<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 3, 1999
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
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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) 873-7000
-----------------------------
Registrant's telephone number
Not Applicable
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(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 -
13,637,104 issued and outstanding as of August 4, 1999.
<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 July 3, 1999
and January 2, 1999 3
Statements of Operations (Unaudited)
for the Three Months Ended
July 3, 1999 and July 4, 1998 4
Statements of Operations (Unaudited)
for the Six Months Ended
July 3, 1999 and July 4, 1998 5
Statements of Cash Flows (Unaudited)
for the Six Months Ended
July 3, 1999 and July 4, 1998 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 15
PART II. OTHER INFORMATION 15
SIGNATURES 19
2
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PART I -- FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
EXCELSIOR HENDERSON MOTORCYCLE MANUFACTURING COMPANY
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
July 3, January 2,
1999 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,795,911 $ 4,697,542
Trade accounts receivable, net of allowance for doubtful
accounts of $30,000 2,197,840 --
Inventories 6,124,697 1,865,251
Other current assets 497,406 541,371
----------- -----------
Total current assets 13,615,854 7,104,164
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $2,625,715 and $999,869 31,830,089 30,317,118
RESTRICTED CASH 3,244,446 8,065,727
INTELLECTUAL PROPERTY, net of accumulated
amortization of $8,074 and $0 279,173 275,532
OTHER ASSETS, net of accumulated amortization of $666,661
and $402,487 2,121,887 2,225,591
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$51,091,449 $47,988,132
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,697,641 $ 5,540,599
Accrued liabilities 3,651,516 3,761,657
Current maturities of long-term debt 1,676,710 919,533
----------- -----------
Total current liabilities 12,025,867 10,221,789
LONG-TERM DEBT, less current maturities 23,014,613 20,569,409
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STOCKHOLDERS' EQUITY:
Series B Convertible Preferred Stock, par value $0.01; 6,750 and 10,000
shares authorized, issued and outstanding 6,294,375 9,325,000
Series C Convertible Preferred Stock, par value $0.01; 3,000 shares
authorized, issued and outstanding 2,849,000 --
Series D Convertible Preferred Stock, par value $0.01; 10,000
shares authorized, issued and outstanding 9,499,364 --
Common stock, par value $0.01; 25,000,000 shares authorized; 13,637,104 and
13,083,461 shares issued and outstanding 136,371 130,835
Additional paid-in capital 45,033,334 41,658,923
Accumulated deficit (47,761,475) (33,917,824)
----------- -----------
Total stockholders' equity 16,050,969 17,196,934
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$51,091,449 $47,988,132
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----------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
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EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
July 3, July 4,
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $11,359,642 $ --
COST OF SALES 12,843,942 --
----------- -----------
Gross margin (1,484,300) --
----------- -----------
DEPARTMENTAL EXPENSES:
Research and development 1,096,824 2,623,477
Sales and marketing 1,337,225 752,901
General and administrative 1,358,218 1,202,938
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Total departmental expenses 3,792,267 4,579,316
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Operating loss (5,276,567) (4,579,316)
INTEREST INCOME 131,998 253,957
INTEREST EXPENSE AND OTHER (778,675) (364,753)
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NET LOSS BEFORE PREFERRED STOCK DIVIDENDS (5,923,244) (4,690,112)
Less: Preferred stock dividends (151,233) --
----------- -----------
NET LOSS APPLICABLE TO COMMON STOCK $(6,074,477) $(4,690,112)
----------- -----------
----------- -----------
NET LOSS PER COMMON SHARE:
Basic and diluted $ (0.45) $ (0.36)
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----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted 13,584,736 13,034,553
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----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
July 3, July 4,
1999 1998
------------ -----------
<S> <C> <C>
NET SALES $ 13,216,874 $ --
COST OF SALES 17,477,168 --
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Gross margin (4,260,294) --
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DEPARTMENTAL EXPENSES:
Research and development 2,512,818 4,162,605
Sales and marketing 2,762,867 1,588,776
General and administrative 2,914,095 2,483,467
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Total departmental expenses 8,189,780 8,234,848
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Operating loss (12,450,074) (8,234,848)
INTEREST INCOME 292,658 668,064
