<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1997
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From _______________ to ________________.
Commission file number 000-22765
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1771946
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
805 Hanlon Drive
Belle Plaine, Minnesota 56011
- ---------------------------------------- ----------------
(Address of principal executive offices) (Zip code)
(612) 873-5700
-----------------------------------------
Registrant's telephone number
Former Address: 607 West Travelers Trail, Burnsville, Minnesota 55337
----------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes /X/ No / /
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date: Common Stock, $.01
par value --13,020,159 issued and outstanding as of November 7, 1997.
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
Item 1. Financial Statements:
Balance Sheets (Unaudited) as of December 31, 1996
and September 30, 1997 3
Statements of Operations (Unaudited)
for the Three Months Ended
September 30, 1996 and 1997 4
Statements of Operations (Unaudited) for the
Nine Months Ended September 30, 1996 and 1997
and Cumulative for the Period from
Inception (December 22, 1993) to September 30, 1997 5
Statements of Cash Flows (Unaudited)
for the Nine Months Ended
September, 1996 and 1997 and Cumulative for the Period from
Inception (December 22, 1993) to September 30, 1997 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
PART II. OTHER INFORMATION 13
SIGNATURES 16
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Balance Sheets
(Unaudited)
December 31, September 30,
1996 1997
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $5,376,601 $29,604,127
Short-term investments 4,044,992 --
Other current assets 9,119 27,591
---------- -----------
Total current assets 9,430,712 29,631,718
PROPERTY AND EQUIPMENT,
net of accumulated depreciation
of $76,250 and $114,312 229,082 773,735
INTELLECTUAL PROPERTY, to be amortized 135,384 184,985
CONSTRUCTION ESCROW AND OTHER 228,222 3,818,839
----------- -----------
$10,023,400 $34,409,277
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 123,236 $ 60,673
Accrued liabilities 198,751 474,271
Note payable 70,086 357,239
----------- -----------
Total current liabilities 392,073 892,183
----------- -----------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock,
3,342,666 shares authorized, par value
of $.01; 3,066,527 shares issued and
outstanding at December 31, 1996,
none at September 30, 1997 30,665 --
Common Stock, 16,666,666 shares authorized,
par value of $.01; 5,870,231 and
12,997,987 shares issued and outstanding 58,702 129,980
Additional paid-in capital 13,677,748 41,066,804
Deficit accumulated during the development stage (4,135,788) (7,679,690)
----------- -----------
Total stockholders' equity 9,631,327 33,517,094
----------- -----------
$10,023,400 $34,409,277
----------- -----------
----------- -----------
The accompanying notes are an integral part of these balance sheets.
3
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EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations
(Unaudited)
Three Months Ended
September 30
------------------------
1996 1997
--------- ---------
PREOPERATING EXPENSES:
Research and development $351,691 $620,633
Marketing 170,013 628,624
General and administrative 243,554 505,633
-------- --------
Total preoperating expenses 765,258 1,754,890
INTEREST INCOME 25,299 298,186
INTEREST EXPENSE (1,205) (6,016)
--------- -----------
NET LOSS $(741,164) $(1,462,720)
--------- -----------
--------- -----------
NET LOSS PER COMMON SHARE $(0.08) $(0.13)
--------- -----------
--------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,805,500 11,207,595
--------- -----------
--------- -----------
The accompanying notes are an integral part of these financial statements.
