U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                        For the Year Ended April 30, 1998
                          Commission File No. 000-24083


                          AMERICAN QUANTUM CYCLES, INC.
                 (Name of Small Business Issuer in Its Charter)

             Florida                                       59-2651232
   (State of Other Jurisdiction of                      (I.R.S. Employer
   Incorporation or Organization)                       Identification No.)

   731 Washburn Road, Melbourne, Florida                       33434
-------------------------------------------------------------------------------
  (Address of Principal Executive Offices)                   (Zip Code)

                                 (407) 752-0008
                (Issuer's Telephone Number, Including Area Code)


Securities registered under Section 12(b) of the Exchange Act:       None
                                                                ---------------

                                                     Name of Each Exchange
       Title of Each Class                            on Which Registered

================================             ===================================

Securities registered under Section 12(g) of the Exchange Act:  Common Stock, 
                                                                -------------
par value $.001
-----------------------------------------------------------------------------
                                (Title of Class)

         Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                                              Yes           No
                                                 -----        -----


<PAGE>




         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.  X
                               ---

         State issuer's revenues for its most recent fiscal year:   $ 192,856
                                                                     --------

         State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days.

                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                           DURING THE PAST FIVE YEARS

         Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.

                                              Yes           No
                                                  ----         ----

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.

         2,827,545  shares of Common Stock, $.001 par value, as of September 30,
         ----------
 1998.
         




                                        2

<PAGE>

                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS
                  -----------------------
Introduction

         American Quantum Cycles, Inc. (the "Company"), a development stage
company, designs, manufactures, 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. Utilizing its "just in time" approach (i.e. ordering
parts on an as-needed basis to minimize inventory and work-in-progress costs, as
well as the "build to order" production process) to manufacturing, the Company
believes that it can manufacture a high quality product utilizing mass
production. The Company believes that this approach is also advantageous for
configure-to-order products, which in turn, will likely yield greater customer
satisfaction and reduce the need for added cash flow. The Company also expects
that its motorcycles will be lower in price compared to the other major source
of high performance, customer specified motorcycles, which is small
customization shops.

         The Company is initially focusing on the manufacture and sale of
heavyweight motorcycles and has commenced small-scale production of its initial
heavyweight cruiser, the Q2, which was first unveiled at the Sturgis Motorcycle
Rally in Sturgis, South Dakota, in August 1997. The Company has produced 32
motorcycles since that time 24 of which have been sold to dealers and/or
consumers. The remaining 8 motorcycles have been used for regulatory compliance
testing, marketing and long term testing. Bikes allocated to marketing have been
used to take to rallies and conferences including the Indianapolis Dealers
Conference, Daytona Beach Bike Week, Laconia Bike Week and many others. The
Company has entered into letters of intent with 14 prospective dealers many of
whom have already begun marketing the Company's products.

         The Company projects significant investment in plant and people which
will support a significant ramp-up in monthly production of motorcycles and
engines during the next twelve months. Investment in plant, include
manufacturing equipment, materials handling equipment along with computer
hardware and software (enterprise resource planning software including
integration with the Company's dealer oriented intranet). During this same
period, the Company's headcount (number of full time employees) is projected to
increase from 44 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.

         The Company was originally incorporated as a Florida corporation on
March 20, 1986 as "Norbern, Inc." and on May 8, 1997, the Company changed its
name to "American Quantum Cycles, Inc." The Company had no operations prior to
May 9, 1997, when it issued 2,414,285 shares of its common stock in exchange for
management, equipment and other assets to enable the Company to manufacture,
distribute and sell American-made motorcycles, motorcycle parts


                                        3

<PAGE>

and related products. Subsequently, the number of shares issued inthis
transaction was adjusted to 1,261,075. See Item 12 - "Certain Relationships and
Related Transactions." The Company's fiscal year end is April 30. Its executive
offices are located at 731 Washburn Road, Melbourne, Florida 32934; Telephone
(407) 752-0008.

The Industry and Market

         According to statistics published in Harley-Davidson's 1997 public
reports, touring and cruiser models represented approximately 80% of retail unit
sales in the U.S. heavyweight market. Heavyweight motorcycles, in turn,
represented approximately half of retail motorcycle unit sales in the overall
United States market in 1996. Touring and cruiser motorcycles are the only types
of heavyweight motorcycles that the Company plans to design, market, distribute
and sell, and its first product is a heavyweight cruiser.

         According to the Motorcycle industry Counsel, U.S. registrations of new
heavyweight motorcycles increased by approximately 9.6% in 1996 over 1995
registrations, and U.S. registrations of new heavyweight motorcycles increased
by 59% from 1992 through 1996. In order to assist the Company in marketing it's
motorcycle, the Company retained the services of Tangram Corporation, a
marketing research firm. The Company intends to use the marketing information
compiled by Tangram to structure it's promotional and sales techniques.

         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. Based on information provided to the Company by its International Export
Manager, Ferrex International, Inc., an export management company ("Ferrex"),
Germany was 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: (i) to buy new American made products from small
manufacturers (e.g.: Titan, Big Dog, Etc.); (ii) to buy a foreign made product;
or (iii) to buy a new Harley Davidson product and pay up to $15,000 extra to
custom-build to desired specifications. The Company intends to fill this market
gap by providing an American-made, American-styled motorcycle with advanced
engineering and technology delivering high performance. Since its initial
promotional event at the Sturgis Motorcycle Rally in Sturgis, South Dakota, the
Company has received more than 443 dealer inquires as of June 29, 1998 to sell
the Company's American- made line of motorcycles and motorcycle parts.

Strategy

         The Company's goal is to continue to produce what management of the
Company believes is a superior U.S. made V-twin motorcycle utilizing quality
materials and workmanship to build a financially successful Company. The Company
will seek to establish a strong market


                                        4

<PAGE>



share, both domestically and internationally, by offering high level
custom-built motorcycles and motorcycle products to customers through the
development and installation of a proprietary Intranet/Extranet system (designed
to continually track and control inventory and production) for use by dealers,
customers and the Company . See "The Company Intranet/Extranet System."

         To increase the Company's motorcycle production capacity, the Company
recently completed a modification to its production facility. The modification
provided space in which the Company established a second motorcycle production
line which management of the Company believes will double the Company's
motorcycle production capabilities.

Products

         The Company's first model, a heavyweight cruiser motorcycle (the Q2),
has been designed with major product goals including (i) American styling; (ii)
handling; (iii) durability; and (iv) performance.

         American Styling: The Company believes the dimensions, angles,
components and selection of materials (including the use of polished aluminum as
opposed to chrome) used in the Q2 incorporates 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 the Company prevents
paint from chipping, since the paint is electrically charged and baked at
extremely high temperatures for a glossy, durable finish (which the Company
believes also makes the motorcycle frame more durable). Additionally, there is
an expansive variety of customized colors and designs available through this
powder coating process.

         Handling: A number of factors contribute to the ease of handling of the
Q2, which has been designed to be completely balanced so that the center of
gravity is in line with its rider. The inverted front forks of the Q2 model,
typically only seen on racing motorcycles, absorb shock and provide steady
contact with the road, to deliver ease of handling under high performance
conditions. The engine and transmission are rubber mounted (triple isolation),
based on the Company's proprietary design to minimize vibration and further
enhance smooth and easy handling. Many of the materials used in the Q2 have been
selected for high strength-to-weight ratios.

         The Company will invest in the research and development of two new
product lines during the next twelve months: a Touring motorcycle and a 96 cubic
inch engine. The touring motorcycle will be a second product line to the
existing Cruiser model and will include saddlebags and windshields/fairing. The
Touring motorcycle is targeted at one of the fastest growing market segments.
The 96 cubic inch engine will use the same 4-valve technology as the Company's
present 88 cubic inch engine. With the larger displacement, the Company projects
an increase in peak horsepower in the 10-20% range, which should maintain the
Company's competitive position in engine price/performance. Neither the Touring
motorcycle nor the 96 cubic inch engines are required product introductions in
the next twelve months in order to achieve the Company's business plan and
financial objectives.


                                        5

<PAGE>

         The Company believes that while competitive products in the Q2's price
class require annual repairs and continual upgrades and enhancements, these
repairs, upgrades and enhancements will not be necessary with the Q2 model. The
Company believes that the Q2's frame wears well through all environmental and
use conditions, and its aluminum parts can be polished to a soft gleam without
corroding or peeling. The balanced components and engine/transmission triple
isolation mounts dramatically reduce vibration, which adds to durability and
longevity. Additionally, a number of components (including the oil tanks), are
made from stainless steel which also add to the corrosion resistant durability.
Aluminum parts dissipate heat better than the low-grade steel used by
competitors, further increasing long-term durability.

         The Company believes the single most outstanding feature of the
Company's product line is its proprietary design of the four stroke, four valve
V-twin engine, which it expects will deliver the greatest power efficiency
(measured by horsepower over key rpm ranges) in its model class (heavyweight
cruisers). The Company's proprietary engine includes head designs licensed on an
exclusive basis from Feuling Advanced Technologies, Inc. ("Feuling"), a company,
which develops engine head technologies. See "Business- Intellectual Property
Rights." The resulting engine design delivers greater power, less pollutants,
cooler operating temperatures and greater mileage all at the same time. Based on
preliminary results from the Environmental Protection Agency ("EPA") testing
facility in Fort Worth, Texas, the Company believes that its engine is one of
the cleanest, most powerful engines in its motorcycle class on the road today.
The Company has completed the EPA testing program and is awaiting official
certification and is expected prior to November 1, 1998.

