply fully with its obligations under the Purchase Agreement. 7. SECURITY INTEREST. (a) As collateral security for the payment of the Obligations, the Company hereby grants to the Lender a lien upon and security interest in all of the "Collateral" as defined in this Agreement, and the Company warrants and agrees that said security interest shall be a first-priority security interest with respect to: (i) all Inventory purchased by the Company with Loan funds, (ii) all Purchase Orders against which the Lender advances any Loans, (iii) all Accounts, Chattel Paper, Instruments or General Intangibles arising from or pertaining to any motorcycles sold by the Company pursuant to any such Purchase Orders; (iv) the Anchor Account; and (v) all Proceeds, Products and Accessions pertaining to the foregoing. (b) The Company warrants that it has and at all times will have good title to the Collateral free of any prior lien (except for Permitted Liens) and that all Accounts included in the Collateral are bona fide existing obligations created by the sale and delivery of merchandise or the rendering of services to customers and arose in the ordinary course of business; and that such Accounts are not subject to defense, set-off or counterclaim which in the aggregate would materially impair the value of such Accounts as collateral for the Obligations. (c) The Company will promptly notify the Lender if there is any adverse change in the status of the Collateral that materially impairs its value or collectibility, or if any defenses, set-offs or counterclaims are asserted by Account Debtors which in the aggregate materially impair the value or collectibility of the Accounts. (d) The Company will preserve the Collateral and its rights against Account Debtors free and clear of any liens or encumbrances (except for Permitted Liens) and will keep the Inventory in good condition, insured by insurers authorized to do business in the jurisdictions where such Collateral is located from time to time against fire or other casualty loss (with 13 extended coverage in the broadest form), liability and such other hazards as are customary with companies in the same or similar business and in the same area, and will cause the Lender's security interest to be endorsed on all policies of insurance thereon in such manner that all payments for losses will be paid to the Lender as its interest may appear and will furnish the Lender upon request with evidence of such insurance. (e) The Company will segregate all Inventory financed with Loans and keep the same separate from other Inventory on the Company's premises, or the Company will otherwise physically identify such Inventory financed with Loans as being subject to the Lender's first-priority security interest in a manner reasonably satisfactory to the Lender. (f) The Lender shall have the right (but not the obligation) at its option to discharge or pay any taxes, assessments, liens, security interests or other encumbrances at any time levied or placed on or against the Collateral or the Company, to pay for the preservation or protection of the Collateral, to perform any obligations of the Company or cure any default by the Company under this Agreement, and/or to advance monies for any other reason or purpose permitted under this Agreement. Any amount so paid or advanced by the Lender shall be included in the Obligations, shall be secured by the Collateral and shall be repayable by the Company on demand. (g) The Lender may sign and file financing statements, security agreements, recording instruments or other documents or amendments thereto with respect to the Collateral or any portion thereof without the signature of the Company, all at the Company's sole expense, and the Company shall reimburse the Lender on demand for any costs advanced or incurred by the Lender in connection therewith. At the Lender's option, a carbon, photographic or other reproduction of this Agreement (or of any financing statement executed by the Company) shall be sufficient as a financing statement. At the Lender's request, the Company shall promptly correct patent errors or omissions in this Agreement, the Note, any financing statement or any document pertaining to the Loans and shall promptly execute and deliver such further instruments or documents as may be required to carry out the intent and purposes of this Agreement. (h) The Lender is hereby irrevocably appointed the attorney-in-fact of the Company, which appointment is coupled with an interest, with full power of substitution, on behalf of the Company to perforn all acts, and to execute and deliver all endorsements, notices, instruments of assignment and transfer, deeds, releases, bills of sale or other writings whatsoever, but only to the extent that Lender determines that such actions or documents are appropriate to protect and preserve the Collateral and to perfect and maintain and realize upon the Lender's security interest and rights in the Collateral. If so requested by the Lender or by any other person, the Company shall ratify and confirm the acts of the Lender (and/or any substitute) as the Company's attorney-in-fact. (i) The Lender shall have the right (but not the obligation) at any time to take any action the Lender deems appropriate in its sole discretion for the protection or preservation of any Collateral in its possession or control. The Lender shall exercise reasonable care with 14 respect to Collateral in its custody only to the extent required by applicable law. The Lender shall be deemed to have used reasonable care if such Collateral is accorded treatment substantially equal to that which the Lender accords its own property, or if the Lender takes such action for that purpose as the Company may reasonably request in writing. No omission to do any act not requested by the Company shall be deemed a failure to exercise reasonable care, and no omission to comply with any request of the Company shall of itself be deemed a failure to exercise reasonable care. The Lender is not responsible for any injury or loss to the Collateral or any part thereof arising from Act of God, robbery, fire, flood, fraud or any other cause whatsoever beyond the control of the Lender, and the Lender shall not be liable for any negligent act or default of any of its collecting agents or correspondents. The Lender shall not be required to examine or inquire into the validity of any Collateral subject to this Agreement, or to exchange or collect on any such Collateral, or to take any action necessary to hold any Account Debtor or other person liable on the Collateral; the Company hereby waives any obligation of diligence on the part of the Lender in looking after, preserving or acting with respect to the Collateral or collecting any sums payable with respect to the Collateral. 8. DEFAULT AND REMEDIES. (a) Events of Default. The occurrence of any one or more of the following events, regardless of the cause thereof and whether within or beyond the control of the Company, shall constitute an "Event of Default" under this Agreement: (i) The Company shall fail to make any payment of principal or interest due under this Agreement or the Note, or fail to pay any fee, charge or other amount owing to the Lender hereunder when due; or (ii) The Company shall otherwise default in the performance of any term, covenant or condition contained herein and such default shall continue unremedied for a period of five (5) days after written notice thereof has been given to the Company by the Lender; or (iii) The occurrence of an Event of Default by the Company under the Purchase Agreement, or the withdrawal, termination or cancellation of the Offering, or any material change in the terms, feasibility or timing of the Offering that is adverse to Lender in its capacity as a purchaser of the Company's common stock under the Purchase Agreement; or (iv) The Company shall otherwise default in the performance of any term, covenant or condition of any other obligations to the Lender secured hereby and such default shall continue for more than the period of grace, if any, provided therefor; or (v) Any representation or warranty made by the Company (or any of its officers) in connection with the making of any Loan shall at any time prove to have been incorrect when made in any material respect; or (vi) Any obligation of the Company for the payment of borrowed money or for the deferred purchase price of property is not paid when due, whether at stated maturity, by 15 acceleration or otherwise, or is declared to be due and payable prior to the stated maturity thereof, or (vii) The entry of a final judgment, arbitration award or order not subject to further appeal against the Company in an amount exceeding $100,000 which shall remain unsatisfied for thirty (30) days after the date of such entry; or (viii) The destruction, seizure, confiscation, theft, sale (except in the ordinary course of business) or further voluntary or involuntary encumbering of any of the Collateral, or any substantial loss to or decline in market value of any of the Collateral; or (ix) If any levy, attachment, execution, charging order, garnishment or other process shall be issued, or any involuntary lien or encumbrance shall be filed, against any material portion of the Collateral; or (x) The Company's admission in writing of its inability to pay its debts as they mature, or the Company's making a general assignment for the benefit of creditors, or the filing by or against the Company of a petition seeking relief under the Bankruptcy Code or a petition or an answer seeking reorganization, or an arrangement with creditors; or (xi) If any event shall occur which, in the exclusive judgment of the Lender, represents or constitutes a material adverse change in the business or financial condition of the Company; or if at any time the Lender deems itself insecure for any reason whatsoever (notwithstanding any grace period in this Agreement or the Note); or if any change or event shall occur which in the Lender's exclusive judgment impairs any security for the Obligations, increases the Lender's risk in connection with the Obligations or indicates that the Company may be unable to perform its obligations under this Agreement, the Note or the Purchase Agreement. (b) Rights and Remedies on Default. If any of the foregoing Events of Default shall occur, then the Lender, in its sole discretion and without prior notice to the Company, may at any time and from time to time during the continuation thereof take any or all of the following actions: (i) declare