4
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EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations (continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Cumulative for the
September 30 Period from Inception
----------------------- (December 22, 1993)
1996 1997 to September 30, 1997
--------- ---------- ---------------------
<S> <C> <C> <C>
PREOPERATING EXPENSES:
Research and development $918,377 $1,533,326 $3,617,032
Marketing 360,282 1,291,571 2,124,915
General and administrative 634,020 1,171,227 2,590,980
---------- ----------- ------------
Total preoperating expenses 1,912,679 3,996,124 8,332,927
INTEREST INCOME 53,469 461,571 679,329
INTEREST EXPENSE (2,309) (9,349) (26,092)
----------- ----------- ------------
NET LOSS $(1,861,519) $(3,543,902) $(7,679,690)
----------- ----------- ------------
----------- ----------- ------------
NET LOSS PER COMMON SHARE $(0.31) $(0.45) $(1.40)
----------- ----------- ------------
----------- ----------- ------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,989,936 7,812,986 5,488,186
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Cumulative For The Period
Nine Months Ended September 30 From Inception
--------------------------------- (December 22, 1993) to
1996 1997 September 30, 1997
---------------- ------------- --------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,861,519) $(3,543,902) $(7,679,690)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation 32,224 72,393 148,643
Change in current assets and liabilities:
Other current assets 2,731 (18,472) (27,591)
Accounts payable 73,217 (62,563) 60,673
Accrued liabilities 47,727 275,520 474,271
------------ ------------ ------------
Net cash used in operating activities (1,705,620) (3,277,024) (7,023,694)
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of short-term investments, net 912,630 -- --
Proceeds from sale of short-term investments -- 4,044,992 --
Property and equipment additions (91,509) (617,046) (917,368)
Payments made for intellectual property (29,636) (49,601) (184,985)
Payments to construction escrow and other -- (3,590,617) (3,818,839)
------------ ------------ ------------
Net cash used in investing activities 791,485 (212,272) (4,921,192)
------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from notes payable 75,025 293,362 498,457
Repayment of notes payable (26,299) (6,209) (66,218)
Proceeds from issuance of Series A Convertible
Preferred Stock, net of offering expenses 10,314,000 -- 10,314,000
Proceeds from issuance of common stock, net of
offering expenses 100,000 27,429,669 30,802,774
------------ ------------ ------------
Net cash provided by financing activities 10,462,726 27,716,822 41,549,013
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 9,548,591 24,227,526 29,604,127
CASH AND CASH EQUIVALENTS:
Beginning of period 788,419 5,376,601 --
------------ ------------ ------------
End of period $10,337,010 $29,604,127 $29,604,127
------------ ------------ ------------
------------ ------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid 2,309 9,390 25,435
Noncash transactions-
Conversion of note payable into common stock -- -- 75,000
Issuance of common stock for services 62,500 -- 125,000
Issuance of common stock in settlement of
construction payable -- -- 5,010
Conversion of Series A Convertible Preferred Stock
into common stock -- 30,665 30,665
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying balance sheets of Excelsior-Henderson Motorcycle
Manufacturing Company (the "Company") as of September 30, 1997 and the
statements of operations for the three and nine months ended September 30,
1996 and 1997, and cumulative for the period from inception (December 22,
1993) to September 30, 1997, and the statements of cash flows for the nine
months ended September 30, 1996 and 1997 and cumulative for the period from
inception (December 22, 1993) to September 30, 1997, have been prepared by
the Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at September 30,
1997 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996 and the Company's Prospectus dated July
23, 1997. The results of operations for the three and nine months ended
September 30, 1997 are not necessarily indicative of the operating results
for the full fiscal year.
2. NET LOSS PER COMMON SHARE:
Net loss per common share for all periods presented is computed using the
weighted average number of common shares outstanding. Shares reserved for
warrants or stock options are not considered because the impact of the
incremental shares is antidilutive.
3. REVERSE STOCK SPLIT:
On May 21, 1997, the Company's board of directors approved a 2-for-3 reverse
stock split of the Company's outstanding stock. All share and per share data
for all periods presented reflect the reverse stock split (previously
disclosed).