INTEREST EXPENSE AND OTHER (1,535,002) (728,073)
------------ -----------
NET LOSS BEFORE PREFERRED STOCK DIVIDENDS (13,692,418) (8,294,857)
Less: Preferred stock dividends (151,233) --
------------ -----------
NET LOSS APPLICABLE TO COMMON STOCK $(13,843,651) $(8,294,857)
------------ -----------
------------ -----------
NET LOSS PER COMMON SHARE:
Basic and diluted $ (1.03) $ (0.64)
------------ -----------
------------ -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted 13,457,312 13,031,187
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
July 3, July 4,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(13,692,418) $(8,294,857)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 1,904,376 452,258
Amortization of debt discount 103,026 --
Change in current assets and liabilities:
Accounts receivable (2,197,840) --
Inventories (4,259,446) --
Other current assets 43,965 (120,073)
Accounts payable 1,157,042 (541,798)
Accrued liabilities (110,141) 862,025
------------ ------------
Net cash used in operating activities (17,051,436) (7,642,445)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of short-term investments, net -- 11,764,689
Property and equipment additions (3,145,098) (6,520,555)
Purchases of intellectual property (11,715) (18,196)
------------ ------------
Net cash provided by (used in) investing activities (3,156,813) 5,225,938
------------ ------------
FINANCING ACTIVITIES:
Proceeds from restricted cash, net 4,821,281 (228,817)
Payments made for other assets (160,471) --
Proceeds from long-term debt 3,565,819 --
Repayment of long-term debt (466,464) (256,473)
Proceeds from issuance of convertible preferred stock, net of
offering expenses 12,348,364 --
Proceeds from issuance of common stock, net of offering expenses 198,089 7,484
------------ ------------
Net cash provided by (used in) financing activities 20,306,618 (477,806)
------------ ------------
Net increase (decrease) in cash and cash equivalents 98,369 (2,894,313)
CASH AND CASH EQUIVALENTS:
Beginning of period 4,697,542 12,484,502
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End of period $ 4,795,911 $ 9,590,189
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------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,311,799 $ 621,804
Noncash transactions-
Conversion of Series B Convertible Preferred Stock into common stock 3,030,625 --
Series D Convertible Preferred Stock dividend paid in common stock 151,233 --
Property and equipment acquired under capital lease obligations -- 43,167
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING 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 3, 1999, the statements of
operations for the three and six months ended July 3, 1999 and July 4, 1998
and the statements of cash flows for the six months ended July 3, 1999 and
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 3, 1999 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 2, 1999. The results of operations for the three
months ended July 3, 1999 are not necessarily indicative of the operating
results for the full fiscal year or for future periods.
2. NATURE OF BUSINESS:
In Fiscal Year 1999, the Company began actively selling its products and no
longer considers itself to be in the development stage. Although the Company
is no longer in the development stage, the Company has not operated
profitably to date and there can be no assurance that the Company will
operate profitably in the future.
3. SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
July 3, January 2
1999 1999
---------- ----------
<S> <C> <C>
Raw materials and work in process $5,589,197 $1,865,251
Finished goods 173,659 --
Parts and accessories 361,841 --
---------- ----------
$6,124,697 $1,865,251
---------- ----------
---------- ----------
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue at the time of shipment. Dealers typically
finance purchases of the Company's motorcycle through an independent third-party
finance company. In certain circumstances, the Company is required to repurchase
motorcyles from the finance company.
7
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No reserve was required for this contingency at July 3, 1999. The agreement
may be terminated by either party at any time with thirty days written notice.
PRODUCT WARRANTY
Product warranty costs are charged to operations based upon the estimated
warranty cost per unit sold at the time of sale.
4. ISSUANCE OF SERIES D CONVERTIBLE PREFERRED STOCK:
In May 1999, an institutional investor and the institutional investor who
purchased the Series B and Series C Convertible Preferred stock (the
Investor) purchased an aggregate of 10,000 shares of the Company's Series D
Convertible Preferred Stock (the Preferred Stock) for $10.0 million, of which
the Company received $9.5 million in net proceeds. The conversion price of
the Preferred Stock is $7.65 and is fixed for the first 12 months.
Thereafter, the conversion price may vary based upon the market price of the
Company's common stock during the period immediately preceding conversion.