any or all of the Obligations immediately due and payable; and/or (ii) declare any or all other liabilities of the Company to the Lender immediately due and payable (notwithstanding any contrary provisions thereof) without demand or notice of any kind; and/or (iii) require the Company to issue and sell additional common stock to the Lender as set forth in the Purchase Agreement; and/or (iv) terminate any obligation which the Lender may have at that time to make further Loans or extensions of credit or other financial accommodations to the Company; and/or 16 (v) set off any and all sums owed to the Company by the Lender in any capacity (whether or not then due), against the Obligations and/or against any other liabilities of the Company to the Lender; and/or (vi) foreclose the Lender's security interest(s) in any or all of the Collateral as provided by law; and/or (vii) sell, re-sell, discount or dispose of all or any portion of the Collateral, or endorse, assign and transfer the same to any third party; and/or (viii) require the Company to assemble the Company's books, records, files, papers, credit information and other data pertaining to the Collateral and deliver them to the Lender at the Company's expense to a place designated by the Lender; and/or (ix) enter the premises of the Company with or without legal process and take possession of any or all of the Collateral not then in the Lender's possession and any books, records, files, papers, credit information and other data pertaining to the Collateral (the Company hereby waiving and releasing the Lender from, to the fullest extent permitted by law, any and all claims which the Company might otherwise have against the Lender in connection therewith or arising therefrom); and/or (x) accept any or all of the Collateral in discharge of any or all of the Obligations; and/or (xi) exercise any and all other rights and remedies with respect to the Collateral which the Lender may enjoy as a secured party under this Agreement, the Purchase Agreement, the U.C.C. or any other applicable law. All rights, remedies and powers granted to the Lender in this Agreement or in any other agreement or by applicable law shall be cumulative and may be exercised singly or concurrently on one or more occasions. No delay in exercising or failure to exercise any of the Lender's rights or remedies shall constitute a waiver thereof, nor shall any single or partial exercise of any right or remedy by the Lender preclude any other or further exercise of that or any other right or remedy. No waiver of any right or remedy by the Lender shall be effective unless made in writing and signed by the Lender, nor shall any waiver on one occasion apply to any future occasion, but shall be effective only with respect to the specific occasion addressed in that signed writing. The Company shall not be subrogated to any rights of the Lender against any other party or any Collateral until all sums due to the Lender under the Obligations shall have been paid in full, and if any of the Obligations shall remain unpaid after the exercise of any or all of the Lender's rights and remedies, then the Company shall remain liable for such deficiency. (c) Upon occurrence of an Event of Default, the Lender shall have the right at any time, acting if it so chooses in the Company's name, to collect the Company's Accounts itself, to sell, assign, compromise, discharge or extend the time for payment of any Account, to institute legal action for the collection of any Account, and to do all acts and things necessary or 17 incidental thereto and the Company hereby ratifies all such acts. The Lender may at any time after the occurrence of such Event of Default and without notice to the Company, notify any Account Debtor or guarantor thereof that the Account payable by such Account Debtor has been assigned to the Lender and is to be paid directly to the Lender. At the Lender's request the Company will so notify Account Debtors and shall indicate on all billings to Account Debtors that payments thereon are to be made to the Lender. In the event Account Debtors are so notified, the Company shall not compromise, discharge, extend the time for payment or otherwise grant any indulgence or allowance with respect to any Account without the prior written consent of the Lender. 9. Sale of the Collateral. With respect to any sale or disposition of any of the Collateral, whether made under the power of sale in this Agreement, under any applicable provisions of the U.C.C. or other applicable law, or under judgment or order or decree in any judicial proceeding for the foreclosure of the Lender's security interest or involving the enforcement of this Agreement: (a) The Collateral may be sold, resold, assigned or delivered in one or more parcels, at the same or at different times, at public or private sale or at any broker's board or on any securities exchange, for cash or on credit or for other property, for immediate or future delivery, and at such price(s) and on such terms as the Lender may determine in its sole discretion, so long as such disposition is commercially reasonable. Without precluding any other methods of sale, the sale of the Collateral shall be deemed made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of banks or other financial institutions when disposing of similar property. (b) To the fullest extent permitted by law, the Company hereby waives any and all demand, advertisement or notice (except as required by law), and any notification required by law with respect to the time and place of such sale or disposition shall be deemed reasonable if given at least five (5) days before the time thereof, but notice given in any other reasonable manner shall also be sufficient. In the case of any sale at a broker's board or on a securities exchange, the notice shall identify the board or exchange at which such sale is to be made and the day on which the Collateral (or a portion thereof) will first be offered for sale. Any public sale of any of the Collateral shall be held at such time or times within ordinary business hours at such place or places as the Lender may state in the notice or publication (if any) of such sale. (c) The Lender shall not be obligated to sell any of the Collateral if it determines not to do so, notwithstanding that notice of a sale of such Collateral may have been given. The Lender may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made, without further notice, at the time and place identified in such announcement. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Lender may retain the Collateral sold until the sales price is paid by the purchaser(s) thereof, but the Lender shall not incur any liability if any such purchaser shall fail to take up and pay for the Collateral so sold, in which case such Collateral may again be sold upon like notice. 18 (d) The Lender may, to the fullest extent permitted by applicable law, bid for and purchase all or any part of the Collateral in a commercially reasonable manner, and upon compliance with the terms of sale may hold, retain and possess and dispose of the same in its own absolute right without further accountability. The Lender may credit all or any part of the Obligations against the purchase price(s) so bid, and may deliver any notes or instruments evidencing any of the Obligations in payment of such purchase price(s); if the amounts then owing under any such notes or instruments exceed such purchase price(s), then the same shall be returned to the Lender after due notation of the partial discharge thereof. (e) Upon consummation of any sale, the Lender shall have the right to assign, transfer, endorse and deliver to the respective purchaser(s) the Collateral or portion thereof so sold. The Lender is hereby irrevocably appointed the Company's true and lawful attomey-in-fact (which appointment is coupled with an interest) in the Company's name and stead, with power of substitution, to make all necessary bills of sale, endorsements and instruments of assignment and transfer of the Collateral thus sold, and for such other purposes as the Lender may deem necessary or desirable to effectuate the provisions of this Agreement. If so requested by the Lender or by any other person, the Company shall ratify and confirm the acts of the Lender (and/or any substitute) as the Company's attorney-in-fact. (f) Such sale shall divest all right, title, interest, equity, redemption, claim and demand whatsoever of the Company in and to the Collateral sold and shall be a perpetual bar both at law and in equity against the Company and the Company's successors and assigns, and against any and all persons claiming or who may claim all or any part of the Collateral from, through or under any of them. (g) A receipt given by the Lender (or its designated agent) shall be a sufficient discharge to the purchaser(s) at such sale for his or their purchase money, and none of them shall, after such payment and receipt, be obliged to see to the application of such purchase money or be answerable for any loss, misapplication or non-application thereof. (h) To the extent that the Company may lawfully do so, the Company agrees not at any time nor in any manner to insist upon, plead, claim or take the benefit or advantage of any appraisement, valuation, stay, extension or redemption laws, or any law permitting the Company to direct the order in which all or any part of the Collateral shall be sold, which may delay, prevent or otherwise affect the performance or enforcement of this Agreement; to the fullest extent permitted by law, the Company hereby expressly waives all benefit or advantage of any such laws now or at any time hereafter in force and hereby covenants not to hinder, delay or impede the execution of any power granted or delegated to the Lender in this Agreement, but will suffer and permit the execution of every such power as though no such laws were in force. (i) The Lender shall have no obligation whatsoever to resort first to any other security which the Lender may hold for the Obligations. The Lender shall not incur any liability to the Company as a result of the sale of any Collateral at any private sale conducted in a commercially reasonable manner, or as a result of any failure to sell or offer for sale any Collateral for any reason whatsoever or to exercise any other right, privilege, option or power 19 granted to the Lender hereunder. To the fullest extent permitted by law, the Company hereby waives any claims against the Lender arising with respect to any decrease