4. INITIAL PUBLIC OFFERING:
On July 29, 1997, the Company completed an initial public offering of
4,000,000 shares of its Common Stock (the "Offering"). The net proceeds of
$27,400,000, after deducting fees and expenses, will be used to fund
development stage operating costs and expenses, investments in property and
equipment and working capital. If the 4,000,000 shares issued in the
Offering had been outstanding as of January 1, 1997, the net loss per share
for the three and nine months ended September 30, 1997 would have been $.12
and $.33 per share. Concurrent with the closing of the Offering, the Series A
Convertible Preferred Stock automatically converted into shares of Common
Stock.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT:
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings per Share," which changes the way companies calculate their
earnings per share (EPS). SFAS No. 128 replaces primary EPS with basic EPS
and fully diluted EPS with diluted EPS. Basic EPS is computed by dividing
reported loss by the weighted average shares outstanding, excluding
potentially dilutive securities while diluted EPS includes the
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dilutive securities. The Company is required to adopt SFAS No. 128 in the
fourth quarter of 1997, at which time, all prior period EPS data is to be
restated. Primary EPS, as reported, is the same as basic and diluted EPS for
all periods presented because shares reserved for warrants or stock options
are not considered in the weighted average common shares outstanding as the
impact of the incremental shares is antidilutive.
6. COMMITMENTS:
On April 21, 1997, the Company signed a construction agreement and a lease
agreement with a real estate development company and commenced construction
of a manufacturing and administrative facility with an estimated cost of
$10,500,000, exclusive of equipment costs. The project is being financed
with $2,300,000 of tax increment financing bonds to be issued by the City of
Belle Plaine, Minnesota, $5,750,000 (including a $750,000 deposit) of
mortgaged-backed debt to be arranged by the developer with the balance of
approximately $3,200,000 provided by the Company. To finance repayment of
the tax increment financing bonds, the Company has guaranteed the underlying
real estate tax payments on the property. The Company anticipates recording
the transaction as a capital lease upon acceptance of the facility.
The lease for the facility has an initial term of 20 years with two
additional 10-year renewal options. Rent for the first 20 years will be
equal to the debt service on the $5,750,000 mortgaged-backed debt, using a
20-year amortization, plus a 10% premium (escalating during the lease term to
roughly offset inflation). Rent for the 10-year renewal options is based on
the greater of fair market value at the date of renewal or formula rent, as
defined in the lease agreement. The lease contains an option to purchase the
facility at the five-year anniversary for $6,250,000, less any principal
reduction in the $5,000,000 debt and application of the $750,000 deposit.
In October 1997, the Company signed a construction agreement with a
third-party vendor for the construction of the Company's paint and finishing
facility. The cost of the paint facility will be approximately $7,300,000.
The Company paid 20% of the cost upon execution of the agreement and will
make certain progress payments during construction and a final payment upon
completion of the paint facility.
8
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EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
THE INFORMATION PRESENTED BELOW IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE SAFE HARBOR PROVISIONS OF SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS ARE SUBJECT
TO RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED UNDER "FORWARD-LOOKING
STATEMENTS" BELOW, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE PROJECTED. BECAUSE ACTUAL RESULTS MAY DIFFER, READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. CERTAIN
FORWARD-LOOKING STATEMENTS ARE INDICATED BY AN ASTERISK.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company plans to manufacture, market and sell premium heavyweight
cruiser and touring motorcycles with a brand that evokes an authentic
American motorcycling heritage and lifestyle.* The Company is in the
development stage and its operations are subject to all of the risks inherent
in the establishment of a new business enterprise, including the risk that
full-scale operations may not occur. The Company intends to commence mass
production of its initial motorcycle, a heavyweight cruiser named the
Excelsior-Henderson Super X (the "Super X") in late 1998 and does not
anticipate having motorcycle sales until such time.* As a result primarily
of the operating expenses described below in "Results of Operations," the
Company's deficit accumulated during the development stage was approximately
$7.7 million at September 30, 1997. Historic spending levels are not
indicative of anticipated future spending levels because the Company is
entering a period in which it will increase spending on product research and
development, marketing and dealer network development, and increase staffing
and other general operating expenses. For these reasons, the Company
believes its expenses, losses, and deficit accumulated during the development
stage will increase significantly before any material product sales are
generated.
