<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 July 4, 1998
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 (Zip code)
offices)
(612) 873-7000
-----------------------------
Registrant's telephone number
Not Applicable
--------------------------------------------------------------------------
(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 - 13,056,556 issued and outstanding as of July 31, 1998.
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
<S> <C> <C>
Item 1. Financial Statements:
Balance Sheets (Unaudited) as of January 3, 1998
and July 4, 1998 3
Statements of Operations (Unaudited)
for the Three Months Ended
June 30, 1997 and July 4, 1998 4
Statements of Operations (Unaudited)
for the Six Months Ended
June 30, 1997 and July 4, 1998 and
Cumulative for the Period from Inception
(December 22, 1993) to July 4, 1998 5
Statements of Cash Flows (Unaudited)
for the Six Months Ended
June 30, 1998 and July 4, 1998 and Cumulative
for the Period from Inception (December 22, 1993)
to July 4, 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
PART II. OTHER INFORMATION 13
-----------------
SIGNATURES 15
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</TABLE>
2
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PART I -- FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
January 3, July 4,
1998 1998
---------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $12,484,502 $ 9,590,189
Short-term investments 11,764,689 --
Other current assets 113,497 233,570
----------- -----------
Total current assets 24,362,688 9,823,759
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $255,529 and $691,512 13,353,897 22,119,071
RESTRICTED CASH 7,275,569 7,504,386
DEPOSITS 2,670,675 33,240
INTELLECTUAL PROPERTY, to be amortized 200,545 218,741
OTHER ASSETS, net 322,093 305,818
----------- -----------
$48,185,467 $40,005,015
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,997,783 $ 1,455,985
Accrued liabilities 585,481 1,447,506
Current maturities of long-term debt 675,372 668,523
----------- -----------
Total current liabilities 3,258,636 3,572,014
----------- -----------
LONG-TERM DEBT, less current maturities 13,738,615 13,532,158
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Common stock, 16,666,666 shares authorized,
par value of $.01; 13,026,191 and
13,037,952 shares issued and outstanding 130,262 130,379
Additional paid-in capital 41,066,473 41,073,840
Deficit accumulated during the development stage (10,008,519) (18,303,376)
----------- -----------
Total stockholders' equity 31,188,216 22,900,843
----------- -----------
$48,185,467 $40,005,015
----------- -----------
----------- -----------
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 30, July 4,
1997 1998
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<S> <C> <C>
PREOPERATING EXPENSES:
Research and development $ 435,586 $ 2,623,477
Marketing 379,575 752,901
General and administrative 347,526 1,202,938
----------- -----------
Total preoperating expenses 1,162,687 4,579,316
INTEREST INCOME 72,913 253,957
INTEREST EXPENSE (1,646) (364,753)
----------- -----------
NET LOSS $(1,091,420) $(4,690,112)
----------- -----------
----------- -----------
NET LOSS PER SHARE:
Basic and diluted $ (0.19) $ (0.36)
----------- -----------
----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted 5,878,231 13,034,553
----------- -----------
----------- -----------
</TABLE>
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
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Cumulative for the
---------------------- Period from Inception
June 30, July 4, (December 22, 1993)
1997 1998 to July 4, 1998
-------- ------- ---------------------
<S> <C> <C> <C>
PREOPERATING EXPENSES:
Research and development $ 912,696 $ 4,162,605 $ 8,895,272
Marketing 662,945 1,588,776 4,095,802
General and administrative 665,595 2,483,467 6,084,067
------------ ------------ -------------
Total preoperating expenses 2,241,236 8,234,848 19,075,141
INTEREST INCOME 163,387 668,064 1,695,870
INTEREST EXPENSE (3,333) (728,073) (924,105)
------------ ------------ -------------
NET LOSS $(2,081,182) $(8,294,857) $(18,303,376)
------------ ------------ -------------
------------ ------------ -------------
NET LOSS PER SHARE:
Basic and diluted $ (0.35) $ (0.64) $ (2.75)
------------ ------------ -------------
------------ ------------ -------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted 5,876,242 13,031,187 6,644,562
------------ ------------ -------------
------------ ------------ -------------
</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>