in the market value of any Collateral during the period held for sale, or arising by reason of the possibility that the price at which the Collateral may have been sold was less than the price that might have been obtained had the sale been otherwise effected, even if the Lender accepts the first offer received and/or does not offer the Collateral to more than one offeree and/or limits those who may bid at any public or private sale as set forth in this Agreement. (j) A written agreement to sell any Collateral under the provisions hereof, which agreement the Lender in good faith deems itself bound to perform, shall be treated as a sale of such Collateral and the Lender shall be free to carry out such agreement. If such an agreement is then effective, the Company shall not be entitled to the return of any Collateral subject thereto, even if after the date of such agreement all Events of Default shall have been cured or the Obligations shall have been fully paid and performed. (k) After deducting all costs and expenses of every kind for taking, retaking, care, safekeeping, collecting, holding, preparing for sale, selling, delivering and the like (including legal costs, insurance, commission for sale, and reasonable attorney's fees) and all other charges against the Collateral, the Lender shall apply the residue of the proceeds of any such sale or other disposition against any and all amounts remaining unpaid under the Obligations, all in such order of priority as the Lender may determine in its sole discretion. The Company shall remain liable for any deficiency remaining after such application, and any surplus shall be returned to the Company. 10. Waiver of Rights. To the fullest extent permitted by law, the Company hereby waives notice, demand, presentment, protest, notice of dishonor, suit against or joinder of any other person, and all other requirements necessary to charge or hold the Company liable with respect to the Obligations. The Company hereby consents and agrees that, at any time and from time to time without notice, (i) the Lender and the owner(s) of the Collateral may agree to release, increase, change, substitute or exchange all or any part of the Collateral, and (ii) the Lender and any person(s) then primarily liable for the Obligations may agree to renew, extend or compromise the Obligations in whole or in part or to modify the terms of the Obligations in any respect whatsoever; no such release, increase, change, substitution, exchange, renewal, extension, compromise or modification shall release or affect in any way the liability of the Company or the Lender's rights against any remaining Collateral, and the Company hereby waives any and all defenses and claims whatsoever based thereon. Until the Lender receives all sums due with respect to the Obligations in immediately available funds, the Company shall not be released from liability unless the Lender expressly releases the Company in a writing signed by the Lender, and the Lender's release of any person liable for the Obligations shall not release any other person liable therefor. 11. Actions or Proceedings. With respect to any legal action or proceeding arising under this Agreement, the Note or the Purchase Agreement or concerning the Obligations and/or the Collateral, the Company, to the fullest extent permitted by law, does hereby: (a) submit to the jurisdiction of the state and federal courts in the State of Maryland; (b) agree that the venue of 20 any such action or proceeding may be laid in Montgomery County, Maryland (in addition to any county in which any of the Collateral is located) and waive any claim that the same is an inconvenient forum; (c) stipulate that service of process in any such action or proceeding shall be properly made if mailed by any form of registered or certified mail (airmail if international), postage prepaid, to the address then registered in the Lender's records for the Company, and that any process so served shall be effective ten days after mailing; (d) waive any right to immunity from any such action or proceeding and waive any immunity or exemption of any property, wherever located, from garnishment, levy, execution, seizure or attachment prior to or in execution of judgment, or sale under execution or other process for the collection of debts; and (e) waive any right to interpose any set-off or non-compulsory counterclaim or to plead laches or any statute of limitations as a defense in any such action or proceeding, and waive all provisions' and requirements of law for the benefit of the Company now or hereafter in force. No provision of this Agreement shall limit the Lender's right to serve legal process in any other manner permitted by law or to bring any such action or proceeding in any other competent jurisdiction. 12. NOTICES. All communications and notices to any party provided for hereunder shall be in writing and mailed or delivered to the respective address of such party specified on the first page of this Agreement, or to such other address as shall have been designated by such party for the purpose in a written notice complying with the terms of this Section 12. 13. FEES AND TAXES; INDEMNITY. The Company shall pay on demand all filing fees and similar charges and all costs incurred by the Lender in collecting or securing or attempting to collect or secure any Obligations, including the expenses and reasonable fees of the Lender's legal counsel, whether or not involving litigation and/or appellate, administrative or bankruptcy proceedings. The Company agrees to indemnify and hold the Lender harmless on demand against all expenses, losses, consequences or damages incurred or suffered by the Lender arising from or relating to any claim, demand, action or proceeding brought by any person(s) whomsoever in connection with or relating to the Collateral, the Obligations, this Agreement or the Note (including without limitation any court costs and the expenses and reasonable fees of the Lender's legal counsel), except to the extent that a court of competent jurisdiction shall hold the same to be the result of the Lender's own gross negligence or willful misconduct. The Company shall pay any documentary stamp taxes, intangible taxes or other taxes (except for federal or Florida franchise or income taxes based on the net income of the Lender) which may now or hereafter apply to the Collateral, the Obligations, this Agreement, the Note, or any payments made in respect thereof, and the Company agrees to indemnify and hold the Lender harmless from and against any liability, costs, attorney's fees, penalties, interest or expenses relating to any such taxes, as and when the same may be incurred. The Company shall pay on demand, and indemnify and hold the Lender harmless against, any and all present or future taxes, levies, imposts, deductions, charges and withholdings imposed in connection with the Collateral, the Obligations, this Agreement, the Note, or any payments made in respect thereof, by the laws or govenmnental authorities of any jurisdiction other than the State of Florida or the United States of America. All sums payable by the Company under this Section are and shall be included in the Obligations and secured by the Collateral. 21 14. BINDING AGREEMENT. This Agreement shall be binding upon the Company and its successors and assigns and the terms hereof shall inure to the benefit of the Lender and its successors and assigns. 15. INTERPRETATION. Whenever used in this Agreement, the term "person" means any individual, firm, corporation, trust or other organization or association or other enterprise or any governmental or political subdivision, agency, department or instrumentality thereof. Whenever used in this Agreement, the terms "written" or "in writing" mean any form of written communication and any communication by means of telex, telecopier device, telegraph or cable. Any reference in this Agreement to a sum expressed in dollars or with the symbol "$" or "U.S.$" means the lawful currency of the United States of America, unless such reference expressly identifies another dollar-denominated currency. Captions and paragraph headings contained in this Agreement are for convenience only and shall not affect its interpretation. Whenever used in this Agreement and unless the context otherwise requires, words in the plural include the singular, words in the singular include the plural and pronouns of any gender include the other genders. 16. MISCELLANEOUS. Time is of the essence with respect to the provisions of this Agreement. This Agreement may be amended but only by an instrument in writing executed by the party to be burdened thereby. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction only, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent that the Company may lawfully waive any law that would otherwise invalidate any provision of this Agreement, the Company hereby waives the same, to the end that this Agreement shall be valid and binding and enforceable against the Company in accordance with all its terms. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland. 17. WAIVER OF JURY TRIAL. The Company and the Lender hereby severally, voluntarily, knowingly and intentionally WAIVE ANY AND ALL RIGHTS TO TRIAL BY JURY in any legal action or proceeding arising under or in connection with this Agreement, the Note or the Purchase Agreement, regardless of whether such action or proceeding concerns any contractual or tortious or other claim. The Company acknowledges that this waiver of jury trial is a material inducement to the Lender in extending credit to the Company, that the Lender would not have extended credit to the Company without this jury trial waiver, and that the Company has been represented by an attorney or has had an opportunity to consult with an attorney regarding this Agreement and understands the legal effect of this jury trial waiver. 18. COUNTERPARTS; EXHIBITS. This Agreement may be executed in separate counterparts by the parties hereto, with the respective signature pages from separate counterparts assembled into one or more completely executed documents; this Agreement shall become effective when each party hereto has executed and delivered to the other party at least one such counterpart. This Agreement consists of twenty-two (23) pages, plus the following attached Exhibits, which are incorporated herein by this reference: 22 EXHIBIT "A" -- Cash Flow Projections EXHIBIT "B" -- Purchase Order Form EXHIBIT "C" -- Loan Request Form IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. ATTEST: AMERICAN QUANTUM CYCLES, INC., a Florida corporation BY: /s/ Illegible - ----------------------- --------------------------------- [CORPORATE SEAL] Name: Title: CEO ANCHOR CAPITAL CORPORATION, a Maryland corporation BY: /s/ Illegible --------------------------------- Name: Title: President 23 Cash Flow Projections (March 1999 - July 1999)