The Company completed an initial public offering of 4,000,000 shares of
its Common Stock on July 29, 1997, with net proceeds to the Company of
$27.4 million, after deducting fees and expenses.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $621,000 for the three months ended September 30, 1997 from
$352,000 for the three months ended September 30, 1996. The increases were
primarily due to staffing increases and increased product design and
development costs.
MARKETING EXPENSES. Marketing expenses increased to $629,000 for the
three months ended September 30, 1997 from $170,000 for the three months
ended September 30, 1996. The increases were primarily due to staffing
increases, increased advertising and promotion costs and dealer network
development expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $506,000 for the three months ended September 30, 1997 from
$244,000 for the three months ended September 30, 1996. The increases were
primarily due to staffing increases and other general operating expenses.
INTEREST INCOME. Interest income increased to $298,000 for the three
months ended September 30, 1997 from $25,000 for the three months ended
September 30, 1996. The increase generally reflects interest earned on
increased average levels of cash, cash equivalents and short-term investments
held by the Company resulting from the proceeds of the Company's initial
public offering of its Common Stock.
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NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $1.5 million for the nine months ended September 30, 1997 from
$918,000 for the nine months ended September 30, 1996. The increases were
primarily due to staffing increases and increased product design and
development costs.
MARKETING EXPENSES. Marketing expenses increased to $1.3 million for the
nine months ended September 30, 1997 from $360,000 for the nine months ended
September 30, 1996. The increases were primarily due to staffing increases,
increased advertising and promotion costs and dealer network development
expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1.2 million for the nine months ended September 30, 1997 from
$634,000 for the nine months ended September 30, 1996. The increases were
primarily due to staffing increases and other general operating expenses.
INTEREST INCOME. Interest income increased to $462,000 for the nine
months ended September 30, 1997 from $53,000 for the nine months ended
September 30, 1996. The increase generally reflects interest earned on
increased average levels of cash, cash equivalents and short-term investments
held by the Company resulting from the proceeds of the Company's initial
public offering of its Common Stock.
NET OPERATING LOSS CARRYFORWARDS
In accordance with Section 382 of the Internal Revenue Code of 1986, as
amended, a change in equity ownership of greater than 50% of the Company
within a three-year period results in an annual limitation on the Company's
ability to utilize its net operating loss ("NOL") carryforwards that accrued
during the tax periods prior to the change in ownership. As of December 31,
1996, the Company had an NOL carryforward of approximately $3,228,000, which
begins to expire in 2011. The sale of shares in the Company's initial public
offering of its Common Stock which closed on July 29, 1997 will not directly
result in such limitation; however, the NOL carryforwards may become subject
to such a limitation due to subsequent changes in the equity ownership of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
On July 29, 1997, the Company closed on the initial public offering of
its Common Stock, with net proceeds to the Company of $27.4 million. The
Company will use the net proceeds of $27.4 million for funding research and
development costs (including pre-production manufacturing and completion of
the design, engineering and testing of the Super X); sales and marketing
costs (including increased marketing activity prior to the commercial
introduction of the Super X and dealer network development); capital
expenditures (including completing and equipping the manufacturing and
administrative facility, acquiring tooling and motorcycle components and
supplies); and general and administrative costs. Based upon its current
estimates, the Company believes that its available cash resources, including
the proceeds received from the initial public offering of Common Stock, as
well as the proceeds anticipated to be received from the Minnesota Department
of Trade and Economic Development (see below), will be sufficient to fund the
pre-production operations of the Company and the capital expenditures
necessary to start production of the Super X.* The Company may require
additional fixed asset and working capital financing prior to commencement of
production.* Upon commencement of production, the Company will need to
obtain substantial amounts of fixed asset and working capital financing.*
However, if any of the anticipated sources of funds are not available, the
Company will have to look to other means of financing. In addition, if the
Company's estimates of the amount of financing needed to commence production
of the Super X are incorrect due to unanticipated additional costs of
constructing and equipping the Company's manufacturing facility,
unanticipated problems in the development of the Super X for production,
increased labor costs, increased costs of motorcycle parts and raw materials,
increased marketing and dealer network development expenses, increased rates
of consumption of available cash resources, or other unanticipated events,
then the Company may need additional equity or debt financing in excess of
the proceeds of its recent initial public offering of Common Stock prior to
or shortly after commencement of production of the Super X.