The Preferred Stock has a six percent annual dividend payable quarterly in
cash or common stock of the Company. The Company is required to redeem any
unconverted Preferred Stock in May 2002 in either cash or common stock at the
option of the Company. In connection with the Preferred Stock offering,
warrants to purchase 440,000 of the Company's common stock were issued.
One-half of the warrants have an exercise price of $8.44 and the remaining
warrants will have an exercise price based on a defined average market price
of the Company's common stock on November 30, 1999. All the warrants expire
five years from the date of the Preferred Stock offering. The Company also
agreed, as a condition of the Preferred Stock offering, to reprice the
warrant issued to the Investor pursuant to the Company's Series C Convertible
Preferred Stock offering to $8.44 per common share.
8
<PAGE>
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, RELATING TO FUTURE EVENTS OR
THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE
ONLY PREDICTIONS OR STATEMENTS OF INTENTION THAT 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. ANY FORWARD-LOOKING
STATEMENTS ARE MADE ONLY AS OF THE DATE OF THIS REPORT AND THE COMPANY
UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT TO REFLECT
SUBSEQUENT CHANGES.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company designs, manufactures, markets and sells a proprietary brand of
premium heavyweight cruiser motorcycles. On January 30, 1999, the Company
produced and shipped its first revenue motorcycle, a heavyweight cruiser named
the Excelsior-Henderson Super X (the "Super X"). The Company is transitioning
from the development stage to an operating company and its operations are
subject to all of the risks inherent in such transition. Primarily as a result
of the pre-operating and operating expenses described below in "Results of
Operations," the Company's accumulated deficit as of July 3, 1999 was $47.8
million. The Company expects to incur continued operating losses during Fiscal
1999 and expects its net loss for Fiscal 1999 will exceed $23 million. However,
the Company anticipates that overall expense levels for the remainder of Fiscal
1999 will be lower as the Company adjusts expenses to expected sales of its
motorcycles. During the third and fourth quarters of 1999, the Company also
expects to add to its existing leadership team and has commenced searches for a
President and a new Chief Financial Officer.
The Company began producing its Year 2000 model motorcycles during
August 1999. The Company believes that it is best to allow production volume
to stabilize while it focuses on improving and expanding its dealer
distribution network and sales process, continuing to create demand for its
motorcycles, reducing component costs and recruiting and developing a new
senior management team. The Company expects to maintain motorcycle production
volume for each of the third and fourth quarters of Fiscal 1999 near the
production volume levels of the second quarter.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 3, 1999 COMPARED TO THE THREE MONTHS ENDED JULY 4, 1998
NET SALES. Primarily all of the Company's net sales for the three months ended
July 3, 1999 were due to sales of the Company's motorcycles. The Company shipped
724 motorcycles to its dealer distribution network during the three months ended
July 3, 1999. Net sales also included sales of accessories, parts, and
merchandise and apparel.
GROSS MARGIN. The negative gross margin for the three months ended July 3, 1999
was due to the cost of raw materials and the inability to fully cover through
production volume the labor and overhead costs incurred to produce the Company's
motorcycles. The Company anticipates that it will have a negative gross margin
for the remainder of Fiscal 1999 but that the gross margin will improve as the
Company implements raw material cost reduction initiatives and adjusts the labor
and overhead cost components based on anticipated production volumes.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $1.1 million during the three months ended July 3, 1999 from
$2.6 million in the comparable prior period. In the second quarter of 1998,
research and development expenses reflected increases in staffing and
increased product design and development costs, as well as expenses for
developing prototypes. In the second quarter of 1999, research and
development expenses reflected continued testing and modification of the
Super X motorcycle and the continued development of additional models.
9
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SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to $1.3
million during the three months ended July 3, 1999 from $750,000 in the
comparable prior period. The increase was primarily due to staffing increases,
increased advertising and promotion costs, increased participation at various
marketing events and dealer distribution network development. For the remainder
of Fiscal 1999, the Company anticipates increasing sales and marketing staffing
and implementing various sales and marketing programs to assist the dealer
distribution network in selling the Company's motorcycles. The Company has
recently began adding dealers to its dealer distribution network to create
additional sales and service points and has approximately 105 dealers as of the
date of this report.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1.4 million during the three months ended July 3, 1999 from $1.2
million in the comparable prior period. The increase was primarily due to
staffing increases, increases in insurance costs and increases in general
operating expenses due to Company growth.