V W X Y Z AA AB AC ---- --- -------- --------- --------- --------- --------- -------- Item March Actual 3/26 29-Mar-99 6-Apr-99 12-Apr-99 19-Apr-99 26-Apr-99 ---- ----------------- --------- --------- --------- --------- -------- Rent $ 5,800.00 $ 2,971.00 $ 5,800.00 $ -- $ -- $ -- Telephone $ 1,300.00 $ -- $ 12,325.00 $ 325.00 $ 325.00 $ 325.00 Utilities $ 1,020.00 $ 3,300.00 $ 255.00 $ 255.00 $ 255.00 $ 255.00 Cleaning/Ground Maintenance $ 60.00 $ 710.00 $ 15.00 $ 15.00 $ 15.00 $ 15.00 Vehicle Leasing $ 1,695.87 $ -- $ 423.97 $ 423.97 $ 423.97 $ 423.97 Equipment Leasing $ 8,245.94 $ 7,469.00 $ 2,061.49 $ 2,061.49 $ 2,061.48 $ 2,061.49 Payroll Benefits (Health, Life) $ 4,180.00 $ -- $ 1,045.00 $ 1,045.00 $ 1,045.00 $ 1,045.00 Insurance (Product/Corporate Liability) $ 7,083.00 $ 6,000.00 $ 6,270.75 $ 6,270.75 $ 6,270.75 $ 6,270.75 Workman's Compensation $ -- $ 28,138.00 $ -- -- -- -- Legal/Accounting $ -- $ 7,766.00 $ -- -- -- -- Commissions/Fees /Floorplanning Escrow $ 520.00 $ 2,880.00 $ 102,430.00 $ 130.00 $ 130.00 $ 130.00 Payroll Taxes - Current $ 35,208.75 $ 11,736.25 $ 8,802.19 $ 8,802.19 $ 8,802.19 $ 8,802.19 Payroll Taxes - Back $ -- $ -- $ -- $ -- $ -- $ -- Property Tax (Annual) $ -- $ 8,300.00 $ -- $ -- $ -- $ -- Sales Tax $ -- $ 10,000.00 $ -- $ -- $ -- $ -- Office/Safety Suppliers $ 2,488.87 $ -- $ 622.22 $ 622.22 $ 622.22 $ 622.22 Printing $ 1,438.00 $ -- $ 359.50 $ 359.50 $ 359.50 $ 359.50 Internet Access $ 400.00 $ 8,400.00 $ 100.00 $ 100.00 $ 100.00 $ 100.00 Product Advertising Promotion $ -- $ 5,000.00 $ 5,000.00 $ 6,000.00 $ 5,000.00 $ 5,000.00 Secondary Promotion/Roadshow $ -- $ 10,000.00 $ -- $ -- $ -- $ -- Repayment to N. Zeelander $ -- $ -- $ -- $ -- $ -- $ -- Travel/Meetings/Shows $ 14,086.82 $ 1,000.00 $ 3,521.71 $ 3,521.71 $ 3,521.71 $ 3,521.71 Temporary Employees $ -- $ 3,000.00 $ 8,000.00 $ -- $ 3,000.00 $ 3,000.00 Payroll $ 85,875.00 $ 28,625.00 $ 28,625.00 $ 28,625.00 $ 28,625.00 $ 28,625.00 Operating Expenses Subtotal $ 189,402.25 $ 145,296.25 $ 185,656.81 $ 57,656.81 $ 60,656.81 $ 60,556.81 $ 364,327 Cost of Goods Parts (includes shipping) - Current $ -- $ 88,200.00 $ 81,900.00 $ -- $ -- $ -- Machining Services - Current $ -- $ 18,900.00 $ 17,550.00 $ -- $ -- $ -- Paint and Powder Coating - Current $ -- $ 12,600.00 $ 11,700.00 $ -- $ -- $ -- Miscellaneous/Warranty - Current $ -- $ 6,300.00 $ 5,850.00 $ -- $ -- -- Parts (includes shipping) - Back Bills $ -- $ 48,659.75 $ 36,663.75 $ 10,663.75 $ 6,163.75 $ 6,663.75 Machining Services - Back Bills $ -- $ 14,239.09 $ 3,626.88 $ 3,626.88 $ 3,626.88 $ 3,626.88 Paint and Powder Coating - Back Bills $ -- $ -- $ -- $ -- $ -- $ -- Miscellaneous/Warranty - Back Bills $ -- $ 500.00 $ -- $ -- $ 500.00 $ -- Subtotal $ -- $ 189,398.84 $ 157,290.83 $ 14,290.63 $ 10,290.63 $ 10,290.63 $ 381,561 Capital Expenses Factory Equipment - Current $ -- $ -- $ -- $ 5,000.00 $ -- $ -- Computer Hardware/Software - Current $ -- $ -- $ -- $ -- $ -- $ -- Miscellaneous Construction - Current $ -- $ -- $ -- $ -- $ -- $ -- Factory Equipment - Back Bills $ -- $ 3,000.00 $ 8,000.00 $ -- $ -- $ -- Computer Hardware/Software -Back Bills $ -- $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00 Miscellaneous/Construction - Back Bills $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 Subtotal $ 3,000.00 $ 11,000.00 $ 16,000.00 $ 13,000.00 $ 8,000.00 $ 8,000.00 $ 45,000 Grand Totals Operating Expenses $ 169,402.25 $ 145,295.25 $ 185,656.81 $ 57,556.81 $ 60,556.81 $ 60,556.81 Cost of Goods $ -- 189,398.84 $ 157,290.63 $ 14,290.63 $ 10,290.63 $ 10,290.63 Capital Expenses $ 3,000.00 11,000.00 16,000.00 13,000.00 $ 8,000.00 $ 8,000.00 Miscellaneous/One Time Charges $ -- $ -- $ -- $ -- $ -- $ -- Grand Total - Cash Out $ 174,402.25 $ 345,694.09 $ 358,947.44 $ 84,847.44 $ 78,847.44 $ 78,847.44 $ 601,490 Gross Cost of Goods Per Bike $ 13,000 $ 13,000 $ 13,000 $ 13,000 $ 12,500 $ 12,500 Net Cost of Goods Per Bike (less Quantum Inventory) $ 9,000 $ 9,000 $ 9,000 $ 9,000 $ 9,000 $ 9,000 Gordon Monies Available $ -- $ 250,000 $ -- $ -- $ -- $ -- Purchase Orders Presented and Approved $ -- $ 14 $ 13 $ 8 $ 6 $ 6
24 Cash Flow Projections (March 1999 - July 1999)
V W X Y Z AA AB AC --- - --- --- --- ---- ----- ---- Item March Actual 3/26 29-Mar-99 5-Apr-99 12-Apr-99 19-Apr-99 26-Apr-99 ---- ----------------- --------- ----------- ----------- ------------ ---------- Bikes Worth of Parts, Ordered -- 14 13 -- -- -- Net Purchase Orders Available -- -- -- 6 12 18 Gordon Monies Used -- 126,000 117,000 -- -- -- Net Gordon Monies Available -- 124,000 7,000 7,000 7,000 7,000 Bikes Built and Sold -- -- 5 5 3 6 Net Parts Inventory for the Week (Bikes) -- -- 9 8 (5) (6) Cumulative Parts Inventory (Bikes) -- -- 9 17 11 5 Quantum Inventory Drawdown for Week -- -- 20,000 20,000 21,000 21,000 Net Quantum Inventory at End of Week 461,000 461,000 441,000 421,000 400,000 379,000 Gordon Inventory Drawdown for Week -- -- 45,000 45,000 54,000 54,000 Net Gordon Inventory at End of Week -- 126,000 198,000 153,000 99,000 45,000 Revenue From Bikes $ -- $ -- $87,940,000 $ 87,940.00 $ 105,528.00 $ 105,528.00 % Bikes from Bombadier Floorplan 40% 40% 40% 30% 30% 30% Total Dollars from Bombadier $ -- $ -- $ 35,176 $ 26,382 $ 31,658 $ 31,658 Cumulative Dollars from Bombadier $ -- $ -- $ 35,176 $ 61,558 $ 93,216 $ 124,875 % Bike from Cash 5% 5% 5% 5% 5% 5% % Bikes from Non-Bombadler Floorplan 55% 55% 55% 65% 65% 65% Total Dollars fron Non-Bombadier Floorplans -- -- 43,367 57,161 68,593 68,593 Cumulative Dollars fronm Non-Bombadier Floorplans $ -- $ -- $ 48,367.00 $105,528.00 $ 174,121.20 $ 242,714.40 Cash Flow Sunmary Cash Out Total Operating Cash Outlay During Week $172,402 $345,694 $ 358,947 $ 84,847 $ 78,847 $ 78,847 Cash In Total Sales During Week $ -- $ -- $ 87,940 $ 87,940 $ 105,528 $ 105,528 Cumulative Sales $ -- $ -- $ 87,940 $ 175,880 $ 281,408 $ 388,936 Cash Collections During Week from Prior Sales $ -- $ -- $ -- $ 43,970 $ 87,940 $ 96,734 Cumulative Cash Collected $ -- $ -- $ -- $ 43,970 $ 131,910 $ 228.644 Net Receivables Outstanding $ -- $ -- $ 87,940 $ 131,910 $ 149,498 $ 158,292 Net Cash Resolution and Subsequent Needs Total Cash Needs During Week $172,402 $345,684 $ 358,947 $ 84,847 $ 78,847 $ 78,847 Cash From Sales $ -- $ -- $ -- $ 43,970 $ 87,940 $ 96,734 Total Net Need for Cash $172,402 $345,894 $ 358,947 $ 40,877 $ (9,093) $ (17,887) Net Cash from NZ Secured LOC $ -- $383,000 $ -- $ -- $ -- $ -- Cash From Notes $200,000 $ 50,000 $ 100,000 $ 50,000 $ -- $ -- Cash From Collections on Sales $ -- $ -- $ -- $ 43,970 $ 87,940 $ 96,734 Cash From Gordon Secured LOC $ -- $126,000 $ 117,000 $ -- $ -- $ -- Cumulative Cash From Gordon Secured LOC $ -- $126,000 $ 243,000 $ 199,030 $ 111,090 $ 14,356 Interest Charges on Cumulative Gordon Cash $ -- $ 1,050 $ 2,025 $ 1,659 $ 926 Total Cash Out by Week $345,894 $ 359,997 $ 86,872 $ 80,506 $ 79,773 Total Cash In By Week $550,000 $ 217,000 $ 93,970 $ 87,940 $ 96,734 Weekly Cash Balance $213,306 $ (142,997) $ 7,098 $ 7,434 $ 16,961 Cumulative Balance $213,306 $ 70,308 $ 77,406 $ 84,840 $ 101,801
25
V AD AE AF AG AM AL ---- -------- --------- --------- --------- --------- -------- Item 3-May-99 10-May-99 17-May-99 24-May-99 31-May-99 7-Jun-99 ---- -------- --------- --------- --------- --------- -------- Rent $ 7,000.00 $ -- $ -- $ -- $ -- $ 7,000.00 Telephone $ 1,460.00 $ 1,460.00 $ 1,460.00 $ 1,460.00 $ 1,460.00 $ 825.00 Utilities $ 844.00 $ 844.00 $ 844.00 $ 844.00 $ 844.00 $ 1,055.00 Cleaning/Ground Maintenance $ 142.00 $ 142.00 $ 142.00 $ 142.00 $ 142.00 $ 177.50 Vehicle Leasing $ 339.17 $ 339.17 $ 339.17 $ 339.17 $ 339.17 $ 423.97 Equipment Leasing $ 1,649.19 $ 1,649.19 $ 1,649.19 $ 1,649.19 $ 1,649.19 $ 16,999.49 Payroll Benefits (Health, Life) $ 1,004.40 $ 1,044.40 $ 1,044.40 $ 1,044.40 $ 1,044.40 $ 1,255.50 Insurance (Product/Corporate Liability) $ 6,216.60 $ 6,216.60 $ 6,216.60 $ 6,216.60 $ 6,216.60 $ 6,270.75 Workman's Compensation $ 1,202.60 $ 1,202.60 $ 1,202.60 $ 1,202.60 $ 1,202.60 $ 1,503.25 Legal/Accounting $ 5,000.00 $ -- $ -- $ -- $ -- $ 9,676.00 Commissions/Fees /Floorplanning Escrow $ 10,116.00 $ 116.00 $ 116.00 $ 116.00 $ 118.00 $ (89,855.00) Payroll Taxes - Current $ 9,061.00 $ 9,061.00 $ 9,061.00 $ 9,061.00 $ 9,061.00 $ 11,326.25 Payroll Taxes - Back $ -- $ -- $ -- $ -- $ 287,000.00 $ -- Property Tax (Annual) $ -- $ -- $ -- $ -- $ -- $ -- Sales Tax $ -- $ -- $ -- $ -- $ -- $ -- Office/Safety Suppliers $ 497.77 $ 497.77 $ 497.77 $ 497.77 $ 497.77 $ 622.22 Printing $ 400.00 $ 400.00 $ 400.00 $ 400.00 $ 400.00 $ 250.00 Internet Access $ 8,080.00 $ 80.00 $ 80.00 $ 80.00 $ 80.00 $ 4,100.00 Product Advertising Promotion $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00 Secondary Promotion/Roadshow $ -- $ -- $ -- $ -- $ -- $ 35,000.00 Repayment to N. Zeelander $ -- $ -- $ -- $ -- $ -- $ -- Travel/Meetings/Shows $ 2,800.00 $ 1,800.00 $ 1,800.00 $ 1,800.00 $ 1,800.00 $ 3,250.00 Temporary Employees $ 14,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 Payroll $ 41,250.00 $ 31,250.00 $ 31,250.00 $ 31,250.00 $ 31,250.00 $ 43,750.00 Operating Expenses Subtotal $ 116,062.74 $ 64,062.74 $ 64,082.74 $ 64,082.74 $ 351,082.74 $ 61,529.92 $ 659,314 Cost of Goods Parts (includes shipping) - Current $ 69,300.00 $ 69,300.00 $ 70,000.00 $ 70,000.00 $ 126,000.00 $ 126,000.00 Machining Services - Current $ 14,850.00 $ 14,850.00 $ 15,000.00 $ 15,000.00 $ 27,000.00 $ 27,000.00 Paint and Powder Coating - Current $ 9,900.00 $ 9,900.00 $ 10,000.00 $ 10,000.00 $ 18,000.00 $ 18,000.00 Miscellaneous/Warranty - Current $ 4,950.00 $ 4,950.00 $ 5,000.00 $ 5,000.00 $ 9,000.00 $ 9,000.00 Parts (includes shipping) - Back Bills $ 13,173.75 $ 6,163.75 $ 6,663.75 $ -- $ -- $ (3,903.00) Machining Services - Back Bills $ 14,643.88 $ 3,628.88 $ 3,626.88 $ -- $ -- $ 4,403.00 Paint and Powder Coating - Back Bills $ -- $ -- $ -- $ -- $ -- $ -- Miscellaneous/Warranty - Back Bills $ -- $ 500.00 $ -- $ -- $ -- $ 600.00 Subtotal $ 126,817.83 $ 109,290.63 $ 110,290.63 $ 100,000.00 $ 180,000.00 $ 181,000.00 $ -- $ $ 626,399 $ -- $ -- $ -- Capital Expenses $ -- $ -- Factory Equipment - Current $ 10,000.00 $ -- $ -- $ -- $ -- $ -- Computer Hardware/Software - Current $ -- $ -- $ -- $ -- $ -- $ -- Miscellaneous Construction - Current $ -- $ -- $ -- $ -- $ -- $ -- Factory Equipment - Back Bills $ 21,000.00 $ -- $ -- $ -- $ -- $ 10,000.00 Computer Hardware/Software -Back Bills $ 8,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 11,000.00 Miscellaneous/Construction - Back Bills $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 Subtotal $ 42,000.00 $ 8,000.00 $ 8,000.00 $ 8,000.00 $ 8,000.00 $ 24,000.00 $ 74,000 Grand Totals Operating Expenses $ 116,062.74 $ 64,062.74 $ 84,062.74 $ 64,062.74 $ 351,062.00 $ 61,529.00 Cost of Goods $ 126,817.63 $ 109,290.63 $ 110,290.63 $ 100,000.00 $ 180,000.00 $ 181,000.00 Capital Expenses $ 42,000.00 $ 8,000.00 $ 8,000.00 $ 8,000.00 $ 8,000.00 $ 24,000.00 Miscellaneous/One Time Charges $ -- $ -- $ -- $ -- $ -- $ -- Grand Total - Cash Out $ 284,880.36 $ 181,353.36 $ 182,353.36 $ 172,082.74 $ 539,062.74 $ 266,529.92 $ 1,359,713 -- Gross Cost of Goods Per Bike $ 12,500 $ 12,000 $ 12,000 $ 12,000 $ 12,000 $ 12,000 Net Cost of Goods Per Bike (less Quantum Inventory) $ 9,000 $ 9,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 Gordon Monies Available $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 180,000 $ 180,000