Six Months Ended Cumulative for the Period
---------------- From Inception
June 30, July 4, (December 22, 1993) to
1997 1998 July 4, 1998
-------- ------ ------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,081,182) $(8,294,857) $(18,303,376)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 38,062 452,258 757,831
Change in current assets and liabilities:
Other current assets (56,034) (120,073) (233,570)
Accounts payable 241,833 (541,798) 1,455,985
Accrued liabilities 19,144 862,025 1,447,506
----------- ----------- -------------
Net cash used in operating activities (1,838,177) (7,642,445) (14,875,624)
----------- ----------- -------------
INVESTING ACTIVITIES:
Proceeds from sale of short-term investments, net 3,043,111 11,764,689 --
Property and equipment additions (3,474,739) (6,520,555) (17,595,515)
Payments made for intellectual property (32,807) (18,196) (218,741)
Payments of equipment deposits -- -- (33,240)
Increase in restricted cash -- (228,817) (359,386)
----------- ----------- -------------
Net cash provided by (used in) investing
activities (464,435) 4,997,121 (18,206,882)
----------- ----------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term debt -- -- 2,505,095
Payments under capital lease and long-term
debt obligations (6,209) (256,473) (631,860)
Payments incurred for other assets -- -- (324,749)
Proceeds from issuance of Series A Convertible
Preferred Stock, net of offering expenses -- -- 10,314,000
Proceeds from issuance of common stock, net of
offering expenses 15,000 7,484 30,810,209
----------- ----------- -------------
Net cash provided by (used in)
financing activities 8,791 (248,989) 42,672,695
----------- ----------- -------------
Net increase (decrease) in cash and cash
equivalents (2,293,821) (2,894,313) 9,590,189
CASH AND CASH EQUIVALENTS:
Beginning of period 5,376,601 12,484,502 --
----------- ----------- -------------
End of period $3,082,780 $ 9,590,189 $ 9,590,189
----------- ----------- -------------
----------- ----------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 3,374 $ 621,804 $ 786,480
Noncash transactions-
Property and equipment acquired under
capital lease obligations -- 43,167 5,257,446
Restricted cash received from long-term debt -- -- 7,145,000
Conversion of note payable into common stock -- -- 75,000
Issuance of common stock for services -- -- 125,000
Issuance of common stock in settlement of
construction payable -- -- 5,010
</TABLE>
The accompanying notes are an integral part of these financialstatements.
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 sheet of Excelsior-Henderson Motorcycle
Manufacturing Company (the "Company") as of July 4, 1998, the statements of
operations for the three months and six months ended June 30, 1997 and July
4, 1998, and cumulative for the period from inception (December 22, 1993) to
July 4, 1998, and the statements of cash flows for the six months ended June
30, 1997 and July 4, 1998, and cumulative for the period from inception
(December 22, 1993) to July 4, 1998, 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 as of July 4, 1998 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-K for the
fiscal year ended January 3, 1998. The results of operations for the three
months and six months ended July 4, 1998 are not necessarily indicative of
the operating results for the full fiscal year.
2. BASIC AND DILUTED NET LOSS PER SHARE:
Basic and diluted net loss per 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. COMMITMENTS AND CONTINGENCIES:
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 facility will be approximately $7.3 million. The
Company paid 20% of the cost upon execution of the agreement and is making
progress payments during construction and a final payment upon completion of
the facility. Through July 4, 1998, the Company had made construction
payments totaling $5.2 million under the construction agreement. Long-term
financing of the paint and finishing facility and other equipment has been
arranged with the State of Minnesota, through the Minnesota Agriculture and
Economic Development Board, which provides for a $7.1 million loan for a
portion of the cost of the paint and finishing facility and certain reserves.
The loan proceeds are being held in escrow and will be available to the
Company upon installation and acceptance of the paint and finishing facility
and the purchase of certain manufacturing equipment and product tooling. The
loan has a 10-year term with interest at an annual rate of 9.5% and is
secured by the paint and finishing facility and certain of the Company's
equipment.