         The Company has developed what is believed are close and efficient
relationships with all of its suppliers. Approximately 60% of the motorcycle
components are manufactured to the Company's specifications by machine shops
located throughout the United States. The remaining 40% of the components needed
to complete the motorcycle produced by the Company, are purchased from parts
manufactures and catalog distributors (e.g. tires, wheels, seats, lights,
batteries, and other off-the-shelf parts).


                                        6

<PAGE>

Manufacturing

         The Company has designed and produced forty-two motorcycles since
August 1998, thirty four of which are sold, six are used for marketing purposes,
and two for engineering and regulatory testing. During the remainder of the
calendar year 1998, the Company anticipates producing 300 additional
motorcycles. This projection is based on a plan to ramp production through
refinement of the assembly process and investing in jigs, fixtures and material
handling equipment such as pneumatic hoists, lifts, and conveyor belts. The
total monthly production is projected to increase from 30 motorcycles to 120
motorcycles in November with the addition of a second assembly line and starting
two shift operations. Production is projected to be increased to 188 motorcycles
per month from January through April 1999. Currently, the Company's existing
manufacturing process consists of outsourcing all manufacturing of parts and
subassemblies to subcontractors with only final assembly, testing and quality
control being carried out at the Company's facilities. In order to obtain
acceptable control over supply and cost of parts, a number of parts and
subassembly manufacturing processes will be maintained in-house starting late
summer 1998. In the meantime, the company has established long-term contracts
with major subcontractors, vendors and secondary and tertiary backup suppliers
to insure the constant and scalable flow of parts to the Company's plant in
Melbourne, Florida.

         The Company will invest in the research and development of two new
product lines during the next twelve months: a Touring motorcycle and a 96 cubic
inch engine. The Touring motorcycle will be a second product line to the
existing Cruiser model and will include saddlebags and windshields/fairing. The
96 cubic inch engine will use the same 4-Valve technology as the Company's
present 88 cubic inch engine. With the lager displacement, the Company projects
an increase in peak horsepower in the 10-20% range, which should maintain the
Company's competitive position in engine price/performance. Neither the Touring
motorcycle nor the 96 cubic inch engines are required product introduction in
the next twelve months in order to achieve the Company's business plan and
financial objectives

Intranet/Extranet System

         One of the Company's goals is to provide its customers with an
efficient means of selecting the exact product configuration desired, as well as
to provide an effective manner to continually track the progress of the
production of any specific product at any given time. To help implement these
strategies, the Company is has developed a PC-based kiosk Intranet/Extranet
System (the "Dealernet"), using an interactive CD-ROM (or DVD) storing
three-dimensional images of its products that it expects will be installed at
dealer locations by December, 1998. A prototype has been developed and is being
reviewed by dealers and consumers for ease-of-use and effectiveness. A mailer of
the completed Dealernet library of bike selections (on CD) was sent to 2,000
prospective dealers during the week of July 24, 1998 as a promotional tool and
as an invitation to visit the Company's booth at the Sturgis, South Dakota
Rally. By selecting alternate choices viewed on a computer screen, a customer
will be able to select a precise motorcycle configuration with selected options
tailored to that customer's


                                        7

<PAGE>

requirements. The customer will also know the cost of each option, and
continuously be apprised of a corresponding graphic image, which can be easily
modified. Once a customer agrees to purchase the Company's motorcycle that meets
his or her unique specifications, a contract for sale can then be executed. Each
sales order will then be assigned a unique bar code number that will serve as an
order and tracking number for the dealer, the customer, and the Company's
production plant, enabling each to monitor the progress of the production of
product. Prototypes of the Dealernet have been completed and portions will soon
be available for viewing at the Company's website (www.quantumcycle.com)
("Website").

Marketing

         The Company's marketing program will focus on two major objectives: (i)
corporate/product name identification; and (ii) lead generation for the sales
and distribution channels. Corporate product name and product identification
will be accomplished through advertising, promotions, public relations and
participation in major motorcycle events (such as the Sturgis Race and Rally in
Sturgis, SD and the Daytona Beach Rally). The Company also will sponsor racing
activities and special promotional events and will participate in most major
motorcycle consumer shows and rallies. To establish the Company's brand name
among the motorcycling public, the Company first unveiled its prototype, the Q2,
at the Sturgis Rally in August 1997. The Company also intends to eventually sell
a wide variety of apparel products such as hats, T-shirts and jackets with the
Company's logos and intends to license certain of its trademarks on a broad
range of consumer items to increase public exposure and familiarization with its
brand name.

         Lead generation activities will be tailored to support each product
line including motorcycles, engines/parts, accessories and will be matched to
each sales channel, including dealers, the Internet, third party distribution
partners, and others. The primary effort will be focused on generating leads to
which dealers can sell motorcycles and engines. All leads generated at the local
level will be entered and tracked by a corporate lead tracking and management
system. This will provide sales management support to dealers. The lead
management and tracking system will also allow the Company to monitor sales
progress of the dealers. The demographic data of buying customers will be
cross-referenced to the lead database to further tighten the demographic focus
for the product line and subsequent marketing programs. Geographic regions of
unusually low sales productivity (with high targeted demographic densities) can
be identified and targeted for special promotional efforts.

         The Company will use print media advertising and direct marketing to
generate leads to support its dealer sales programs. Print media advertising
will focus on national motorcycle magazines (typically with full page, full
color ads) and local newspaper ads in concert with dealers' local promotional
activities. Local radio and cable TV ads will be evaluated on a location by
location basis depending on reach, frequency, and cost.

         The type and amount of marketing to support each of the Company's local
dealers will be determined by the Company's market research program. Demographic
market research


                                        8

<PAGE>

complemented by telephone survey feedback on the product has been completed to
confirm and refine the target demographics for the Company's product line. All
direct marketing campaigns will be carried out with a local focus and will be
timed to support the launch of new dealers. The Company believes direct mail
programs including expensive give-aways (such as promotional CD's, high quality
posters and merchandise) can be cost-justified on such a tightly focused, local
basis. All ad and promotional campaigns will be available on the Company's
Website.

Distribution and Sales

         The Company's distribution channels will typically consist of
independently owned full-service dealerships to whom the Company will sell
directly. The Company will also sell directly to consumers through various
media, including the Internet, but only in those geographic regions in which
there are no authorized the Company dealerships. All the Company dealers will
carry Company replacement parts and aftermarket accessories and perform
servicing of the Company's motorcycle products.

         The Company has entered into its first dealership agreement with a
dealer located in Tampa, Florida (who has an option and plans for a dealership
in the Orlando, Florida territory), and a distribution agreement with Ferrex.
Ferrex is presently doing business in Europe, the Pacific Rim and various
countries in Latin America. The Company's agreement with Ferrex stipulates that
Ferrex has the opportunity to sell The Company products to any country outside
North America, but Ferrex must first establish a dealership in any single
country in order to have the exclusive rights to that country.

         The Company currently has executed letters of intent from 24 dealers
located in Various States in the US, each dealer makes a minimum commitment to
buy ten (10) Motorcycles upon signing the dealer Agreement. As a result, the
twelve dealers represent bookings of 240 motorcycles. Currently 180 of the 240
are in the production cycle. Other additional dealers have expressed a very
strong interest and their applications are in process of being evaluated. The
Company has 20 returned applications from dealers, which are in the process of
review and follow-up. The Company has also sent out 443 information packets in
response to requests for information.

         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. The
Company anticipates that a minimum of 2,000 square feet will be required and
traffic exposure will need to be at a level of not less than 35,000 cars per
day. Dealers will purchase product and stock parts and engines via the Company's
dealer Intranet.

         The Company also intends to enter into distribution agreements for the
sale and delivery of 4-VALVE(R) engine kits, and may include national catalog
distributors or major parts and subassembly suppliers. The Company will also
have a direct sales staff to promote and sell the 4-VALVE(R) engine to the
Harley-Davidson customization aftermarket.


                                        9

<PAGE>

Intellectual Property Rights

         The Company believes that it has the exclusive right to use the
trademarks AMERICAN QUANTUM CYCLES, Q, Q2, and QX, along with certain related
word and design trademarks in the United States and in certain foreign countries
in connection with the manufacture and sale of motorcycles and related
structural parts. In addition, the Company believes that it has the right to use
certain of these marks on ancillary merchandise and apparel. The Company also
believes that it has obtained common law rights through the use of these marks
on its prototype motorcycles and ancillary merchandise and apparel that are
independent of the United States Patent and Trademark Office ("PTO")
registration process. In addition, the Company has filed for trademark
protection for the marks "American Quantum Cycles", the "Q", "Q2" and "QX". In
some instances, these rights may be dependent upon pending applications to
register the marks in a foreign country. A failure to obtain such registrations
could impair the Company's rights to use a mark in a particular country.

         The Company owns copyrights for its designs used as trademarks on
documents generated in the course of its operations. The Company intends to
register its copyrights, designs and promotional materials and other works with
the U.S. Copyright Office as appropriate.

         The Company owns no patents directly, nor has it filed or been assigned
any patent applications. The Company believes, however, that a number of
elements of the Q-series of motorcycle design have the potential to receive
patents. In the foreseeable future, the Company intends to file patent
applications for certain of the patentable elements. The Company will also
actively seek to license and/or purchase additional intellectual property rights
to enhance the market competitiveness of its product line.

         The Company is not aware of any claims of infringement against the
Company and the Company is not, and has not, been involved in any court
proceedings regarding its intellectual property rights. There are no outstanding
claims by the Company against anyone for violation of the Company's intellectual
property rights.