26 Cash Flow Projections (March 1999 - July 1999)
V AD AE AF AG AM AL ---- -------- --------- --------- --------- --------- -------- Item 3-May-89 10-May-89 17-May-89 24-May-89 31-May-89 7-Jun-89 ---- -------- --------- --------- --------- --------- -------- Bikes Worth of Parts Ordered 11 11 10 10 18 18 Net Purchase Orders Available 15 12 10 10 6 2 Gordon Monies Used 99,000 99,000 100,000 100,000 180,000 180,000 Net Gordon Monies Available 8,000 9,000 9,000 9,000 9,000 9,000 Bikes Built and Sold 5 10 10 10 10 20 Net Parts Inventory for the Week (Bikes) (5) 1 1 -- -- (2) Cumulative Parts Inventory (Bikes) -- 1 2 2 2 -- Quantum Inventory Drawdown for Week 17,500 30,000 20,000 20,000 20,000 40,000 Net Quantum Inventory at End of Week 361,500 331,500 311,500 291,500 271,500 231,500 Gordon Inventory Drawdown for Week 45,000 90,000 100,000 100,000 100,000 200,000 Net Gordon Inventory at End of Week 99,000 108,000 108,000 108,000 188,000 168,000 Revenue From Bikes $ 87,940.00 $ 175,880.00 $ 175,880.00 $ 175,880.00 $ 175,880.00 $ 351,760.00 % Bikes from Bombadier Floorplan 30% 20% 20% 20% 20% 20% Total Dollars from Bombadier $ 26,382 $ 35,176 $ 35,176 $ 35,176 $ 35,176 $ 70,352 Cumulative Dollars from Bombadier $ 151,257 $ 166,433 $ 221,809 $ 256,785 $ 291,961 $ 362,313 % Bike from Cash 5% 5% 5% 5% 5% 5% % Bike from Non-Bombadier Floorplan 65% 75% 75% 75% 75% 75% Total Dollars from Non-Bombadier Floorplan 57,161 131,910 131,910 131,910 131,910 263,820 Cumulative Dollars from Non-Bombadier Floorplan $ 299,875.40 $ 431,785.40 $ 563,895.40 $ 695,605.40 $ 827,515.40 $1,091,335.40 Cash From Summary Cash Out Total Operating Cash Outlay During Week $ 284,880 $ 181,353 $ 182,353 $ 172,063 $ 539,063 $ 266,530 Cash in Total Sales During Week $ 87,940 $ 175,880 $ 175,880 $ 175,880 $ 175,880 $ 351,760 Cumulative Sales $ 474,876 $ 650,756 $ 826,636 $ 1,002,518 $ 1,178,396 $ 1,530,156 Cash Collections During Week from Prior Sales $ 105,528 $ 96,734 $ 131,910 $ 175,880 $ 175,880 $ 175,880 Cumulative Cash Collected $ 334,172 $ 430,906 $ 562,816 $ 738,696 $ 914,576 $ 1,090,456 Net Receivables Outstanding $ 140,704 $ 219,850 $ 263,820 $ 263,820 $ 263,820 $ 439,700 Net Cash Resolution and Subsequent Needs Total Cash Needs During Week $ 284,880 $ 181,353 $ 182,353 $ 172,063 $ 539,063 $ 266,530 Cash From Sales $ 105,528 $ 96,734 $ 131,910 $ 175,880 $ 175,880 $ 175,880 Total Net Need for Cash $ 179,352 $ 84,619 $ 50,443 $ (3,817) $ 363,183 $ 90,650 Need Cash from HZ Secured LOC $ -- $ -- $ -- $ -- $ -- $ -- Cash From Notes $ -- $ -- $ -- $ -- $ -- $ -- Cash From Collection on Sales $ 105,528 $ 96,734 $ 131,910 $ 175,880 $ 175,880 $ 175,880 Cash From Gordon Secured LOC $ 99,000 $ 99,000 $ 100,000 $ 100,000 $ 180,000 $ 180,000 Cumulative Cash From Gordon Secured LOC $ 7,828 $ 10,094 $ -- $ -- $ 4,120 $ 8,240 Internet Charges on Cumulative Gordon Cash $ 120 $ 65 $ 84 $ -- $ -- $ 34 Total Cash Out by Week $ 285,000 $ 181,419 $ 142,437 $ 172,063 $ 539,063 $ 266,564 Total Cash Out by Week $ 204,528 $ 195,734 $ 231,910 $ 275,880 $ 355,880 $ 355,880 Weekly Cash Balance $ (80,472) $ 14,315 $ 49,473 $ 103,817 $ (183,183) $ 89,316 Cumulative Balance $ 21,329 $ 36,644 $ 85,117 $ 188,934 $ 5,571 $ 95,067
27 Cash Flow Projections (March 1999 - July 1999)
V AJ AK AL AM AN AO ---- --------- --------- --------- -------- ------ ------------- Item 14-Jun-99 21-Jun-99 28-Jun-99 6-Jul-99 Total (3/25-7/2) ---- --------- --------- --------- -------- Rent $ -- $ -- $ -- $ -- $ 19,800 Telephone $ 825.00 $ 825.00 $ 825.00 $ 825.00 $ 23,900 Utilities $ 1,055.00 $ 1,055.00 $ 1,055.00 $ 1,055.00 $ 9,460 Cleaning/Ground Maintenance $ 177.50 $ 177.50 $ 177.50 $ 177.50 $ 1,480 Vehicle Leasing $ 423.97 $ 423.97 $ 423.97 $ 423.97 $ 5,088 Equipment Leasing $ 2,061.49 $ 2,061.49 $ 2,061.49 $ 2,061.49 $ 39,676 Payroll Benefits (Health, Life) $ 1,255.50 $ 1,255.50 $ 1,255.50 $ 1,255.50 $ 14,224 Insurance (Product/Corporate Liability) $ 6,270.75 $ 6,270.75 $ 6,270.75 $ 6,270.75 $ 81,249 Workman's Compensation $ 1,503.25 $ 1,503.25 $ 1,503.25 $ 1,503.25 $ 12,026 Legal/Accounting $ -- $ -- $ -- $ -- $ 14,576 Commissions/Fees/Floorplanning Escrow $ 145.00 $ 145.00 $ 145.00 $ 145.00 $ 23,980 Payroll Taxes - Current $ 11,326.25 $ 11,326.25 $ 11,326.25 $ 11,326.25 Payroll Taxes - Back $ -- $ -- $ -- $ -- $ 287,000 Property Tax (Annual) $ -- $ -- $ -- $ -- $ -- Sales Tax $ -- $ -- $ -- $ -- $ -- Office/Safety Suppliers $ 622.22 $ 622.22 $ 622.22 $ 622.22 $ 7,467 Printing $ 250.00 $ 250.00 $ 250.00 $ 250.00 $ 4,438 Internet Access $ 100.00 $ 100.00 $ 100.00 $ 100.00 $ 13,200 Product Advertising Promotion $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 65,000 Secondary Promotion/Roadshow $ -- $ -- $ -- $ -- $ 35,000 Repayment to N. Zeelander $ -- $ -- $ -- $ -- $ -- Travel/Meetings/Shows $ 2,250.00 $ 2,250.00 $ 2,250.00 $ 2,250.00 $ 34,087 Temporary Employees $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 52,000 Payroll $ 33,750.00 $ 33,750.00 $ 33,750.00 $ 33,750.00 $ 425,750 Operating Expenses Subtotal $ 70,015.92 $ 70,015.92 $ 70,015.92 $ 70,015.92 $ 1,295,219 $ 271,578 Cost of Goods Parts (includes shipping) - Current $ 126,000.00 $ 147,000.00 $ -- $ -- $ 885,500 Machining Services - Current $ 27,000.00 $ 31,500.00 $ -- $ -- $ 189,750 Paint and Powder Coating - Current $ 18,000.00 $ 21,000.00 $ -- $ -- $ 126,500 Miscellaneous/Warranty - Current $ 9,000.00 $ 10,500.00 $ -- $ -- $ 63,250 Parts (includes shipping) - Back Bills $ -- $ -- $ -- $ -- $ 82,253 Machining Services - Back Bills $ -- $ -- $ -- $ -- $ 40,808 Paint and Powder Coating - Back Bills $ -- $ -- $ -- $ -- $ -- Miscellaneous/Warranty - Back Bills $ -- $ -- $ -- $ -- $ 1,500 Subtotal $ 180,00.00 $ 210,000.00 $ -- $ -- $ 1,389,561 $ 671,000 $ 1,578,960 $ -- Capital Expenses $ -- Factory Equipment - Current $ -- $ -- $ -- $ -- $ 15,000 Computer Hardware/Software - Current $ -- $ -- $ -- $ -- $ -- Miscellaneous Construction - Current $ -- $ -- $ -- $ -- $ -- Factory Equipment - Back Bills $ -- $ -- $ -- $ -- $ 39,000 Computer Hardware/Software -Back Bills $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 74,000 Miscellaneous/Construction - Back Bills $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 3,000.00 $ 39,000 Subtotal $ 8,000.00 $ 8,000.00 $ 8,000.00 $ 8,000.00 $ 167,000 $ 48,000 Grand Totals Operating Expenses $ 70,015.92 $ 70,015.92 $ 70,015.92 $ 70,015.92 $ 1,295,219 Cost of Goods $ 180,000.00 $ 210,000.00 $ -- $ -- $ 1,389,581 Capital Expenses $ 8,000.00 $ 8,000.00 $ 8,000.00 $ 8,000.00 $ 167,000 Miscellaneous/One Time Charges $ -- $ -- $ -- $ -- $ -- Grand Total - Cash Out $ 258,015.92 $ 288,015.92 $ 78,015.92 $ 78,015.92 $ 2,851,780 890,578 $ 2,851,780 -- Gross Cost of Goods Per Bike $ 12,000 $ 12,000 $ 12,000 $ 12,000 Net Cost of Goods Per Bike (less Quantum Inventory) $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 124,000 Gordon Monies Available $ 180,000 $ 210,000 $ -- $ -- $ -- Purchase Orders Presented and Approved $ 18 $ 18 $ 18 $ 18
28 Cash Flow Projections (March 1999 - July 1999)
V AJ AK AL AM AN AO ---- --------- --------- --------- -------- --------- ---------------- Item 14-Jun-99 21-Jun-99 28-Jun-99 5-Jul-99 Total (3/25-7/2) ---- --------- --------- --------- -------- ---------------- Bikes Worth of Parts Ordered 18 21 -- -- 130 Net Purchase Orders Available 2 (1) 17 35 Gordon Monies Used 180,000 210,000 -- -- Net Gordon Monies Available 9,000 9,000 9,000 9,000 Bikes Build and Sold 18 18 18 2 141 Net Parts Inventory for the Week (Bikes) -- -- 3 (2) 3 Cumulative Parts Inventory (Bikes) -- -- 3 1 52 Quantum Inventory Drawdown for Week 36,000 36,000 36,000 4,000 Net Quantum Inventory at End of Week 195,500 159,500 123,600 119,500 Gordon Inventory Drawdown for Week 180,000 180,000 180,000 20,000 Net Gordon Inventory at End of Week 168,000 198,000 18,000 (2,000) April - June Revenue From Bikes $ 316,584.00 $ 316,584.00 $ 316,584.00 $ 35,176.00 $ 2,479,908 % Bikes from Bombadier Floorplan 15% 15% 15% 15% Total Dollars from Bombadier $ 47,488 $ 47,488 $ 47,488 $ 5,276 Cumulative Dollars from Bombadier $ 409,800 $ 457,288 $ 504,776 $ 510,052 % Bikes from Cash 5% 5% 5% 5% % Bikes from Non-Bombadier Floorplan 80% 80% 80% 80% Total Dollars from Non-Bombadier Floorplan 253,267 $ 253,267 $ 253,267 $ 26,141 Cumulative Dollars from Non-Bombadier Floorplan $1,344,602.60 $1,597,869.80 $1,851,137.00 $1,879,277.80 Cash Flow Summary Cash Out Total Operating Cash Outlay During Week $ 258,016 $ 288,016 $ 78,016 $ 78,016 $ 2,851,780 Cash in Total Sales During Week $ 316,584 $ 316,584 $ 316,584 $ 35,176 $ 2,479,908 Cumulative Sales $ 1,848,740 $ 2,163,324 $ 2,479,908 $ 2,515,084 na Cash Collections During Week from Prior Sales $ 263,820 $ 334,172 $ 316,584 $ 316,584 $ 2,005,032 Cumulative Cash Collected $ 1,354,276 $ 1,688,448 $ 2,005,032 $ 2,321,616 na Net Receivables Outstanding $ 492,464 $ 474,376 $ 474,876 $ 193,468 $ 3,561,570 Net Cash Resolution and Subsequent Needs Total Cash Needs During Week $ 258,018 $ 288,016 $ 78,016 $ 78,016 $ 2,851,780 Cash From Sales $ 263,820 $ 334,172 $ 316,584 $ 316,584 $ 2,005,032 Total Net Need for Cash $ (5,804) $ (46,156) $ (238,568) $ (238,568) $ 846,748 Net Cash from NZ Secured LOC $ -- $ -- $ -- $ -- $ -- Cash From Notes $ -- $ -- $ -- $ -- $ 150,000 Cash From Collections on Sales $ 263,820 $ 334,172 $ 316,584 $ 316,584 $ 2,005,032 Cash From Gordon Secured LOC $ 180,000 $ 210,000 $ -- $ -- $ 1,265,000 Cumulative Cash From Gordon Secured LOC $ -- $ -- $ -- $ -- $ 597,758 Interest Charges on Cumulative Gordon Cash $ 69 $ -- $ -- $ -- Total Cash Out by Week $ 258,085 $ 288,016 $ 78,016 $ 78,016 $ 3,203,505 Total Cash In by Week $ 443,820 $ 544,172 $ 316,584 $ 316,584 $ 3,979,032 Weekly Cash Balance $ 185,735 $ 256,156 $ 238,568 $ 238,568 $ 775,527 Cumulative Balance $ 280,802 $ 536,950 $ 776,627 $ 1,014,095 $ 2,572,791