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On April 21, 1997, the Company signed a Construction Agreement and a
Lease Agreement (the "Lease Agreement") with a real estate development
company to commence construction of its approximately 160,000 square foot
manufacturing and administrative facility, with an estimated cost of $10.5
million, exclusive of equipment costs. The project is being financed by the
real estate development company with $2.3 million of tax increment financing
bonds to be issued by the City of Belle Plaine, Minnesota, $5.75 million
(including a $750,000 deposit) of mortgage-backed debt arranged by the
developer and the balance of approximately $3.2 million was provided by the
Company during April 1997. To finance repayment of the tax increment
financing, the Company has guaranteed the underlying real estate tax payments
on the property. The Company anticipates recording the transaction as a
capital lease upon acceptance of the facility.
The lease for the facility has an initial term of 20 years with two
additional 10-year renewal options. Rent for the first 20 years will be
equal to the debt service on the $5.75 million mortgage-backed debt, using a
20 year amortization, plus a 10 percent premium (escalating during the lease
term to roughly offset inflation). Rent for the 10 year renewal options is
based on the greater of fair market value at the date of renewal or formula
rent, as defined in the Lease Agreement. The Lease Agreement contains an
option to purchase the facility at the five year anniversary for $6.25
million less any principal reduction in the $5.0 million debt (and
application of the $750,000 deposit).
In October 1997, the Company signed a construction agreement with a
third-party vendor for the construction of the Company's paint and finishing
facility. The cost of the paint facility will be approximately $7,300,000.
The Company paid 20% of the cost upon execution of the agreement and will
make certain progress payments during construction and a final payment upon
completion of the paint facility.
In addition, the Minnesota Department of Trade and Economic Development,
through the Minnesota Agriculture and Economic Development Board, has offered
to loan approximately $7.0 million for equipment financing through its Small
Business Development Loan Program. Although the relevant approvals for such
financing have been obtained, the bonds for the financing have not yet been
sold and there can be no assurance that such bonds will ever be sold. If the
bonds are not sold, then the Company may need to obtain the funds anticipated
from such financing from other sources.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-Q, including
those indicated by an asterisk above (some of which are summarized below),
are forward-looking statements within the meaning of the safe harbor
provisions of Section 21E of the Securities Exchange Act of 1934, as amended,
that involve risks and uncertainties, and actual results may differ. Factors
that could cause actual results to differ include those identified below. In
addition, please refer to the section titled "Risk Factors" in the Company's
Prospectus dated July 23, 1997 on file with the Commission for certain other
information regarding the risks associated with the Company.
- THE COMPANY PLANS TO MANUFACTURE, MARKET AND SELL PREMIUM HEAVYWEIGHT
CRUISER AND TOURING MOTORCYCLES WITH A BRAND THAT EVOKES AN AUTHENTIC
AMERICAN MOTORCYCLING HERITAGE AND LIFESTYLE--The Company's success
depends upon market acceptance of its brand of products. Market acceptance
depends upon the ability of the Company to establish its intended brand
image and a reputation for high quality and to differentiate its brand of
products from its competitors. There can be no assurance that the
Company's products will be perceived as being of high quality and
differentiated from such other products, or that the Company will be
successful in establishing its intended brand image.