         In August 1997, the Company entered into a license agreement (the
"Agreement") with Feuling Advanced Technology, Inc. ("Feuling") whereby the
Company, as licensee, obtained a license to use certain proprietary technologies
including, among other things, patents, trade secrets, techniques, tooling
designs, product designs, and trademarks (including AR(R), 4- VALVE(R), CVX(R),
RAM CHAMBER(R) and RACE FEET(R)). Pursuant to the terms of the Agreement, so
long as the Company pays Feuling certain royalty payments of approximately
$235,000 (which have been paid in full), and complies with certain other
provisions including non-disclosure of the proprietary technology, the Company
has an exclusive license (for motorcycle applications) in perpetuity for the
4-Valve technology. This technology will be used in connection with the
manufacture of 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.



                                       10

<PAGE>

Competition

         As of December 31, 1996, Harley-Davidson, Honda, Suzuki, Kawasaki, and
Yamaha had the largest market share of the U.S. heavy weight motorcycle market.
The Company's 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 the European heavyweight motorcycle registrations). Harley Davidson has been
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. Polaris, a one billion-dollar manufacturer of snowmobiles,
jet skis and other recreational vehicles have 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 late
1998.

         The market for new and customized motorcycles is extremely competitive.
While there are substantial barriers to entry, the Company expects that
competition will intensify in the future. The Company believes that its ability
to compete successfully depends on a number of factors: market presence; timely
delivery of made-to-order motorcycles; the pricing policies of its competitors
and suppliers; the timing and introduction of new products and services by the
Company as compared to its competitors; the Company's ability to support
existing and emerging industry standards; and industry and general economic
trends. There can be no assurance that the Company will be able to successfully
compete with other Company's involved in the business of manufacturing and
marketing customized motorcycles or motorcycles in general.

         The U.S. and worldwide motorcycle markets are highly competitive and
all of the Company's existing major competitors have resources that are
substantially greater than those of the Company, as well as larger overall sales
volumes and are more diversified than the Company. The Company intends to gain
market share against such competitors by offering the leading price/performance
American designed and built Cruiser on the market. The Company's competitive
research has confirmed that the Product provides more engine performance
(measured by peak torque and peak horsepower ) per retail price dollar than any
American made competitor and most foreign made competitors' products. The
Company will also gain market share against these competitors by offering a
greater level of customization out of the factory(e.g. choices of seats, wheels,
handlebars, paint designs, paint color, etc.) than any other competitor. This
market leading customization will be emphasized to the consumer by the
Internet-based Dealernet sales tool on which the consumer will configure their
customized motorcycle to their taste and preference. Finally, the Company is
expected to gain market share after announcing the only other American built
high performance Touring motorcycle at this year's Sturgis Rally (first week in
August 1998).



                                       11

<PAGE>

         There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and competitive pressures
faced by the Company could have a material adverse effect on the Company's
business, operating results and Financial condition.

Government Regulations

         Commercial sales of the Company's motorcycles depend upon compliance
with certain government regulations and the Company is designing its 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 the business and operations of the Company. In
particular, the Company's motorcycles will be 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
Company initiated the testing of its motorcycles in November 1, 1998 to meet the
emission standards designated by the CARB. There can be no assurance that the
Company's motorcycle will meet such emission standards. Preliminary results
indicate that the Q2 and its associated 4-VALVE(R) engine will pass all CARB
requirements. The Company's motorcycles also will be subject to the National
Traffic and Motor Vehicle Safety Act and the rules promulgated thereunder by the
National Highway Traffic Safety Administration.

          The State of Florida requires that the Company be licensed as a
manufacturer of motor vehicles and each of the Company's dealers are required to
be licensed as a motor vehicle dealer in the jurisdictions where the businesses
are located.

Employees

         The Company currently has forty-four employees, sixteen of which are in
management and administration, five are in engineering and design, nineteen are
in production and manufacturing, four are in marketing and two are in sales. The
Company retains a number of part and full-time consultants in the areas of
management, engineering drawing maintenance, advertising artwork and Website
maintenance.

ITEM 2.           DESCRIPTION OF PROPERTY
                  -----------------------

         The Company currently leases approximately 17,030 square feet of
warehouse space and an additional 6,016 square feet of office space, for a total
of approximately 23,046 square feet, located at 711-731 Washburn Road,
Melbourne, FL 32934 (the "Property"). The current monthly rental amount is
$6,189 including Florida sales tax.

         The lease on the Property commenced on May 1, 1997 and continues
through April 1999, with two additional three-year options for renewal at the
Company's option. If the Company elects to renew its 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.
The payment is based on a variable rate mortgage. The interest on the loan


                                       12

<PAGE>



decreases resulting in payments being reduced to approximately $887 over a
four-year period.


ITEM 3.           LEGAL PROCEEDINGS
                  -----------------

         None.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                  SHAREHOLDERS
                  -------------------------------------------

         On February 21, 1998, the Company obtained the written consent of a
majority of the shareholders of its issued and outstanding common stock to
increase the number of shares of common stock available under its stock option
plan from 500,000 to 3,000,000.

                                     PART II

ITEM 5.           MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
                  MATTERS
                  -------------------------------------------------

         As of September 1, 1998, there were approximately 163 shareholders of
record of the Company's Common Stock. The Company's Common Stock is currently
listed for trading on the over-the-counter bulletin board under the symbol
"AMQC". The following table sets forth, for the period since August 12, 1997,
the high and low closing sales prices for the Common Stock as reported by the
OTC Bulletin Board.
<TABLE>
<CAPTION>

                                                                                    Common Stock
                                                                                    ------------
                                                                           High                    Low
                                                                           ----                    ---
<S>                                                                        <C>                     <C> 
August 12, 1997 - September 30, 1997                                       10.00                   5.50
October 1, 1997 - December 31, 1997                                        10.625                  6.00
January 1, 1998 - April 30, 1998                                           8.00                    3.375
May 1, 1998 - July 30, 1998                                                6.50                    3.50
August 1, 1998 - September 22, 1998                                        2.59                    1.58
</TABLE>

         The transfer agent for the Company's Common Stock is Florida Atlantic
Stock Transfer, Inc., 5701 N. Pine Island Road, Tamarac, Florida 33321.

         The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. The future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.





                                       13

<PAGE>

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
                  OPERATIONS
                  -----------------------------------------------

         The Company projects significant investments in plant and people which
will support a significant ramp-up in monthly production of motorcycles and
engines during the next twelve months. Investment in plant includes
manufacturing equipment, materials handling equipment along with computer
hardware and software (enterprise resource planning software including
integration with the Company's Dealer oriented Intranet). During this same
period, the Company's headcount (number of full time employees) is projected to
increase from 44 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.

         During the remainder of calendar year 1998 the Company anticipates
producing 300 additional motorcycles. This projection is based on a plan to ramp
production 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 30
motorcycles to 120 motorcycles in November with the addition of a second
assembly line and starting two shift operations. Production is projected to be
increased to 188 motorcycles per month from January through April 1999.

         The Company will invest in the research and development of two new
product lines during the next twelve months: a Touring motorcycle and a 96 cubic
inch engine. The Touring motorcycle will be a second product line to the
existing Cruiser model and will include saddle bags and windshields/fairings.
The Touring motorcycle is targeted at one of the fastest growing market
segments. The 96 cubic inch engine will use the same 4-Valve technology as the
Company's present 88 cubic inch engine. With the larger displacement, the
Company projects an increase in peak horsepower in the 10-20% range which should
maintain the Company's competitive position in engine price/performance. Neither
the Touring motorcycle nor the 96 cubic inch engine are required product
introductions in the next twelve months in order to achieve the Company's
business plan and financial objectives.

         Equity investments will be raised during the next twelve month period
to support these investments and provide the operating capital to reach
cash-positive operations. A Private Placement Memorandum is planned for October
1998 which is projected to raise a minimum of $5 million. A public secondary
offering is planned for mid-fiscal year 2000 which is projected to raise a
minimum of $25 million. A minimum of $8 million will be needed to fund the
investments and support operational cash flow needs (e.g. procurement of parts
for production) in order for the Company to accomplish its business plan goals
and objectives for Fiscal Year 98/99. The Company believes that upon the
completion of the offerings and the receipt of the proceeds therefrom, it will
have the necessary liquidity and capital resources to sustain planned operations
for the 12 month period following the Offering.

         In the event that the Company's internal estimates relating to its
planned expenditures prove materially inaccurate or the Company's development
and marketing efforts do not result


                                       14

<PAGE>

in significant product sales, the Company may be required to reallocate funds
among its planned activities and curtail certain planned expenditures. In any
event, the Company is unable to predict whether revenues from operations will be
sufficient to fund the Company's working capital requirements beyond 12 months.
Therefore, the Company may be required to obtain substantial additional
financing through equity or debt financings, collaborative arrangements or
otherwise. There can be no assurance as to the availability or terms of any
required additional financing, when and if needed. In the event that the Company
fails to raise any funds it requires, it may be necessary for the Company to
significantly curtail its activities or cease operations.

ITEM 7.           CONSOLIDATED FINANCIAL STATEMENTS
                  ---------------------------------

                  The financial statements are included under Item 13(a) of this
Report.

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE
                  ------------------------------------------------

                  Not Applicable.