4. SUBSEQUENT EVENT:
In July 1998, the Company entered into a $6.1 million Industrial
Development Revenue Bond (the "Bond"), which was facilitated by the Economic
Development Authority of the City of Belle Plaine, Minnesota. The entire
Bond was purchased by FINOVA Public Finance, Inc., a subsidiary of FINOVA
Capital Corporation ("FINOVA"). The proceeds of the sale of the Bond, net of
a $1.1 million debt service reserve, have been placed into escrow, and may be
drawn for certain past and future equipment and product tooling purchases.
The Bond is repayable over a seven and one-half year term, carries an
interest rate of 10.4%, and is secured by certain factory equipment and
product tooling. FINOVA also received a warrant to purchase 196,500 shares
of common stock of
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the Company. The warrant may be exercised up to ten years from the date of
issuance at an exercise price of $9.00 per share.
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.
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 does not anticipate having
motorcycle sales until late 1998. As a result of the operating expenses
described below in "Results of Operations," the Company's deficit accumulated
during the development stage was $18.0 million at July 4, 1998. 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 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 4, 1998 AND JUNE 30, 1997
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $2,623,000 for the three months ended July 4, 1998 from $436,000
for the three months ended June 30, 1997. The increases were primarily due
to staffing increases and increased product design and development costs, as
well as expenses for developing prototypes and production intent motorcycles.
MARKETING EXPENSES. Marketing expenses increased to $753,000 for the
three months ended July 4, 1998 from $380,000 for the three months ended June
30, 1997. 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 $1,203,000 for the three months ended July 4, 1998 from
$348,000 for the three months ended June 30, 1997. The increases were
primarily due to staffing increases and other general operating expenses.
INTEREST INCOME. Interest income increased to $254,000 for the three
months ended July 4, 1998 from $73,000 for the three months ended June 30,
1997. 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.
INTEREST EXPENSE. Interest expense increased to $365,000 for the three
months ended July 4, 1998 from $2,000 for the three months ended June 30,
1997 due to borrowings under long-term debt and capital lease agreements
entered into after June 30, 1997.
8
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SIX MONTHS ENDED JULY 4, 1998 AND JUNE 30, 1997
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $4,163,000 for the six months ended July 4, 1998 from $913,000
for the six months ended June 30, 1997. The increases were primarily due to
staffing increases and increased product design and development costs, as
well as expenses for developing prototypes and production intent motorcycles.
MARKETING EXPENSES. Marketing expenses increased to $1,589,000 for the
six months ended July 4, 1998 from $663,000 for the six months ended June 30,
1997. 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 $2,483,000 for the six months ended July 4, 1998 from
$666,000 for the six months ended June 30, 1997. The increases were
primarily due to staffing increases and other general operating expenses.
INTEREST INCOME. Interest income increased to $668,000 for the six
months ended July 4, 1998 from $163,000 for the six months ended June 30,
1997. 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.
INTEREST EXPENSE. Interest expense increased to $728,000 for the six
months ended July 4, 1998 from $3,000 for the six months ended June 30, 1997
due to borrowings under long-term debt and capital lease agreements entered
into after June 30, 1997.
NET OPERATING LOSS CARRYFORWARDS
As of January 3, 1998, the Company had net operating loss carryforwards
of approximately $8.8 million for federal income tax purposes that are
available to offset future taxable income through the year 2012. A valuation
allowance equal to the full amount of the related deferred tax asset has been
established due to the uncertainty of realization of the deferred tax asset.
Certain restrictions, caused by a 1996 change in ownership resulting from
sales of the Company's stock, will limit annual utilization of these net
operating loss carryforwards. The portion of the net operating loss
carryforwards subject to this limitation is approximately $2.6 million. The
calculated annual limitation is approximately $600,000.