29 EXHIBIT "B" BIKE ORDER CONFORMATION COMPANY NAME: _________________________ CUSTOMER NUMBER:________________________ QUANTITY OF BIKES ORDERING: ____________________________________________________ PRICE OF BIKES BEING ORDERED: _______________ (BASE PRICE-$17,550) (FINAL T.B.D. INDIVIDUALLY) _________________ EXPECTED DATE OF DELIVERY:_______ (NOT BEFORE) ________________________________ PAYMENT METHOD: FLOOR PLAN COMPANY: ____________________________________________________________ CASH PAYMENT SCHEDULE: DOWN PAYMENT DATE: 1/3 _________________________________________________________ MID-BUILD DATE: 1/3 _________________________________________________________ COMPLETE DATE: 1/3 _________________________________________________________ NAMES AND TITLES OF PERSONS AUTHORIZED TO PLACE ORDERS: ________________________________________________________________________________ ________________________________________________________________________________ NAME AND TITLE OF PERSON PLACING ORDER: ________________________________________________________________________________ SIGNATURE/PLACING ORDER ________________________________ DATE: _________________ SIGNATURE/AQC RECEIVING ________________________________ DATE: _________________ 30 PURCHASE AGREEMENT THIS AGREEMENT ("Agreement") is made as of the 31st day of March, 1999, between AMERICAN QUANTUM CYCLES, INC. a Florida corporation (the "Company"), and ANCHOR CAPITAL CORPORATION, a Maryland corporation ("Purchaser"). NOW, THEREFORE, in consideration of the mutual premises and. covenants contained herein and for other good and valuable consideration, the parties hereto, intending to be legally bound, agree as follows: 1. Sale of the Shares. The Company hereby issues, sells and transfers to Purchaser 750,000 fully paid and non-assessable shares ("Shares") of Common Stock, par value $.001 per share ("Common Stock") of the Company for an aggregate purchase price of $750 paid by the Purchaser simultaneously with the execution and delivery of this Agreement. 2. Line of Credit. Purchaser agrees to extend to the Company a line of credit in the maximum aggregate principal amount of Seven Hundred Fifty Thousand ($750,000) Dollars (the "Line of Credit"), and the Company has executed and is delivering to Purchaser herewith the Company's Secured Promissory Note in the maximum principal amount of $750,000 ("Promissory Note") and a Loan and Security Agreement pertaining to the Line of Credit (the "Loan Agreement"). The Company may take advances under such Line of Credit by written request to Purchaser from time to time up to June 25, 1999; provided, however, that no advances under the Line of Credit may be taken if an Event of Default under this Agreement, the Loan Agreement or the Promissory Note shall have occurred or if the Company materially shall have failed to comply with the Cash Flow Projections delivered by the Company to Purchaser contemporaneously with this Agreement. 3. [Reserved]. 4. Representations and Warranties. (a) The Company represents and warrants to the Purchaser, upon which representations and warranties the Purchaser is relying, as follows: (1) The Company is a corporation duly authorized, validly existing, and in good standing under the laws of the State of Florida, and has all requisite power and authority to own, lease and operate its properties, to carry on its business as it is now being conducted, to enter into this Agreement, to issue the Promissory Note and to consummate the transactions contemplated hereby and under the Loan Agreement and the Promissory Note. (2) All actions of the Company necessary to authorize it to execute, deliver and consummate this Agreement, and to perform its obligations hereunder and under the Loan Agreement and the Promissory Note have been duly and validly taken and no other further actions or authorizations are required. This Agreement, the Loan Agreement and the Promissory 31 Note constitute the valid, legally binding obligations of the Company and are enforceable in accordance with their respective terms. (3) The execution and delivery of this Agreement, the Loan Agreement and the Promissory Note and the consummation of the transactions contemplated herein and therein will not: (i) result in any breach of, or constitute a default under the Articles of Incorporation or By-Laws of the Company, or any instrument or obligation to which the Company is a party or by which it is bound; or (ii) violate any existing statute, order, writ, injunction or decree of any court, administrative agency or governmental body. (4) The Company has filed all reports and statements required to be filed by the Company with the Securities and Exchange Commission and no such report or statement contains a misstatement of a material fact or omits to state a material fact necessary to make the statements made therein not misleading. 5. Rgpresentations and Warranties of Purchaser. Purchaser represents and warrants to the Company, upon which representations and warranties the Company relies, as follows: (a) Purchaser is acquiring the Shares for investment for its account and for the account of certain participants as disclosed to the Company, with no present intention of reselling or otherwise participating, directly or indirectly, in a distribution of such Shares, and shall not make any sale, transfer, or pledge thereof (except to such participants) without registration under the Securities Act of 1933, as amended (the "Securities Act"), and any applicable securities laws of any state, or unless an exemption from such registration is available under those laws in the opinion of counsel reasonably acceptable to the Company. (b) Purchaser acknowledges that the certificates for the Shares will contain a legend substantially as follows: THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, TRANSFERRED, MADE SUBJECT TO A SECURITY INTEREST, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY IS RECEIVED THAT REGISTRATION IS NOT REQUIRED THEREUNDER. 32 6. Covenants of the Company. The Company hereby covenants and agrees with Purchaser that: (a) In the event that the Company shall fail to pay in full, as and when due, by acceleration or otherwise, all amounts of principal and interest under the Loan Agreement and the Promissory Note within 30 days after demand in writing for such payment shall have been made by Purchaser and delivered to the Company, the Company agrees to issue and sell to Purchaser, at the par value thereof, that number of shares of Common Stock which, after issuance, shall constitute 25% of the then outstanding Common Stock of the Company. (b) (1) As used in this Section (b), the following terms have the following respective meanings: (i) "Commission" shall mean the Securities and Exchange Commission. (ii) "Purchaser" shall mean Anchor Capital Corporation and each of its affiliates to whom Anchor Capital Corporation shall have transferred any of the Shares and any person controlling any of the foregoing within the meaning of the Securities Act. (iii) "Registration Expenses" and "Selling Expenses" shall mean the expenses so described in Paragraph (4). (iv) "Registrable Shares" shall mean 750,000 shares of Common Stock owned by Purchaser, and the additional shares of Common Stock that may be purchased by Purchaser under Section 6(a) of this Agreement. (v) "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. (2) The Company shall: (i) Upon the written request of Purchaser, prepare and file with the Commission not later than the earlier of 90 days after the date of such request or the filing of a registration statement by the company under the Securities Act, a registration statement with respect to the Registrable Shares (the "Registration Statement") and use its best efforts to cause the Registration Statement to become and remain effective as soon thereafter as possible. In the event that the Company shall have filed a registration statement before the expiration of 90 days, the Registrable Shares shall be included in such Registration Statement on the following terms. (ii) Prepare and file with the Commission such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep the Registration Statement effective for not more than eighteen (18) months from the date of its effectiveness (plus such additional time during which Purchaser must 33 cease making offers and sales, as provided in paragraph (v) below) or (unless otherwise required by the Securities Act) until the Registrable Shares covered thereunder have been sold, whichever is earlier. (iii) Furnish to Purchaser such number of copies of each prospectus contained in the Registration Statement (other than a preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents as Purchaser may reasonably request in order to facilitate the disposition of the Registrable Shares owned by Purchaser. (iv) Use its best efforts to register or qualify the Registrable Shares covered by the Registration Statement under the securities or blue sky laws of such jurisdictions as Purchaser shall reasonably request, and use its best efforts to do any and all other acts and things which may be necessary or advisable so to register or qualify the Registrable Shares to enable Purchaser to consummate the disposition of the Registrable Shares owned by Purchaser in such jurisdictions during the period covered in paragraph (ii) above; provided that the Company shall not be obligated to qualify to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to the service of process in suits other than those arising out of the offer or sale of the securities covered by the Registration Statement in any jurisdiction where it is not then so subject. (v) Notify Purchaser at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. Purchaser agrees, upon receipt of such notice, forthwith to cease making offers and sales of the Registrable Shares pursuant to the Registration Statement or deliveries of the prospectus contained therein for any purpose and to return to the Company, for modification and exchange, the copies of such prospectus not theretofore delivered by Purchaser; provided, that the Company shall forthwith prepare