                                    PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                  PERSONS; COMPLIANCE UNDER SECTION 16 (A) OF THE EXCHANGE
                  ACT
                  --------------------------------------------------------

         The following table sets forth the names, positions with the Company
and ages of the executive officers and directors of the Company. Directors will
be elected at the Company's annual meeting of shareholders and serve for one
year or until their successors are elected and qualify. Officers are elected by
the Board and their terms of office are, except to the extent governed by
employment contract, at the discretion of the Board.
<TABLE>
<CAPTION>

Executive Officers and Directors

         Name                       Age              Position
         ----                       ---              --------
<S>                                 <C>              <C>                                                
Richard K. Hagen                    40               Chief Executive Officer, Chief Financial Officer
                                                     President, and Chairman of the Board
Jim Cheal                           53               Vice President and Director
Robert L. Guess                     36               Vice President
Douglas W. Paik                     55               Vice President and Director
Michael Smith                       47               Vice President
Jeffrey W.  Starke                  42               Vice President and Director
Denise O'Brien                      45               Director
Gary Irving                         54               Acting Chief Operating Officer



                                       15

<PAGE>



Linda Condon                        50               Director of Finance
Frank Aliano                        38               Vice President
Tom McClinton                       47               Director of Dealer Relations
</TABLE>
         Unless otherwise noted, the address of each of the executive officers,
directors and significant employees is 731 Washburn Road, Melbourne, FL 32934.

         Richard K. Hagen has served as the Company's Chief Executive Officer,
President and Chairman of the Board since November 1, 1997 and its 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 system integration subsidiary of Harnischfeger
Industries. Mr.
Hagen is a 1981 graduate of the U.S. Naval Academy.

         Jim Cheal has been employed by the Company since May 1997 and has
served as Vice President and Director since February 1998. Mr. Cheal was a
professional photojournalist with Time-Life Publications from 1975 to 1997.

         Robert L. Guess has served as a Vice President of the Company since
November 1, 1997, as its President from May 1997 to November 1, 1997, and a
member of the Board of Directors since July 1997. From December 1996 to May
1997, Mr. Guess served as consultant to Messrs. Cheal and Starke each of whom
are Vice Presidents and Directors of the Company, in connection with the
development and implementation of the business plan of the entity from whom the
Company 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 February 1995 through April 1996, Mr. Guess was the
owner, president and director of Snack Shack, Inc. which distributed wholesale
snacks and novelty candies. From March 1980 through September 1994, Mr. Guess
served as an Officer in the United States Navy.

         Douglas W. Paik has served as a Vice President, Secretary and a member
of the Board of Directors of the Company since July 1997. From January 1997 to
July 1997, Mr. Paik worked in the Human Resources division of Sprint and from
January 1982 to January 1997, Mr. Paik was Senior Manager of Human Resources
with the Harris Corporation, a publicly traded company that manufactures
electronics equipment with over $3.5 billion in revenues.

         Michael Smith has served as the Company's Vice President and Sales
Manager 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 apparel and accessories
located in California. From February 1995 to March 1996, Mr. Smith served as the
Customer Relations Manager for Stone Ridge Motors, an automobile


                                       16

<PAGE>

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 Director and Vice President of the Company since
February 1998. Between May 1997 and February 1998, Mr. Starke served as Director
of Engineering, Manufacturing and Design of the Company. 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
designs, builds and sells Harley Davidson motorcycles and motorcycle parts.

         Denise O'Brien has served as a Director of the Company since July 1997.
She has been the trading manager for Wanger Asset Management since 1992, where
she is an investment advisor. Ms. O'Brien is the sister of Mr. Starke.

         Gary W. Irving has served as the acting Chief Operating Officer of the
Company since January 5, 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. 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.

         Frank L. Aliano has served as the Company's Vice President of
Production since May 1998. From October 1993 until May 1998, he was Vice
President of Engineering and Product Development for Big Dog Motorcycles which
he helped build as a co-founder. From January 1992 to October 1993, he was the
owner/operator of A&A Performance, in Wichita, Kansas, which fabricated custom
Harley Davidson Motorcycles. From January 1992 to January 1980, 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 1976 to 1980, he was employed by Cummins Southwest as a journeyman
mechanic. From 1972 to 1976, 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.

         Tom McClinton has served as the Director of dealer Relations since June
8, 1998. From 1970 to 1976, he was employed by as a parts department counterman
for Laidlaw's Harley Davidson in Glendale, California, and as a parts manager
for Glendale Harley Davidson in Glendale, California. From 1977 to 1983, he was
Co-Owner of Tom's Harley Davidson Salvage, Rosemead, California., which bought
and sold motorcycle parts and accessories. From 1984 to 1989 he was the National
Account Representative for Custom Chrome, a motorcycle catalog


                                       17

<PAGE>

company accounting for two million dollars worth of sales annually. From 1989 to
1991, he was the Owner/Operator of eagles Nest Cycle & Leather, Sea-Tac,
Washington. From 1992 to 1993, he was the National Sales Manager for
Starwest/Win Products, North Hollywood, California. From 1993 to 1996, he was
the Regional Account Manager for Tucker Rocky/Nempco, in Corona, California.
From 1996 to June, 1998, he was the Vice President of Part & Accessories and
Director of Purchasing for Ultra/Bikers Dream a Custom Motorcycle manufacturing
Company in Riverside, California. Mr. McClinton is under a full-time exclusive
consulting contract to American Quantum Cycles until September 8, 1998, at which
time he will become an employee of the Company.

ITEM 10.          EXECUTIVE COMPENSATION
                  ----------------------

Employment Agreements

Richard K. Hagen, Chief Executive Officer, Chief Financial Officer, President
and Chairman of the Board. Pursuant to a verbal employment agreement between the
Company and Mr. Hagen, in consideration for his services to the Company, Mr.
Hagen receives an annual base salary of $200,000. As additional compensation,
the Company has also granted Mr. Hagen options to purchase up to (i) 150,000
shares of Common Stock of the Company, par value $.001 ("Common Stock") at $5.00
per share exercisable through February 21, 2003, (ii) 200,000 shares of Common
Stock at $6.00 per share which options vest at such time as the Company receives
no less than $4,000,000 from a private offering of its securities and which will
be exercisable for a period of five years thereafter; and (iv) 200,000 shares of
Common Stock at $7.00 per share which will vest at such time as the Company
completes an offering for a minimum of $10 million of its securities.

Jim Cheal, Vice President, Secretary and Director. Pursuant to a verbal
employment agreement with Mr. Cheal, in consideration for his services to the
Company, Mr. Cheal receives an annual base salary of $75,000.

Robert L. Guess, Vice President and Director. Pursuant to a verbal agreement
with Mr. Guess, in consideration for his services to the Company, Mr. Guess
receives an annual base salary of $50,000. As additional compensation, Mr. Guess
received 25,000 shares of Common Stock in October 1997.

Douglas W. Paik, President and Director. Pursuant to a verbal agreement with Mr.
Paik, in consideration for his services to the Company, Mr. Paik receives an
annual base sale of $50,000. As additional compensation, Mr. Paik received
25,000 shares of Common Stock in October 1997.

Michael Smith, Vice President of Sales and Director. Pursuant to a verbal
employment agreement with Mr. Smith, in consideration for his services to the
Company, Mr. Smith receives an annual base sale of $80,000. As additional
compensation, Mr. Smith received options to


                                       18

<PAGE>



purchase up to 10,000 shares of Common Stock at $6.00 per share exercisable
through March 1, 2003.

Jeffrey W. Starke, Vice President and Director. Pursuant to a verbal employment
agreement with Mr. Starke, in consideration for his services to the Company as
of April 1, 1998 Mr. Starke receives an annual base salary of $85,000.

Gary W. Irving, acting Chief Operating Officer. In his capacity as Chief
Operating Officer, Mr. Irving earns a base salary of $175,000, although the
terms of Mr. Irving's employment with the Company have not been fully negotiated
as of the date hereof. In addition to the foregoing, the Company granted Mr.
Irving options to purchase 100,000 shares of Common Stock of the Company at
$5.00 per share which vested on January 1, 1998, and are exercisable through
January 1, 2003.

Frank Aliano, Vice President of Engineering and Design. Pursuant to a verbal
employment agreement with Mr. Aliano, in consideration for his services to the
Company, Mr. Aliano receives an annual base salary of $65,000. As additional
compensation, Mr. Aliano received options to purchase up to 25,000 shares of
Common Stock at $5.00 per share. These shares will vest at equal 6,250 share
amounts at quarterly intervals commencing May 13, 1998 and are exercisable
through May 13, 2003.

Thomas McClinton, Director of Dealer Relations. Pursuant to a contractual
consulting agreement with Mr. McClinton, in consideration for his services to
the Company, Mr. McClinton receives a salary of $8,333.33 monthly for an initial
period of 3 months which commenced on June 9, 1998. As of September 9, 1998 his
Consulting services has been extended for a period of one month, at which time
he will become a full time employee, although the terms of Mr. McClinton's
employment with the Company have not been fully negotiated as of the date
hereof.

1997 Amended Stock Option Plan

Incentive and Nonqualified Stock Option Plan
--------------------------------------------

         On June 15, 1997, the Board of Directors and a majority of the
Company's shareholders ("Majority Shareholders") adopted the Company's 1997
Stock Option Plan (the "Plan"). On February 21, 1998, the Plan was amended by
Consent of the Board of Directors and Majority Shareholders to increase the
number of Plan Options, as hereinafter defined, from 500,000 to 3,000,000.

         The Plan works to increase the employees', consultants' and employee
directors' proprietary interest in the Company and to align more closely their
interests with the interests of the Company's shareholders. The Plan will also
aid the Company in attracting and retaining the services of experienced and
highly qualified professionals. Under the Plan, the Company intends to reserve
an aggregate of 3,000,000 shares of Common Stock for issuance pursuant to
options granted under the Plan ("Plan Options"). The Board of Directors or a
Committee of the Board of Directors (the "Committee") of the Company will
administer the Plan which includes, without limitation, the selection of the
persons who will be granted Plan Options under the Plan, the type of Plan
Options to be granted, the number of shares subject to each Plan Option and the
Plan Option price.

         Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of Common Stock owned
by the


                                       19

<PAGE>

eligible person and receive a new Plan Option to purchase shares of Common Stock
equal in number to the tendered shares. Any Incentive Option granted under the
Plan must provide for an exercise price of not less than 100% of the fair market
value of the underlying shares on the date of such grant, but the exercise price
of any Incentive Option granted to an eligible employee owning more than 10% of
the Company's Common Stock must be at least 110% of such fair market value as
determined on the date of the grant. The term of each Plan Option and the manner
in which it may be exercised is determined by the Board of the Directors or the
Committee, provided that no Plan Option may be exercisable more than 10 years
after the date of its grant and, in the case of an Incentive Option granted to
an eligible employee owning more than 10% of the Company's Common Stock, no more
than five years after the date of the grant. The exercise price of Non-Qualified
Options shall be determined by the Board of Directors or the Committee.

         The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors, key employees and consultants of the Company and its
subsidiaries (if applicable in the future) will be eligible to receive
Non-Qualified Options under the Plan. Only officers, directors and employees of
the Company who are employed by the Company or by any subsidiary thereof are
eligible to receive Incentive Options.

         All Plan Options are nonassignable and nontransferable, except by will
or by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason (other than his death or disability or termination for
cause), or if an optionee is not an employee of the Company but is a member of
the Company's Board of Directors and his service as a Director is terminated for
any reason (other than death or disability), the Plan Option granted to him
shall lapse to the extent unexercised 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 granted to him shall lapse to the extent
unexercised 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(c)(3) of the
Internal Revenue Code of 1986, the Plan Option granted to him lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability.

         The Board of Directors or the Committee may amend, suspend or terminate
the Plan at any time, except that no amendment shall be made which (i) increases
the total number of shares subject to the Plan or changes the minimum purchase
price therefor (except in either case in the event of adjustments due to changes
in the Company's capitalization), (ii) affects outstanding Plan Options or any
exercise right thereunder, (iii) extends the term of any Plan Option beyond ten
years, or (iv) extends the termination date of the Plan. Unless the Plan shall
theretofore have been suspended or terminated by the Board of Directors, the
Plan shall terminate on approximately 10 years from the date of the Plan's
adoption. Any such termination of the Plan shall not affect the validity of any
Plan Options previously granted thereunder.


                                       20

<PAGE>

         As of September 22, 1998, 2,195,000 Plan Options have been granted
pursuant to the Plan, although not all the Plan Options have vested as of the
date hereof.
<TABLE>
<CAPTION>

                                            Summary Compensation Table

                                                 Annual Compensation              Long-Term Compensation
                                                 -------------------------------------------------------
                                                   Awards                Payouts
                                                   -----------------------------

                                   Securities
                                                   Other                   Under-
Name and                                           Annual     Restricted   lying                     All Other
Principal                                          Compen-    Stock        Options/     LTIP         Compen-
Position                  Year  Salary    Bonus    sation     Award(s)     SARs         Payouts      sation
                                   ($)     ($)       ($)       ($)            (#)           ($)           ($)

--------------------------------------------------------------------------------------------------------------
<S>                       <C>      <C>     <C>       <C>       <C>             <C>          <C>           <C>
Richard Hagen             1996     $0      $0        $0        $0              0            $0            $0
President Chief           1997     $0      $0        $0        $0              0            $0            $0
Executive Officer         1998     $13,462 $0        $78,577(1)$0              0            $0            $0
and Chairman of the Board
</TABLE>

(1) Includes (i) $10,500 provided to Mr. Hagen as a relocation allowance; and
(ii) $68,077 paid to Mr. Hagen pursuant to the terms of a consulting agreement.
<TABLE>
<CAPTION>

                                       OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                                (INDIVIDUAL GRANTS)


                                                                Percent of
                                             Number of          Total Options/
                                             Securities         SARs Granted
                                             Underlying         to Employees         Exercise or
                                             Options/SARs       in Fiscal            Base Price         Expiration
                  Name                       Granted (#)        Year                 ($/Sh)             Date
------------------------------------------------------------------------------------------------------------------

<S>                                          <C>                 <C>                  <C>               <C>   
Richard Hagen                                150,000(1)          40.3%                $5.00             2/2003
President and Chief Executive
Officer
</TABLE>


(1) Does not include 200,000 shares issuable upon the exercise of options which
vested during the first quarter of fiscal year 1999 exercisable at $6.00 per
share for a period of five years from the date of vesting.


                                       21

<PAGE>
<TABLE>
<CAPTION>

                          AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
                                                 OPTION/SAR VALUES


                                                                         Number of
                                                                         Securities            Value of
                                                                         Underlying            Unexercised
                                      Shares                             Unexercised           in-the-Money
                                      Acquired                           Options/SARs          Options/SARs
                                      on               Value             at FY-End (#)         at FY-End ($)
                                      Exercise         Realized          Exercisable/          Exercisable/
         Name                            (#)               ($)           Unexercisable         Unexercisable
------------------------------------------------------------------------------------------------------------

<S>                                      <C>               <C>           <C>                   <C>
Richard Hagen                            0                 $0            150,000               $0
President and Chief Executive
Officer
</TABLE>


<TABLE>
<CAPTION>

                              LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR


                                 Number            Performance          Estimated Future Payouts Under
                                 of Shares,        or Other             Non-Stock Price-Based Plans
                                 Units or          Period Until         ------------------------------
                                 Other Rights      Maturation           Threshold      Target       Maximum
             Name                    (#)           or Payout            ($ or #)       ($ or #)     ($ or #)
-------------------------------------------------------------------------------------------------------------

<S>                                  <C>           <C>                  <C>            <C>          <C>
Richard Hagen                        0             0                    0              0            0
President and Chief Executive 
Officer(1)
</TABLE>


                                       22

<PAGE>

(1) Mr. Hagen was appointed Chief Financial Officer on September 22, 1998.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the outstanding Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership on Form 3 and
reports of changes in ownership of Common Stock on Forms 4 or 5. Such persons
are required by SEC regulation to furnish the Company with copies of all such
reports they file.

         Based solely on its review of the copies of such reports furnished to
the Company or written representations that no other reports were required, the
Company believes that all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with during the year ended April 30, 1997 and through September 22, 1998.


                                       23

<PAGE>




ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT
                  ---------------------------------------------------

         The following table sets forth certain information regarding the
Company's Common Stock beneficially owned on September 22, 1998, (i) by each
person who is known by the Company to own beneficially or exercise voting or
dispositive control over 5% or more of the Company's Common Stock, (ii) by each
of the Company's directors, and (iii) by all executive officers and directors as
a group. At September 22, 1998, there were 2,827,545 shares of Common Stock
outstanding. This information as to beneficial ownership was furnished to the
Company by or on behalf of the persons named. In general, a person is deemed to
be 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 or to direct
the disposition of such security. A person is also deemed to be a beneficial
owner of any securities of which the person has the right to acquire beneficial
ownership within (60) days.
<TABLE>
<CAPTION>

                                                             No. of Shares                         Percent of
Name and Address or                                          of Common Stock                       Beneficial
Identity of Group(1)                                         Beneficially Owned                    Ownership
--------------------                                         ------------------                    ---------

<S>                                          <C>                         <C>                            <C>  
Richard Hagen, Chairman, President, CFO & CEO(2)                         350,000                        12.4%
Jim Cheal, Vice President, Director(3)                                   605,195                        20.4%
Robert Guess, Vice President                                              25,000                            *
Doug Paik, Vice President, Secretary, Director                            26,000                            *
Michael Smith, Vice President(4)                                          10,000                            *
Jeffrey W.  Starke, Vice President, Director(5)                                0                            0
Denise O'Brien, Director                                                 655,195                        23.2%
Gary Irving, COO(6)                                                      200,000                         7.1%
Frank Aliano, Vice President(7)                                           12,500                            *
Doreen Cheal(8)                                                          605,195                        20.4%
All Executive Officers and Directors
as a group (9 persons)                                                 1,883,890                        66.6%
</TABLE>
--------------

(1)      Unless otherwise indicated, the address of each of the persons set
         forth below is 711-731 Washburn Road, Melbourne, FL 32934.

(2)      Includes (i) 150,000 shares of common stock underlying options
         exercisable at $5.00 per share through February 21, 1998; and (ii)
         200,000 shares of common stock underlying options exercisable at $6.00
         per share through April 30, 2003.

(3)      Includes 605,195 shares of common stock of the Company owned by Doreen
         Cheal, the wife of Jim Cheal.



                                       24

<PAGE>



(4)      Includes 10,000 shares of common stock underlying options exercisable
         at $6.00 per share through March 1, 2003.

(5)      Jeff Starke is the brother of Denise O'Brien.

(6)      Includes (i) 100,000 shares of common stock underlying options
         exercisable at $5.00 per share through January 1, 2003; (ii) 100,000
         shares of common stock exercisable at $6.00 through April 2, 2003.

(7)      Includes shares of common stock underlying options exercisable at $5.00
         per share through May 13, 2003.

(8)      Doreen Cheal is the wife of Jim Cheal.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
                  ----------------------------------------------

      On May 9, 1997, pursuant to the terms of a purchase agreement (the
"initial Agreement") the Company issued an aggregate of 2,414,284 shares of
Common Stock to Doreen Cheal (1,207,142 shares) and Denise O'Brien (1,207,142
shares) in exchange for a motorcycle prototype and certain equipment required to
manufacture and market the prototype motorcycle, including, but not limited to,
computers and office equipment, a motorcycle marketing and transportation
trailer, a valve cutting machine, a flywheel trueing machine and a honing
machine (the "Assets"). The Assets were valued at $116,608. On April 9, 1998, an
aggregate of 503,894 shares of Common Stock that were issued pursuant to the
Initial Agreement was returned to the Company after the value of the Assets was
adjusted to reflect the fact that the Assets had initially been overvalued. See
"Management".