- THE COMPANY INTENDS TO COMMENCE MASS PRODUCTION OF THE SUPER X IN LATE 1998
AND DOES NOT ANTICIPATE HAVING MOTORCYCLE SALES UNTIL SUCH TIME--Production
of the Super X and any additional motorcycles the Company may produce is
dependent upon acquisition, installation and successful operation of the
motorcycle production equipment, engaging reliable suppliers to manufacture
components for the Company's products, hiring additional engineering and
manufacturing personnel and completing the design of the Super X for mass
production. Factors that may affect the successful completion of such
items include problems in acquisition, installation and successful
operation of the motorcycle production equipment, the inability of the
Company to
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locate competent suppliers or obtain adequate quantities of components
and supplies at reasonable costs, the inability of the Company to hire
additional qualified personnel and the inability of the Company's
engineering and manufacturing staff to design, engineer and produce the
Super X. In addition, for the Company to be successful, its products must
be manufactured to meet high quality standards in production volumes.
Although the Company has produced prototypes of the Super X, it has never
attempted to manufacture motorcycles in large quantities. The transition
to mass production will involve various risks and uncertainties that may
not be apparent at this time and there can be no assurance that the Company
will be able to successfully react to unanticipated difficulties.
Sales of the Super X and any additional motorcycles the Company may
produce are dependent on the Company establishing a dealer network. The
Company has executed agreements with 40 dealers as of November 14, 1997.
Prior to production, the Company will need to attract additional dealers to
sell its brand of products. There can be no assurance that the Company
will be able to attract the number of dealers the Company may need or that
such dealers will be successful in selling its brand of products.
In addition, the Company will be required to support its dealers
through, among other things, making floor plan financing available through
third parties, continuing education about the Company's brand of products,
supplying parts and accessories, and training repair personnel. The
Company does not have any history in such dealer support and there can be
no assurance that the Company will be able to successfully support its
dealer network. If the Company is unable to provide such support, the
Company may lose dealers and, consequently, distribution of its products
would be adversely affected.
- BASED UPON ITS CURRENT ESTIMATES, THE COMPANY BELIEVES THAT ITS AVAILABLE
CASH RESOURCES, INCLUDING THE PROCEEDS RECEIVED FROM THE RECENT INITIAL
PUBLIC OFFERING OF COMMON STOCK, AS WELL AS THE PROCEEDS ANTICIPATED TO BE
RECEIVED FROM THE MINNESOTA DEPARTMENT OF TRADE AND ECONOMIC DEVELOPMENT,
WILL BE SUFFICIENT TO FUND THE PRE-PRODUCTION OPERATIONS OF THE COMPANY AND
THE CAPITAL EXPENDITURES NECESSARY TO START PRODUCTION OF THE SUPER X.--If
the Company's estimates of the amount of financing needed to commence
production of the Super X are incorrect due to unanticipated additional
costs of constructing and equipping the Company's manufacturing facility,
unanticipated problems in the development of the Super X for production,
increased labor costs, increased costs of motorcycle parts and raw
materials, increased marketing and dealer network development expenses,
increased rates of consumption of available cash resources, the
unavailability of commercial fixed asset and working capital financing, or
other unanticipated events, then the Company may need additional equity or
debt financing prior to or shortly after commencement of production of the
Super X.
Although the relevant approvals by the State of Minnesota to loan the
Company $7.0 million for equipment financing have been obtained, such loan
depends on the successful marketing and sale of bonds to fund the loan.
The State of Minnesota has not yet offered the bonds for sale and there can
be no assurance that such bonds will ever be sold or that the Company will
receive any equipment financing from the State of Minnesota.