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 is using the net proceeds to fund 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 received
from the Minnesota Department of Trade and Economic Development (see below)
and from the Taxable Industrial Development Revenue Bond purchased by FINOVA
Public Finance, Inc., a subsidiary of FINOVA Capital Corporation ("FINOVA")
(see below), will be sufficient to fund the pre-production operations of the
Company. However, the Company may require additional working capital
financing prior to commencement of production. Upon commencement of
production, the Company will need to obtain substantial additional amounts of
fixed asset and working capital financing. However, if sufficient fixed asset
and/or working capital financing is 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 equipping the Company's
manufacturing facility, unanticipated problems in the development of
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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, unanticipated delays in drawing funds held in escrow from the
Minnesota Department of Trade and Economic Development or FINOVA financings,
the unavailability of inventory 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.
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 facility will be approximately $7.3 million. The
Company paid 20% of the cost upon execution of the agreement and is making
certain progress payments during construction with a final payment due upon
completion of the facility. Through July 4, 1998, the Company had made
construction payments totaling $5.2 million under the construction agreement.
Long-term financing of the paint and finishing facility and other equipment
has been arranged with the State of Minnesota, through the Minnesota
Agriculture and Economic Development Board, which provides for a $7.1 million
loan for a portion of the cost of the paint and finishing facility and
certain reserves. The loan proceeds are being held in escrow and will be
available to the Company upon installation and acceptance of the paint and
finishing facility and the purchase of certain manufacturing equipment and
product tooling. The loan has a 10-year term with interest at an annual rate
of 9.5% and is secured by the paint and finishing facility and certain of the
Company's equipment.
In July 1998, the Company entered into a $6.1 million Taxable Industrial
Development Revenue Bond (the "Bond"), which was facilitated by the Economic
Development Authority of the City of Belle Plaine, Minnesota. The entire
Bond was purchased by FINOVA. The proceeds of the sale of the Bond, net of a
$1.1 million debt service reserve, have been placed into escrow, and may be
drawn for certain past and future equipment and product tooling purchases.
The Bond is repayable over a seven and one-half year term, carries an
interest rate of 10.4%, and is secured by certain factory equipment and
product tooling. FINOVA also received a warrant to purchase 196,500 shares
of common stock of the Company. The warrant may be exercised up to ten years
from the date of issuance at an exercise price of $9.00 per share.
YEAR 2000 ISSUE
Based on an internal analysis, the Company does not believe that its
information technology systems will be materially affected by the Year 2000
issue. The Company intends to solicit Year 2000 status information from its
suppliers prior to commencing operations for confirmation that the Year 2000
issue will not affect the Company's supply chain.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-Q, including
those 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.
- - 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 has not had sales to date
and does not anticipate motorcycle sales until late 1998. As of July 4, 1998,
the Company had an accumulated deficit of $18.0 million. The Company expects
operating losses to increase as its product development, marketing and sales,
manufacturing and administrative functions expand prior to and during the
initial stage of motorcycles sales. There can be no assurance that the
Company will generate motorcycle sales or become profitable.
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. The Company will
operate in a highly competitive
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environment and compete against established motorcycle manufacturers such as
Harley-Davidson, BMW, Ducati, Honda, Kawasaki, Moto-Guzzi, Suzuki, Triumph and
Yamaha. Harley-Davidson, which is expected to be the Company's primary
competitor in the U.S. market, has stated in its public reports that it had a
49% share of the U.S. market for new heavyweight motorcycle registrations in
1997 and that it will double its 1995 production capacity by the year 2003.
The Company also expects that other manufacturers will attempt to enter the
industry, including Polaris Industries Inc., a manufacturer of snowmobiles,
personal watercraft and all-terrain vehicles, which began manufacturing a
cruiser motorcycle in July 1998. The Company's established competitors have
greater resources than the Company. No assurance can be given that the
Company's products will be accepted or that the Company will be able to
compete effectively.
THE COMPANY DOES NOT ANTICIPATE HAVING MOTORCYCLE SALES UNTIL LATE 1998--
Factors that may affect the timing of production of the Super X include
problems in acquisition, installation and successful operation of the
motorcycle production equipment, the ability of the Company to locate
competent suppliers or obtain adequate quantities of components and supplies
at reasonable costs, the ability of the Company to hire additional qualified
personnel and the ability 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. The transition from prototype 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 and commence mass
production in late 1998.