and fumish, after securing such approvals as may be necessary, to Purchase a reasonable number of copies of any supplement to or amendment of such prospectus that may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (vi) Promptly notify Purchaser of any stop order or similar proceeding initiated by state or federal regulatory bodies and use its best efforts to take all necessary steps expeditiously to remove such stop order or similar proceeding. (vii) Otherwise use reasonable efforts in good faith to comply with all applicable rules and regulations of the Commission, and, if required, make available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of at least twelve months, but not more than eighteen months, beginning with the first day of the 34 Company's first fiscal quarter after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11 (a) of the Securities Act and Rule 158 thereunder; provided, however, that the Company shall not be required to conduct a special audit in order to satisfy its obligation under this paragraph (vii). (viii) Upon receipt of such confidentiality agreements as the Company may reasonably request, make available for inspection, upon the written request of Purchaser, by Purchaser and by any attorney, accountant or other agent retained by Purchaser, all pertinent financial and other records, pertinent corporation documents and properties of the Company and its subsidiaries as shall be reasonably necessary to enable Purchaser to exercise and fulfill his due diligence responsibility, and cause all of the Company's, and its subsidiaries, officers, directors and employees to supply all information reasonably requested by Purchaser, attorney, accountant or agent in connection with the Registration Statement. (3) As a condition to the Company's obligation hereunder to file and use its best efforts to cause to become effective the Registration Statement, Purchaser shall provide such information and execute such documents, including questionnaires and indemnities not inconsistent herewith, as may reasonably be required in connection with such registration. (4) All expenses incurred by the Company in complying with any of the foregoing provisions of this Section (b), including without limitation all federal (including the Commission and the National Association of Securities Dealers, Inc.) and state registration, qualification and filing fees, printing expenses, any premium involved in securing a policy or policies of registration insurance (but only if the Company in its sole discretion shall choose to secure such a policy or policies, such policy or policies to be herein referred to as "registration insurance"), fees and disbursements of counsel for the Company, and accountants' fees and expenses (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company), incident to or required by any such registration are herein called "Registration Expenses". All underwriting discounts, selling commissions and transfer taxes applicable to the sale of Registrable Shares hereunder are herein called "Selling Expenses". The Registration Expenses and Selling Expenses in connection with the registration of the Registrable Shares shall be borne as follows: (i) All Registration Expenses and the costs of securing registration insurance shall be borne by the Company. (ii) All Selling Expenses incurred in connection with the Registration Statement shall be borne by Purchaser; provided, however, that if other shares of capital stock of the Company are included in the Registration Statement, such Registration Expenses shall be borne by Purchaser pro rata with all other persons (including the Company) for whose account the securities covered by the Registration Statement are offered in accordance with the amount of securities being so offered for the account of each such person. (5) (i) The Company agrees to indemnify and hold harmless Purchaser against any and all losses, claims, damages, liabilities or expenses, joint or several 35 (including any investigation, legal and other expenses incurred in connection with any action, suit or proceeding or any claim asserted), arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or any prospectus included therein, or any omission or alleged omission of any material fact required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon a statement in writing furnished by or on behalf of Purchaser for inclusion therein or an omission or failure by Purchaser to furnish any statement with respect to Purchaser required to be included therein. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of Purchaser and shall survive the transfer of the Shares. Promptly after receipt by Purchaser of written notice of the commencement of any action in respect of which indemnity may be sought against the Company, Purchaser shall notify the Company in writing of the commencement thereof, and, subject to the provisions hereinafter stated and Purchaser's reasonable cooperation, the Company shall assume the defense of such action (including the employment of counsel, who shall be counsel reasonably satisfactory to Purchaser and the payment of expenses and such counsel's fees) insofar as such action shall relate to any alleged liability in respect of which indemnity may be sought against the Company; provided, however, that the failure of Purchaser to give written notice to the Company of the commencement of any action shall not relieve the Company of its obligations hereunder except to the extent that the Company is actually prejudiced by such failure to give notice. Purchaser shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the Company unless in the reasonable judgment of Purchaser, a conflict of interest between the Company and Purchaser exists in respect of such claim, in which event the fees and expenses of such counsel shall be at the expense of the Company. In connection with any offering under this Section (b).which is to be underwritten, the Company further agrees to enter into an underwriting agreement in usual and standard form respecting such offering; provided that the terms of such underwriting agreement shall not be inconsistent or conflict with the provisions of this Agreement. (ii) The obligations of the Company under this Section (b) are subject to the following conditions, which Purchaser hereby agrees to fulfill: (i) that Purchaser whose Registrable Shares are to be included in any registration referred to in this Section agrees, in writing, prior to the filing of such registration or qualification, and hereby does agree to indemnify and hold harrnless the Company, each Person, if any, who controls the Company within the meaning of the Securities Act and the officers and directors of the Company, against any and all losses, claims, damages, liabilities or expenses arising out of or based upon any untrue statement or alleged untrue statement of a material fact in any related registration statement, prospectus, offering circular, notification or other document or any omission or alleged omission of any material fact required to be stated therein or necessary to make the statements therein not misleading, but only with reference to statements or omissions made in reliance upon a statement in writing furnished by or on behalf of Purchaser (but only to the extent such statement was made in Purchaser's capacity as a holder of Registrable Shares and not in Purchaser's capacity as an officer or director of the Company, if applicable) for inclusion therein and with reference to statements or omissions made in reliance upon an omission or failure by Purchaser to fumish any statement with respect to Purchaser required to be included 36 therein (which indemnification shall remain in full force and effect regardless of any investigation made by the Company or any person controlling the Company and shall survive the transfer of the Shares), and (ii) if such registration or qualification relates to an offering which is to be underwritten, that Purchaser agrees to enter into an underwriting agreement in usual and standard form respecting such offering; provided that the terms of such underwriting agreement shall not be inconsistent or conflict with the provisions of this Agreement. Promptly after receipt of written notice of the commencement of any action in respect of which indemnity may be sought against Purchaser, the Company will notify Purchaser in writing of the commencement thereof, and Purchaser shall, subject to the provisions hereinafter stated and the Company's reasonable cooperation, assume the defense of such action (including the employment of counsel, who shall be counsel reasonably satisfactory to the Company, and the payment of expenses and such counsel's fees) insofar as such action shall relate to the alleged liability in respect of which indemnity may be sought against Purchaser, provided, however, that the failure of the Company to give written notice to Purchaser of the commencement of any action shall not relieve Purchaser of its obligations hereunder except to the extent that Purchaser is actually prejudiced by such failure to give notice. The Company and each such director, officer, or controlling Person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expense of such counsel shall not be the expense of Purchaser unless in the reasonable judgment of the Company or controlling Person, a conflict of interest between Purchaser and the Company or controlling Person exists in respect of such claim, in which event the fees and expenses of such counsel shall be at the expense of Purchaser. (6) A party required to indemnify another party pursuant to this Section ("indemnifying party") shall not be liable for any settlement of any action or claim relating to any such liability or expense affected without its consent, but if any settlement is effected with its consent or if a final judgment for the plaintiff is entered in any such action, such indemnifying party agrees to indemnify and hold harmless the indemnified party from and against any loss or liability by reason of any such settlement or judgment. 