- THE COMPANY MAY REQUIRE ADDITIONAL FIXED ASSET AND WORKING CAPITAL FINANCING
PRIOR TO COMMENCEMENT OF PRODUCTION; UPON COMMENCEMENT OF PRODUCTION, THE
COMPANY WILL NEED TO OBTAIN SUBSTANTIAL AMOUNTS OF FIXED ASSET AND WORKING
CAPITAL FINANCING--The Company has not sought, and does not expect to
seek, any commitments for fixed asset or working capital financing until
the Company approaches the commencement of production. The availability
and terms of any such fixed asset or working capital financing will depend
on a number of credit market factors, including interest rates, liquidity
and lending regulations, as well as the business prospects and financial
condition of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
12
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
(a) SERIES A PREFERRED CONVERSION
Upon the closing of the public offering of the Company's Common Stock
on July 29, 1997, the Company's registered Series A Convertible
Preferred Stock (the "Preferred Stock") converted into Common Stock at
an exchange ratio of 1:1. Following such conversion, the former
holders of the Preferred Stock were no longer entitled to a preference
in the event of a liquidation of the Company.
(b) See (a) above.
(c) Not applicable
(d) USE OF PROCEEDS
On July 23, 1997, the Securities and Exchange Commission declared
effective the Company's Registration Statement on Form S-1 (File No.
333-27789) (the "Registration Statement") relating to the initial
public offering of 4,000,000 shares (the "Shares") of its Common Stock
at an initial public offering price of $7.50 per share for an
aggregate offering price of $30,000,000. The Company also registered
an additional 600,000 shares of Common Stock at $7.50 per share for an
aggregate offering price of $4,500,000 solely to cover over-allotments.
On July 29, 1997, the Company completed the offering of
the 4,000,000 Shares, with gross proceeds of $30,000,000 and net
proceeds to the Company of $27,400,000. The managing underwriters of
the offering were John G. Kinnard and Company, Incorporated and
Miller, Johnson & Kuehn, Incorporated. The underwriters did not
exercise the option to purchase the additional 600,000 shares
registered to cover over-allotments.
The Company incurred the following actual expenses in connection with
the issuance and distribution of the Shares as discussed above:
Underwriting discounts
commissions $2,100,000
Other offering expenses 500,000
----------
Total expenses $2,600,000
----------
----------
No direct or indirect payments of the proceeds received from the
offering of the Shares were made to directors, officers, stockholders
or affiliates of the Company.
From the closing of the offering of the Shares to September 30, 1997,
the Company had not used any of the proceeds from the sale of the
Shares. Pending such use, the Company has invested the proceeds in
short-term investment-grade, interest-bearing securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed as part of this Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1997:
Exhibit Description
------- -----------
3.1 Restated Articles of Incorporation of Company, as Amended. (1)
3.2 Amended and Restated Certificate of Designation of Series A
Convertible Preferred Stock. (2)
3.3 By-Laws of the Company. (3)
10.1 Lease Agreement between Kraus-Anderson, Incorporated and the Company
dated March 1, 1994. (4)
10.2 First Amendment to Lease between Kraus-Anderson, Incorporated and the
Company dated January 18, 1996. (4)
10.3 Second Amendment to Lease between Kraus-Anderson, Incorporated and the
Company dated December 6, 1996. (2)
10.4 Contract for Private Development by and among City of Belle Plaine,
Minnesota and Belle Plaine Economic Development Authority Belle Plaine,
Minnesota and the Company dated as of December 31, 1996. (2)
10.5 Assignment, Assumption and Amendment of Development Contract by and
among the City of Belle Plaine, Minnesota, Belle Plaine Economic
Authority, Belle Plaine, Minnesota, the Company, and Ryan Belle Plaine,
LLC dated April 21, 1997. (5)
10.6 Lease Agreement between Ryan Belle Plaine, LLC and the Company dated
April 21, 1997. (5)
10.7 Construction Agreement by and between Ryan Belle Plaine, LLC and
the Company dated April 21, 1997. (5)
10.8 Guaranty by Ryan Companies US, Inc. in favor of the Company dated
April 21, 1997. (5)
10.9 Amended and Restated 1995 Stock Option Plan. (5)
10.10 Form of Authorized Dealership Agreement. (1)
10.11 Form of Employee Agreement. (6)
27.1 Financial Data Schedule
Copies of Exhibits will be furnished upon request and payment of the
Company's reasonable expenses in furnishing the Exhibits.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarterly
period ended September 30, 1997.