      In connection with the transaction contemplated by the Initial Agreement,
Mr. Jim Cheal (husband of Doreen Cheal) and Mr. Jeff Starke (brother of Denise
O'Brien), the Company's Founders and Vice President, entered into five (5) year
employment agreements with the Company, with base salaries of $50,000 each (the
"Employment Agreements"). On February 21, 1998, the Employment Agreements were
cancelled with the consent of Messrs. Cheal and Starke, and in lieu thereof,
Messrs. Cheal and Starke entered verbal executive employment agreements with the
Company. See "Executive Compensation".

      On June 5, 1998, certain members of Management returned an aggregate of
700,000 shares of Common Stock to the Company for the purpose of improving the
capitalization of the Company.


ITEM 13.          EXHIBITS, LIST AND REPORTS ON FORM 8-K
                  --------------------------------------

      (a)The financial statements listed on the index to financial statements on
page F-1 are filed as part of this Form 10-KSB.


                                       25

<PAGE>

      (b)Reports on Form 8-K

            None.


      (c)Exhibits
<TABLE>
<CAPTION>

Exhibits          Description of Document
<C>               <S>                                                                          
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)
2.3               Amended and Restated Bylaws of American Quantum Cycles, Inc.(1)
3.2               American Quantum Cycles, Inc. Amended 1997 Stock Option Plan(1)
6.1               Consulting Agreement between American Quantum Cycles, Inc. and
                  Greenstone Financial Corporation dated May 9, 1997.(1)
6.2               License Agreement between Feuling Advanced Technologies, Inc. and American
                  Quantum Cycles, Inc. dated as of August 19, 1997.(1)
6.3               Agreement between the Company and Ferrex International, Inc.(1)
6.4               Dealer Agreement between the Company and Paul Jackson(1)
6.5               Lease Agreement between the Company and Bruce and Karen Weiss effective
                  May 1, 1997(1)
6.6               Amendment to Lease Agreement between the Company and Bruce and
                  Karen Weiss dated January 29, 1998.(1)
27                Financial Data Schedule
</TABLE>

----------------
(1) Incorporated by reference to the exhibit of the same number filed with the
Company's registration statement on Form 10-SB filed April 24, 1998 (File No.
000-24083).


                                       26

<PAGE>



                                    SIGNATURE
                                    ---------

         In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized on this day of September 1998.

                                          AMERICAN QUANTUM CYCLES, INC.


                                          By:/s/ Richard Hagen
                                             -----------------------
                                               Richard Hagen
                                             Chairman of the Board of Directors,
                                             Chief Executive Officer,
                                             Chief Financial Officer
                                             and President

         Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>

SIGNATURE                                            TITLE                                              DATE
---------                                            -----                                              ----
<S>                                                  <C>                                                <C>    

                                                     Chairman of the
                                                     Board of Directors,
/s/Richard Hagen                                     Principal Executive Officer,
----------------                                     Principal Financial Officer                        September  23, 1998
Richard Hagen                                        and President                                                          
                                                     


/s/Jim Neal                                          Vice President
---------------                                      and Director                                       September  23, 1998
Jim Cheal                                                                                                                  



/s/ Douglas Pail                                     Vice President
----------------                                     and Director                                       September  23, 1998
Douglas Paik                                                                                                                


/s/ Jeffrey W. Starke                                Vice President
---------------------                                and Director                                       September  23, 1998
Jeffrey W. Starke                                                                                                                 


/s/ Denise O'Brien
------------------                                   Director                                           September  23, 1998
Denise O'Brien                                                                                                                   




<PAGE>


/s/  Gary Irving                                     Acting Chief Operating Officer                     September 23, 1998
----------------                                                                                        
Gary Irving

/s/ Linda Condon                                     Principal Accounting Officer                       September  23, 1998
----------------                                                                                
Linda Condon

</TABLE>

                                                                 28

<PAGE>



                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)


                              FINANCIAL STATEMENTS
                                 APRIL 30, 1998




<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
American Quantum Cycles, Inc.

         We have audited the accompanying balance sheet of American Quantum
Cycles, Inc. as of April 30, 1998 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for the years ended April 30,
1998, 1997 and 1996, and for the period from March 20, 1986 (inception) to April
30, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American Quantum
Cycles, Inc. as of April 30, 1998 and 1997 and the results of its operations and
its cash flows for the years ended April 30, 1998, 1997 and 1996, and for the
period from March 20, 1986 (inception) to April 30, 1998 in conformity with
generally accepted accounting principles.



                                                             Pricher and Company



Orlando, Florida
September 21, 1998


                                      F-2

<PAGE>

                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                                  BALANCE SHEET

                             April 30, 1998 and 1997
<TABLE>
<CAPTION>
                                                                                     1998                      1997
                                                                             ---------------------     ---------------------
      ASSETS
      ------
<S>                                                                          <C>                       <C>                 

Current assets:
      Cash and cash equivalents                                              $             48,768      $            244,985
      Accounts receivable                                                                  35,602
      Prepaid expenses                                                                     39,308                     4,165
      Inventories                                                                         763,158
                                                                             ---------------------     ---------------------
           Total current assets                                                           886,836                   249,150
                                                                             ---------------------     ---------------------

Property and equipment                                                                    649,499
      Less accumulated depreciation                                                        62,486
                                                                             ---------------------     ---------------------
                                                                                          587,013
                                                                             ---------------------     ---------------------

Other assets:
      Deposits                                                                             40,700
      Licenses and intellectual rights, less accumulated
            amortization of $12,565                                                       349,667
                                                                             ---------------------     ---------------------
                                                                                          390,367
                                                                             ---------------------     ---------------------

                                                                             $          1,864,216      $            249,150
                                                                             =====================     =====================

      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
      ---------------------------------------------

Current liabilities:
      Accounts payable                                                       $            370,658      $
      Accrued liabilities                                                                 317,103                       767
      Current maturities of long-term debt                                                 20,183
      Current capital lease obligations                                                    24,006
      Notes payable                                                                     2,317,500                   221,770
                                                                             ---------------------     ---------------------
           Total current liabilities                                                    3,049,450                   222,537
                                                                             ---------------------     ---------------------

Capital lease obligations, less current maturities                                         75,598
Long-term debt, less current maturities                                                    42,378
                                                                             ---------------------     ---------------------
                                                                                          117,976
                                                                             ---------------------     ---------------------

Stockholders' equity (deficit):
      Common stock, par value $.001 per share; authorized
           50,000,000 shares, issued and outstanding
           2,471,045 and 900,000 shares                                                     2,471                       900
      Preferred stock, par value $.001 per share; authorized
           2,500,000 shares, no shares issued and outstanding
      Additional paid-in capital                                                        1,328,664                    28,347
      Deficit accumulated during the development stage                                 (2,634,345)                   (2,634)
                                                                             ---------------------     ---------------------
           Total stockholders' equity (deficit)                                        (1,303,210)                   26,613
                                                                             ---------------------     ---------------------

                                                                             $          1,864,216      $            249,150
                                                                             =====================     =====================
</TABLE>


                See accompanying notes to financial statements.

                                      F-3
<PAGE>

                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                   STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

        For the Period from March 20, 1986 (inception) to April 30, 1998

<TABLE>
<CAPTION>
                                                                                              
                                                    Common Stock                              Deficit      
                                             ---------------------------                    Accumulated  
                                                                           Additional        During the        Total
                                              Number of        Par           Paid-In        Development     Stockholders'
                                               Shares         Value          Capital            Stage      Equity (Deficit)
                                             -----------  --------------  --------------  ---------------  ---------------

<S>                                                 <C>     <C>             <C>            <C>               <C>         
 Issuance of common stock,
    March 20, 1986                                  500     $       500     $               $                $        500

 Net income (loss) from inception to
   April 30, 1996
                                             -----------    ------------    ------------    -------------    -------------

 Balance, April 30, 1996                            500             500                                               500

 1,000 for 1 stock split                        499,500

 Stock issued for consulting services           275,000             275                                               275

 Stock issued to bridge loan participants       125,000             125          28,347                            28,472

 Net loss for the year ended
   April 30, 1997                                                                                 (2,634)          (2,634)
                                             -----------    ------------    ------------    -------------    -------------

 Balance, April 30, 1997                        900,000             900          28,347           (2,634)          26,613

 Common stock issued in exchange
   for equipment and services                 1,261,075           1,261          93,748                            95,009

 Private placement of common stock
   for cash, net of issuance costs              245,744             246         949,728                           949,974

 Employee stock bonuses recorded
   as compensation expense                       51,300              51         205,150                           205,201

 Common stock issued to a dealership
   for promotional expense                       10,000              10          39,990                            40,000

 Stock issued to lenders for interest
   on bridge loans                                2,926               3          11,701                            11,704

 Net loss for the year ended
   April 30, 1998                                                                             (2,631,711)      (2,631,711)
                                             -----------    ------------    ------------    -------------    -------------

 Balance, April 30, 1998                      2,471,045     $     2,471     $ 1,328,664      $(2,634,345)    $ (1,303,210)
                                             ===========    ============    ============    =============    =============
</TABLE>


                See accompanying notes to financial statements.