7. Miscellaneous. (a) An "Event of Default" under this Agreement shall mean and refer to (i) any material inaccuracy or omission in any representation or warranty made by the Company in this Agreement, (ii) any failure by the Company to perform its agreements and covenants herein, or (iii) any Event of Default under the Loan Agreement or the Promissory Note. (b) All notices hereunder shall be in writing and shall be mailed by first class registered or certified mail, postage prepaid, return receipt requested, or by telecopy with confirmation back, or by nationally recognized overnight courier or hand delivery, and all communications shall be addressed to the addresses of the Company and Purchaser as shown on the signature page or such other address (or telecopy number) as the parties shall designate by notice to the other party hereunder. (c) This Agreement, the Loan Agreement and the Promissory Note contain the final, complete and exclusive understanding of the parties with respect to its subject matter, and 37 all prior negotiations, discussions, commitments and understandings heretofore between them are merged herein. This Agreement may not be modified or amended except by an instrument in writing signed by the party to be charged therewith. (d) This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties, including transferees of the Shares permitted pursuant to Section 5 and holders of Registrable Shares. (e) The titles and headings of the sections of this Agreement are included for the convenience of the parties only and are not part of this Agreement. (f) Whenever possible, each provision of this Agreement will be interpreted in such manner so as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable under any applicable law or rule in any jurisdiction, provided, that such provision will be ineffective only to the extent of such invalidity, illegality or unenforceability in such jurisdiction, without invalidating the remainder of this Agreement in such jurisdiction or any provision hereof in any other jurisdiction. (g) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which shall constitute but one and the same document. (h) At any time, and from time to time, each party agrees, at its own expense, to take such actions and to execute and deliver such documents as may be reasonably necessary to effectuate the purposes of this Agreement. (i) This Agreement shall be governed in all respects, whether as to validity, construction, interpretation, capacity, performance or otherwise, by the laws of the State of Maryland. (j) The Company agrees to pay the reasonable fees of counsel to the Purchaser in connection with this Agreement, the Line of Credit, and other contemporaneous transactions contemplated by the parties. IN WITNESS VIHEREOF, the parties have duly executed this Agreement the date first written above. AMERICAN QUANTUM CYCLES, INC. By: /s/ Richard K. Hagen -------------------------------- Richard K. Hagen, Chairman & CEO ANCHOR CAPITAL CORPORATION By: /s/ Illegible ---------------------------- President 38 EXHIBIT "C" LOAN REQUEST For Week Beginning ______________, 1999 THE UNDERSIGNED AFFIANT, being duly sworn, deposes and says that: 1. Affiant is an officer of AMERICAN QUANTUM CYCLES, INC., a Florida corporation (the "Company"), being duly elected or appointed to the office of the Company set forth below the Affiant's signature, and the Affiant has been duly authorized to make this Loan Request on behalf of the Company, and has made due investigation as to the following matters. 2. Affiant certifies the following matters on behalf of the Company to induce and request ANCHOR CAPITAL CORPORATION (the "Lender") to disburse a Loan as described herein pursuant to the terms of the Loan and Security Agreement dated as of March 30, 1999 between the Lender and the Company (the "Agreement"). The capitalized terms used in this certificate have the respective meanings given them in the Agreement. 3. No Event of Default exists under the Agreement, and no event has occurred and is continuing which with notice or lapse of time or both would become an Event of Default. 4. All representations and warranties of the Company made in the Agreement are true on and as of the date of the making of the Loan requested herein, with the same force and effect as if the representations and warranties were made on and as of such date. 5. There has been no material adverse change to the financial condition or operations of the Company. 6. All Inventory previously financed with Loans has been segregated from other Inventory on the Company's premises, or has otherwise been physically identified as being subject to the Lender's first-priority security interest. 7. The Offering has not been withdrawn or canceled by the Company, and there has been no material change in the terms, feasibility or timing of the Offering adverse to the interests of Lender as a purchaser of the common stock of the Company under the Purchase Agreement. 8. With respect to each Purchase Order for motorcycles submitted to the Lender as of this date: (i) the copy of the Purchase Order delivered to the Lender is true, correct and complete; (ii) the Purchase Order represents a valid and binding order from a dealer for the immediate delivery of the number of motorcycles identified therein; (iii) the Purchase Order is in full force and effect and has not been modified, amended, rescinded or revoked; (iv) the dealer named in the Purchase Order is obligated to pay for the motorcycle(s) identified therein; and (v) either the Purchase Order has been approved for floor plan financing by a Floor Plan Lender, or the Company has received a deposit for one-third of the purchase price and has deposited the 39 same in the Anchor Account (except for up to one permitted cash sale without deposit as provided in Section 2(a) of the Agreement). 9. As of this date, the Company has submitted and the Lender has approved Purchase Orders covering dealer orders for a total of ___________ motorcycles, and at the rate of $10,000 per motorcycle, the total fundable amount of approved Purchase Orders to date is: $ ___________ The cumulative amount of Loans funded against Purchase Orders to date is: (__________), and the remaining Loan funds now available for approved Purchase Orders is: $ ___________ 10. The maximum permitted cumulative Loan amount for this week is: $ ___________ As of this date, the cumulative amount of all Loans advanced by the Lender is: (__________), and the excess of this maximum amount over the cumulative amount to date is: $ ___________ 11. The maximum permitted outstanding Loan balance $ ___________ for this week is: As of this date, the outstanding principal balance of (__________), all unpaid Loans is: and the excess of this maximum amount over the present $ ___________ principal balance is: 12. The least of the three dollar amounts determined under foregoing paragraphs 9, 10 and 11 is $____________. 13. As shown in the Weekly Report for the immediately preceding week, the amount of actual Cumulative Sales achieved by the Company was ________% of the amount of Cumulative Sales projected in the Company's Cash Flow Projections for that week, and the amount of actual Cumulative Cash Collected achieved by the Company was ________% of the amount of Cumulative Cash Collected so projected for that week. The "Performance Factor" is: (i) zero, if either percentage is less than 80%; (ii) 100%, if both percentages are 100% or more; and (iii) in any other case, the lower of the two percentages. The product of the dollar amount determined in foregoing paragraph 12 multiplied by the Performance Factor is: $ ___________ 14. As shown in the Weekly Report for the immediately preceding week, the amount of "Net Receivables Outstanding" was $ ____________, and 75% of that amount is: $ __________ As shown in that Weekly Report, the amount of "Net Gordon Inventory at End of Week" was $ _________, and one third of that amount is: $ ___________ A. The Collateral Base for the previous week is the sum of these two amounts: $ ___________ B. The outstanding principal balance of the Loans at end of previous week was: $ ___________ If line B exceeds line A, then the amount from paragraph 12 minus this excess is: $ ___________ 15. The amount of available Loan funds this week is the lesser of the two amounts respectively determined under paragraph 13 and paragraph 14, which is: $ ___________ 16. The Company requests the Lender to disburse a Loan in the total amount of $ __________ to the respective vendors and suppliers listed below, to each of them in the respective amount listed below, by the respective payment method listed below. For each vendor or supplier to be paid by check drawn on the Anchor Account, the Company has prepared and submitted with this Loan request a check drawn in the correct amount payable to the correct 40 vendor or supplier, and the Company hereby requests the Lender to sign the check prepared by the Company and to deliver the check (or other specified payment) to the respective payee by the delivery method specified below (if no delivery method is specified below, then the Lender is instructed to send the check by regular U.S. mail). For each such vendor or supplier, an original or a true copy of the respective parts order is attached hereto, and if so indicated below the Lender is instructed to enclose the parts order with the payment sent to the respective vendor or supplier.
- ---------------------------------------------------------------------------------------------------------- Vendors Name & Brief Payment Delivery Enclose Amount of Mailing Address Description of Method Method Parts Payment to, Parts Ordered (Anchor Account (US Mail if Order Vendor Check if not not [Yes/No] specified) specified) - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- TOTAL LOAN AMOUNT THIS WEEK: - ----------------------------------------------------------------------------------------------------------
IN WITNESS WHEREOF, the undersigned Affiant has executed this Loan Request on behalf of the Company as its duly elected or appointed __________ on __________, 1999. ____________________________ ___________________, Affiant STATE OF ______________ ) ) SS: COUNTY OF _____________ ) SWORN TO AND SUBSCRIBED before me this __ day of ___________, 1999 by _____________, who personally appeared before me and who is personally known to me or produced a driver's license as identification. 41 My Commission Expires: ________________________________ NOTARY PUBLIC, STATE OF ________ [NOTARIAL SEAL] _______________________________ 42 EX-23.1 14 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT We hereby consent to the use in this Registration Statement on Form SB-2 of our report dated June 24, 1999, relating to the financial statements of American Quantum Cycles, Inc. We also consent to the reference to our firm under the caption "Experts" in the Prospectus. /s/ Pricher & Company Orlando, Florida August 17, 1999 -----END PRIVACY-ENHANCED MESSAGE-----