- ------------------------
(1) Incorporated by reference to the like numbered Exhibit to the Company's
Registration Statement on Form S-1 filed with the Commission on May 23,
1997 (Registration No. 333-27789).
(2) Incorporated by reference to the like numbered Exhibit to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996 (File
No. 333-05060C).
(3) Incorporated by reference to the like numbered Exhibit to Amendment No. 1
to the Company's Registration Statement on Form SB-2 filed with the
Commission on July 23, 1996 (Registration No. 333-05060C).
(4) Incorporated by reference to the like numbered Exhibit to the Company's
Registration Statement on Form SB-2 filed with the Commission on June 17,
1996 (Registration Number 333-05060C).
(5) Incorporated by reference to the like numbered Exhibit to the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1997 (File
No. 333-05060C).
(6) Incorporated by reference to the like numbered Exhibit to Amendment No. 1
to the Company's Registration Statement on Form S-1 filed with the
Commission on June 27, 1997 (the Registration No. 333-27789).
15
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
DATE: November 14, 1997 By: /s/ Thomas M. Rootness
----------------------------------
Thomas M. Rootness,
Senior Vice President of Finance and
Administration and Chief Financial
Officer
(Duly authorized officer and
Principal Financial Officer)
16
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
3.1 Restated Articles of Incorporation of Company................. Incorporated by Reference
3.2 Amended and Restated Certificate of Designation of Series A
Convertible Preferred Stock................................... Incorporated by Reference
3.3 By-Laws of the Company........................................ Incorporated by Reference
10.1 Lease Agreement between Kraus-Anderson, Incorporated and the
Company dated March 1, 1994................................... Incorporated by Reference
10.2 First Amendment to Lease between Kraus-Anderson, Incorporated
and the Company dated January 18, 1996........................ Incorporated by Reference
10.3 Second Amendment to Lease between Kraus-Anderson, Incorporated
and the Company dated December 6, 1996........................ Incorporated by Reference
10.4 Contract for Private Development by and among City of Belle
Plaine, Minnesota and Belle Plaine Economic Development
Authority, Belle Plaine, Minnesota and the Company dated as of
December 31, 1996............................................. Incorporated by Reference
10.5 Assignment, Assumption and Amendment of Development Contract by
and among the City of Belle Plaine, Minnesota, Belle Plaine
Economic Authority, Belle Plaine, Minnesota, the Company, and
Ryan Belle Plaine, LLC dated April 21, 1997................... Incorporated by Reference
10.6 Lease Agreement between Ryan Belle Plaine, LLC and the Company
dated April 21, 1997.......................................... Incorporated by Reference
10.7 Construction Agreement by and between Ryan Belle Plaine, LLC
and the Company dated April 21, 1997.......................... Incorporated by Reference
10.8 Guaranty by Ryan Companies US, Inc. in favor of the Company
dated April 21, 1997.......................................... Incorporated by Reference
10.9 Amended and Restated 1995 Stock Option Plan................... Incorporated by Reference
10.10 Form of Authorized Dealership Agreement....................... Incorporated by Reference
10.11 Form of Employee Agreement.................................... Incorporated by Reference
27.1 Financial Data Schedule....................................... Filed Electronically
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 29,604,127
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,631,718
<PP&E> 888,047
<DEPRECIATION> 114,312
<TOTAL-ASSETS> 34,409,277
<CURRENT-LIABILITIES> 892,183
<BONDS> 0
0
0
<COMMON> 129,980
<OTHER-SE> 33,387,114
<TOTAL-LIABILITY-AND-EQUITY> 34,409,277
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,996,124
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,349
<INCOME-PRETAX> (3,543,902)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,543,902)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> 0
</TABLE>