                                      F-4
<PAGE>
                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                             STATEMENT OF OPERATIONS

                    Years Ended April 30, 1998, 1997 and 1996
        and the Period from March 20, 1986 (inception) to April 30, 1998

<TABLE>
<CAPTION>
                                                                                                              March 20, 1986
                                                                                                               (inception)
                                                 1998                 1997                1996              to April 30, 1998
                                           ----------------     ----------------    ------------------    --------------------
<S>                                        <C>                  <C>                 <C>                   <C>                
Sales                                      $       192,856      $                   $                     $           192,856
                                           ----------------     ----------------    ------------------    --------------------

Cost and expenses:
   Cost of goods sold                              173,424                                                            173,424
   General and administrative                    2,453,062                1,542                                     2,454,604
                                           ----------------     ----------------    ------------------    --------------------
                                                 2,626,486                1,542                                     2,628,028
                                           ----------------     ----------------    ------------------    --------------------

        Loss from operations                    (2,433,630)              (1,542)                                   (2,435,172)
                                           ----------------     ----------------    ------------------    --------------------

Other income (expense):
   Loss on disposition of  property and
         equipment                                 (13,956)                                                           (13,956)
   Interest and other income                         3,107                                                              3,107
   Interest expense                               (187,232)              (1,092)                                     (188,324)
                                           ----------------     ----------------    ------------------    --------------------
                                                  (198,081)              (1,092)                                     (199,173)
                                           ----------------     ----------------    ------------------    --------------------

        Net loss                           $     2,631,711      $        (2,634)    $                     $        (2,634,345)
                                           ================     ================    ==================    ====================

Loss per common share:

   Weighted average shares
        outstanding                              2,007,844              591,716               500,000
                                           ================     ================    ==================

   Net loss                                $        (1.311)     $        (0.004)    $            0.00     $            (1.315)
                                           ================     ================    ==================    ====================

</TABLE>

                 See accompanying notes to financial statements.

                                      F-5
<PAGE>
                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                             STATEMENT OF CASH FLOWS

                    Years Ended April 30, 1998, 1997 and 1996
        and the Period from March 20, 1986 (inception) to April 30, 1998
<TABLE>
<CAPTION>
                                                                                                           March 20, 1986
                                                                                                             (inception)
                                                         1998              1997               1996        to April 30, 1998
                                                    ---------------   ----------------   ---------------  -----------------
<S>                                                 <C>               <C>                <C>                               
Cash flows from operating activities:
    Reconciliation of net loss to net cash used in
        operating activities:
    Net loss                                        $   (2,631,711)   $        (2,634)   $                 $    (2,634,345)
    Items not requiring (providing) cash:
       Loss on disposition of equipment                     13,956                                                  13,956
       Depreciation and amortization                        75,051              1,092                               76,143
       Issuance of common stock for services
          and interest                                     304,409                275                              304,684
    Changes in assets and liabilities:
       Receivables                                         (35,602)               500                              (35,102)
       Inventories                                        (763,158)                                               (763,158)
       Prepaid expenses                                    (35,143)                                                (35,143)
       Other assets                                        (40,700)                                                (40,700)
       Accounts payable                                    370,658                                                 370,658
       Accrued liabilities                                 316,336                767                              317,103
                                                    ---------------   ----------------   ---------------   ----------------
          Net cash used in operating activities         (2,425,904)                                             (2,425,904)
                                                    ---------------   ----------------   ---------------   ----------------

Cash flows from investing activities:
    Capital expenditures                                  (615,950)                                               (615,950)
    Investment in licenses and intellectual rights        (362,232)                                               (362,232)
                                                    ---------------   ----------------   ---------------   ----------------
          Net cash used in investing activities           (978,182)                                               (978,182)
                                                    ---------------   ----------------   ---------------   ----------------

Cash flows from financing activities:
    Proceeds from issuance of notes payable              2,317,500            244,985                            2,562,485
    Repayment of notes payable                            (221,770)                                               (221,770)
    Long-term borrowing                                    175,159                                                 175,159
    Repayment of long-term debt                            (12,994)                                                (12,994)
    Proceeds from issuance of common stock                 949,974                                                 949,974
                                                    ---------------   ----------------   ---------------   ----------------
          Net cash provided by financing activities      3,207,869            244,985                            3,452,854
                                                    ---------------   ----------------   ---------------   ----------------

       Net increase (decrease) in cash                    (196,217)           244,985                               48,768

       Cash, beginning of year                             244,985
                                                    ---------------   ----------------   ---------------   ----------------

       Cash, end of year                            $       48,768    $       244,985    $                 $        48,768
                                                    ===============   ================   ===============   ================


Supplemental cash flow information:

    Amounts paid for:
       Interest                                     $        5,332    $                  $                 $         5,332
                                                    ===============   ================   ===============   ================

       Income taxes                                 $                 $                  $                 $
                                                    ===============   ================   ===============   ================
</TABLE>

                 See accompanying notes to financial statements.

                                      F-6

<PAGE>
                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                          Notes to Financial Statements


1        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of business and organization - American Quantum Cycles, Inc., a
Florida corporation, ("The Company") designs, produces, markets, distributes and
sells American-made, high performance V-twin engine cruiser and touring style
motorcycles. These motorcycle products include stock models and motorcycles
built to customer specified configurations. The Company was originally
incorporated on March 20, 1986 as "Norbern, Inc." and was inactive until March
1997 when it began developing and implementing its business and financing plans.
On May 8, 1997 the Company changed its name to American Quantum Cycles, Inc. and
its fiscal year end to April 30.

         Basis of presentation - As of April 30, 1998, the Company is still
considered to be in the development stage as substantially all of its efforts to
date have been devoted to raising capital, developing technological resources,
entering into employment agreements with key executives, leasing facilities and
securing licensing and dealership agreements. Sales during 1998 were minimal
compared to planned operations. The accompanying financial statements for years
prior to 1998 are presented on an April 30 fiscal year end which does not
require restatement since the Company had no operations prior to March 1997.

         Cash and cash equivalents - For purposes of the statement of cash
flows, the Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.

         Inventories - Inventories are carried at the lower of cost or market,
with cost principally determined under the average cost method.

         Property and equipment - Property and equipment are carried at cost.
Depreciation is recorded principally on the straight-line method at rates based
on the estimated useful lives of the assets which range from three to seven
years. The book value of obsolete assets is charged to depreciation expense when
they are scrapped. Profits or losses from the sale of assets are included in
other income. Repairs and maintenance are charged to expense as incurred.

         Intangible Assets - Intangible assets consist of licenses and
intellectual rights and are amortized on the straight-line method over fifteen
years.

         Income taxes - Deferred taxes are recognized for temporary differences
between the basis of assets and liabilities for financial statements and income
tax purposes. The differences relate primarily to depreciable assets (using
accelerated depreciation methods for income tax purposes), the allowance for
doubtful accounts (deductible for financial statement purposes but not for
income tax purposes), stock-based compensation, and net operating loss
carryforwards.

         Concentration of credit risk - The Company occasionally maintains
deposits in excess of federally insured limits. Statement of Financial
Accounting Standards No. 105 identifies these items as a concentration of credit
risk requiring disclosure, regardless of the degree of risk. The risk is managed
by maintaining all deposits in high quality financial institutions.

                                      F-7
<PAGE>

                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                          Notes to Financial Statements


Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.


2        INVENTORIES

         Inventories at April 30, 1998 are comprised as follows:


         Finished goods                                            $    13,787
         Work in process                                                66,796
         Purchased raw materials                                       682,575
                                                                   -----------

                                                                   $   763,158
                                                                   ===========
There were no inventories as of April 30, 1997.


3        PROPERTY AND EQUIPMENT

         Property and equipment includes the following:

         Leasehold improvements                                     $   52,750
         Manufacturing tools and equipment                             142,805
         Office furniture, equipment and software                      308,025
         Vehicles                                                      145,919
                                                                    ----------

                                                                    $  649,499
                                                                    ==========

         Depreciation expense for the year ended April 30, 1998 amounted to $
62,486. As of April 30, 1997, the Company had not yet acquired any property and
equipment, accordingly, there was no depreciation expense for years prior to
1998.

                                      F-8
<PAGE>
                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                          Notes to Financial Statements


4        LICENSES AND INTELLECTUAL PROPERTY

Licenses and intellectual property are comprised of the following:


         Proprietary technology license                            $   235,000
         Intellectual property rights                                  127,232
                                                                   -----------
                                                                       362,232
         Less accumulated amortization                                 (12,565)
                                                                   -----------

                                                                   $   349,667
                                                                   ===========

         In August 1997, the Company entered into a license agreement (the
"Agreement") with Feuling Advanced Technologies, Inc. whereby the Company
obtained a license to use certain proprietary technologies including, among
other things, patents, trade secrets, techniques, tooling designs, product
designs, and trademarks. Pursuant to the terms of the Agreement, as long as the
Company complies with certain other provisions including non-disclosure of the
proprietary technology, the Company has an exclusive license, for motorcycle
applications, in perpetuity for the 4-Valve technology. This technology will be
used in connection with the Company motorcycles and bolt-on kits for the Harley
Davidson motorcycles which feature the evolution engine, evolution big twin,
other Harley Davidson clones and aftermarket parts.


5        NOTES PAYABLE

         Notes payable at April 30, 1998 consist of:

10% Subordinated Bridge Loans - The Company issued eight unsecured promissory
notes dated March 30, 1998 to individuals providing bridge loan financing. The
aggregate principal balance of the notes at April 30, 1998 is $650,000 with
interest payable at 10% at maturity on September 30, 1998. The terms of the loan
agreements provide for the Company to issue a total of 130,000 shares of common
stock to the note holders at maturity in order to obtain a favorable interest
rate and repayment terms. Additional interest expense (equal to the fair value
of the common stock to be issued minus the conversion price) will be recognized
over the term of the loans.