As the Company moves closer to mass production of the Super X, there will be
increasing demands on the Company's management, operational and financial
resources to manage growth. Mass production of the Super X will require the
Company to hire additional qualified personnel. Competition is intense for
highly skilled workers, and there can be no assurance that the Company will
be successful in attracting, training and retaining such personnel.
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 81 dealers as of July 4, 1998. The Company may need
to attract additional dealers to sell its brand of products by convincing
such dealers that the Company's products will be a successful and profitable
line. In addition, the Company will be required to support its dealers
through, among other things, making floor plan financing available through
third parties, providing 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. If the Company
is unable to establish and support an adequate dealer network, sales and
distribution of the Company's products will be adversely affected.
Prior to sales of the Super X, the Company will be required to obtain
approvals and make certifications regarding compliance with federal, state
and local regulations regarding the noise, emissions and safety
characteristics of its motorcycles. In addition, the Company's manufacturing
facility will be required to comply with environmental and safety standards.
The potential delays and costs that could result from obtaining such
regulatory approvals and complying with, or failing to comply with, such
regulations could result in a delay in motorcycle production and adversely
affect operating results.
- - 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 RECEIVED FROM THE MINNESOTA
DEPARTMENT OF TRADE AND ECONOMIC DEVELOPMENT AND FROM THE TAXABLE INDUSTRIAL
DEVELOPMENT REVENUE BOND PURCHASED BY FINOVA PUBLIC FINANCE, INC., WILL BE
SUFFICIENT TO FUND THE PRE-PRODUCTION OPERATIONS OF THE COMPANY--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
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, unanticipated delays in drawing funds held in escrow from the
Minnesota Department of Trade and Economic Development or FINOVA financings,
the
11
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unavailability of inventory 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.
There can be no assurance that the Company will be able to obtain such
financing or that such financing will be available on terms favorable to the
Company.
- - THE COMPANY MAY REQUIRE ADDITIONAL WORKING CAPITAL FINANCING PRIOR TO
COMMENCEMENT OF PRODUCTION; UPON COMMENCEMENT OF PRODUCTION, THE COMPANY WILL
NEED TO OBTAIN SUBSTANTIAL ADDITIONAL AMOUNTS OF FIXED ASSET AND WORKING
CAPITAL FINANCING--The availability and terms of any 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. There can be no assurance
that the Company will be able to obtain such financing or that such financing
will be available on terms favorable to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
12
<PAGE>
PART II -- OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
13
<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 July 4, 1998:
Exhibit Description
- ------- -----------
3.1 Restated Articles of Incorporation of Company, as Amended.(1)
3.3 By-Laws of the Company.(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.(3)
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.(4)
10.6 Lease Agreement between Ryan Belle Plaine, LLC and the Company dated
April 21, 1997.(4)
10.7 Construction Agreement by and between Ryan Belle Plaine, LLC and
the Company dated April 21, 1997.(4)
10.8 Guaranty by Ryan Companies US, Inc. in favor of the Company dated
April 21, 1997.(4)
10.9 Amended and Restated 1995 Stock Option Plan.(5)
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 July 4, 1998.
- -----------------------------
(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 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).
(3) 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.
000-22765).
(4) 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. 000-22765).
(5) Incorporated by reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-8 filed with the Commission on July 29, 1998
(Registration No. 333-60083).
(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).
14
<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: August 14, 1998 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)
15
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ====
<S> <C> <C>
3.1 Restated Articles of Incorporation of
Company........................................ Incorporated by Reference
3.3 By-Laws of the Company......................... 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, LLCand 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
10.11 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> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JUL-04-1998
<CASH> 9,590,189
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,823,759
<PP&E> 22,810,583
<DEPRECIATION> 691,512
<TOTAL-ASSETS> 40,005,015
<CURRENT-LIABILITIES> 3,572,014
<BONDS> 0
0
0
<COMMON> 130,379
<OTHER-SE> 22,770,464
<TOTAL-LIABILITY-AND-EQUITY> 40,005,015
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,234,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 728,073
<INCOME-PRETAX> (8,294,857)
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,294,857)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> (.64)
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