Convertible Debentures - The Company has issued two separate series of
convertible notes to investors:

         Beginning in October 1997, the Company issued thirty-four 8%
Subordinated Notes, for an aggregate of $1,524,500. The notes mature one year
from date of issue, convertible at $2.00 per share. Interest is convertible at
the same rate as the principal, at the discretion of the note holder. Additional
interest expense of $381,125 (equal to the fair value of the common stock
assumed to be issued minus the conversion price) will be recognized over the
term of the loans. During the year ended April 30, 1998, $125,168 of such
additional interest expense was accrued.

                                      F-9
<PAGE>

                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                          Notes to Financial Statements


         Beginning in April 1998, the Company issued three 7% Subordinated
Notes, for an aggregate of $143,000. The notes mature one year from the date of
issue, convertible at $8.00 per share. Interest is payable in cash or
convertible at the same rate as the principal, at the discretion of the Company.
A warrant is attached at 10% above the final price of a proposed secondary
offering.

         Notes payable at April 30, 1997 consisted of seven unsecured promissory
notes dated April 16, 1997 with principal aggregating $250,000. Interest at 8%
and principal were paid at maturity in September, 1997.


6             LONG-TERM DEBT
<TABLE>
<CAPTION>
<S>                                                                                             <C>                    
Long-term debt at April 30, 1998 is as follows:

Installment loan, monthly payments of $618 including interest
at 8.75%, matures September, 2002, secured by a vehicle                                          $  27,074

Three installment notes payable to individuals for the purchase of intellectual
property rights, monthly payments aggregating $1,389 including interest at 8% to
10%, matures January, 2001
and 2002, secured by property rights                                                                35,487
                                                                                                 ---------
                                                                                                    62,561
Less current maturities                                                                             20,183
                                                                                                 ---------

Total long-term debt                                                                             $  42,378
                                                                                                 =========
</TABLE>

The aggregate maturities of total long-term debt during the next five years are
$20,182 in 1999, $19,461 in 2000, $13,073 in 2001, $6,822 in 2002 and $3,023 in
2003.


7             LEASES

         Capital leases - The Company leases various manufacturing, production,
telephone and computer equipment under capital lease agreements with terms of
three to five years through February, 2002. The economic substance of the leases
is that the Company is financing the acquisition of the assets, and accordingly,
they are capitalized as property and equipment. The leases contain bargain
purchase options at the end of the lease terms.

                                      F-10
<PAGE>
                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                          Notes to Financial Statements


The following is an analysis of the leased assets included in property and
equipment as of April 30, 1998:

         Telephone equipment                                    $      16,452
         Computer equipment                                            49,142
         Machinery and production equipment                            41,479
                                                                -------------
                                                                      107,073
         Less accumulated amortization                                 (7,489)
                                                                -------------

                                                                $      99,584
                                                                =============
         The following is a schedule by years of future minimum payments
required under the leases together with their present value as of April 30,
1998:
<TABLE>
<CAPTION>

                      Year ending
                       April 30,                                              Amount
                   ------------------                                  ------------------
<S>                      <C>                                           <C>              
                         1999                                          $          35,308
                         2000                                                     35,308
                         2001                                                     32,378
                         2002                                                     21,276
                         2003                                                      4,030
                                                                       ------------------
                          Total minimum lease payments                           128,300
                          Less amount representing interest                      (28,697)
                                                                       ------------------
                          Present value of minimum lease payments      $          99,604
                                                                       ==================
</TABLE>

         Operating leases - The Company leases its facilities and other real
property under noncancelable operating leases with terms of one to four years
expiring in February, 2002. The Company is also responsible for real estate
taxes on the leased facilities. Rent expense under these leases was $ 83,155 for
the year ended April 30, 1998. The following is a schedule of future minimum
lease payments required under operating leases:

                          Year ending
                           April 30,                                  Amount
                       ------------------                        ---------------
                             1999                                $    133,956
                             2000                                $     69,756
                             2001                                $     69,756
                             2002                                $     58,130

                                      F-11
<PAGE>

                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                          Notes to Financial Statements


8             CONTINGENCIES

         Results of operations in the future will be influenced by numerous
factors including technological developments, competition, regulation, increases
in expenses associated with sales growth, market acceptance of the products of
the Company, the capacity of the company to expand and maintain the quality of
its motorcycles and related services, continued development of the dealer
organization, favorable sourcing of supplies, recruitment of highly skilled
employees and integration of such persons into a cohesive organization, and the
ability of the Company to raise funds and control costs


9             SECURITY TRANSACTIONS

         Following is a summary of security transactions during the year ended
April 30, 1998:

         On May 21, 1997 the Company issued 1,261,075 shares of common stock
valued at $95,009 for management services, equipment and other assets (See
Subsequent Events - Note 14).

         In September, 1997 the Company issued 245,744 shares of common stock in
a private placement. The net proceeds of the offering of $949,974 were used to
repay debt of $250,000 (see note 5) and to provide working capital.

         On October 24, 1997 and December 31, 1997, 50,000 and 1,300 shares,
respectively, of common stock valued at $205,201 were issued to key employees as
performance bonuses (See Subsequent Events - Note 14).

         On December 15, 1997, 10,000 shares of common stock valued at $40,000
were issued to a dealership and recorded as promotional expense and 2,926 shares
valued at $11,794 were issued to bridge lenders and recorded as interest
expense.


10            PREFERRED STOCK

         As of April 30, 1998, the Company was authorized to issue up to
2,500,000 shares of $.001 par value Preferred Stock. Preferred Stock is
designated as the "Series A 7% Convertible Preferred Stock" and has a stated
value of $6.00 per share. Dividends of 7% of the stated value accrue and are
payable semi-annually. Each share of Preferred Stock is convertible into one
share of common stock at the option of the shareholder. No preferred shares have
been issued.

                                      F-12
<PAGE>
                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                          Notes to Financial Statements



11            INCOME TAXES

         The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting For Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires that
the Company use the liability method which attempts to recognize the future tax
consequences of temporary differences between the book and tax bases of assets
and liabilities.

         At April 30, 1998, the Company has net operating loss carryforwards
totaling approximately $2,600,000 that may be offset against future taxable
income through 2012. No tax benefit has been reported in the 1998 financial
statements, however, because the Company believes there is at least a 50% chance
that the carryforwards will expire unused. Accordingly, a $1,040,000 tax benefit
of the loss carryforward has been offset by a valuation allowance of the same
amount. The expected tax benefit that would result from applying federal
statutory tax rates to the pretax loss differs from amounts reported in the
financial statements primarily because of the increase in the valuation
allowance.

         The company paid no income taxes since its inception.


12            LOSS PER COMMON SHARE

     Loss per common share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period. All
share and per share data, except shares authorized, have been retroactively
adjusted to reflect a 1,000 for 1 stock split effective March 25, 1997.


13            STOCK OPTIONS

         On May 9, 1997 (and as amended June 3, 1997) the Company entered into a
consulting agreement with Greenstone Financial Corp. ("GFC") to assist the
Company with corporate development and strategic business planning. Under terms
of the agreement, the Company granted GFC an option to purchase up to 250,000
shares of Company common stock based upon the successful completion of a private
placement of Company common stock (see note 9), with each option exercisable at
$4.00 per share. Also under the terms of the agreement, as amended, the Company
granted GFC a five year option to purchase 300,000 shares of Company common
stock, exercisable when and if there is a successful completion of a secondary
offering of the Company's common stock, at an exercise price of $0.10 per share.

                                      F-13
<PAGE>

                          AMERICAN QUANTUM CYCLES, INC.
                          (A Development Stage Company)

                          Notes to Financial Statements


         On June 15, 1998, the Company adopted the "1997 Stock Option Plan" (the
"Plan"). Under the Plan, 3,000,000 shares of common stock are reserved for
issuance upon exercise of options granted to management, key employees and
consultants. The plan provides for the granting of either "incentive stock
options" or "non-qualified stock options", as defined under the Internal Revenue
Code. Options may be granted at prices not less than 100 percent of the fair
market value at the date of grant and may be exercisable with a term not
exceeding ten years. As of April 30, 1998, the Company has granted common stock
options to plan participants as follows:

         Exercise Price                       Number of Options
         --------------                       -----------------

            $ 5.00                                   405,000
            $ 6.00                                   315,000
            $ 7.00                                   500,000
            $ 8.00                                   685,000
                                                  ----------

             Total options granted                 1,905,000
                                                  ==========

No options have been exercised as of April 30, 1998 (See Subsequent Events -
Note 14)


14       SUBSEQUENT EVENTS

         On August 11, 1998 the Company retroactively reduced an employee stock
bonus awarded to two individuals on October 24, 1997, from 100,000 shares to
50,000 shares. The reduced number of shares have been recorded as compensation
expense of $200,000 for the year ended April 30, 1998 based on a value of $4.00
per share (See Note 9).

         Also, on August 11, 1998 the Company retroactively reduced the number
of common shares issued in an exchange for certain property and equipment on May
21, 1997, from 1,911,075 shares to 1,261,075 shares. The exchange has been
recorded as a capital expenditure during the year ended April 30, 1998 based on
the fair market value of the equipment (See Note 9).

         As of September 21, 1998, the board of directors is considering
rescinding all of the common stock options previously granted under the 1997
Stock Option Plan, however, no formal action has been approved (See Note 13).


                                      F-14