INTEREST INCOME. Interest income decreased to $130,000 during the three months
ended July 3, 1999 from $250,000 in the comparable prior period due to decreased
average levels of cash, cash equivalents and short-term investments held by the
Company. See "Liquidity and Capital Resources."
INTEREST EXPENSE AND OTHER. Interest expense and other increased to $780,000
during the three months ended July 3, 1999 from $360,000 in the comparable prior
period due to increased average levels of debt outstanding and the expense
associated with the Company's agreement with an independent third-party finance
company to assume the trade accounts receivable from the majority of the
Company's dealer network. See "Liquidity and Capital Resources."
SIX MONTHS ENDED JULY 3, 1999 COMPARED TO THE SIX MONTHS ENDED JULY 4, 1998
NET SALES. During the six months ended July 3, 1999, the Company started selling
its motorcycles to its domestic dealer distribution network. Primarily all of
the Company's net sales for the six months ended July 3, 1999 were due to sales
of the Company's motorcycles. The Company shipped 851 motorcycles to its dealer
distribution network during the six months ended July 3, 1999. Net sales also
included sales of accessories, parts, and merchandise and apparel.
GROSS MARGIN. The negative gross margin for the six months ended July 3, 1999
was due to initial production start-up costs, delays in motorcycle production,
the cost of raw materials and the inability to fully cover through production
volume the labor and overhead costs incurred to produce the Company's
motorcycles. The Company anticipates that it will have a negative gross margin
for the remainder of Fiscal 1999 but that the gross margin will improve as the
Company implements raw material cost reduction initiatives and adjusts the labor
and overhead cost components based on anticipated production volumes.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased
to $2.5 million during the six months ended July 3, 1999 from $4.2 million in
the comparable prior period. During the six months ended July 3, 1998, research
and development expenses reflected increases in staffing and increased product
design and development costs, as well as expenses for developing prototypes.
During the six months ended July 3, 1999, research and development expenses
reflected continued testing and modification of the Super X motorcycle and the
continued development of additional models.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to $2.8
million during the six months ended July 3, 1999 from $1.6 million in the
comparable prior period. The increase was primarily due to staffing increases,
increased advertising and promotion costs, increased participation at various
marketing events and dealer network development. For the remainder of Fiscal
1999, the Company anticipates increasing sales and marketing staffing and
implementing various sales and marketing programs to assist the dealer
distribution network in selling the Company's motorcycles. The Company has
recently began adding dealers to its dealer distribution network to create
additional sales and service points and has approximately 105 dealers as of the
date of this report.
10
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2.9 million during the six months ended July 3, 1999 from $2.5
million in the comparable prior period. The increase was primarily due to
staffing increases and increases in general operating expenses due to Company
growth.
INTEREST INCOME. Interest income decreased to $290,000 during the six months
ended July 3, 1999 from $670,000 in the comparable prior period due to decreased
average levels of cash, cash equivalents and short-term investments held by the
Company. See "Liquidity and Capital Resources."
INTEREST EXPENSE AND OTHER. Interest expense and other increased to $1.5 million
during the six months ended July 3, 1999 from $730,000 in the comparable prior
period due to increased average levels of debt outstanding and the expense
associated with the Company's agreement with an independent third-party finance
company to assume the trade accounts receivable from the majority of the
Company's dealer network. See "Liquidity and Capital Resources."
NET OPERATING LOSS CARRYFORWARDS
As of January 2, 1999, the Company had net operating loss carryforwards of
approximately $18.8 million for federal income tax purposes that are available
to offset future taxable income through the year 2013. 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
The Company had cash and cash equivalents of $4.8 million at July 3, 1999,
as compared to $4.7 million at January 2, 1999. The slight increase is due
primarily to proceeds from restricted cash draws, proceeds from a multi-advance
working capital loan, net proceeds from the Series C and D Convertible Preferred
Stock offerings (see below) and revenue from product sales.
The Company anticipates that it will continue to incur significant losses
from operations during Fiscal 1999 due to the transition from the development
stage to an operating company. As of August 1, 1999, the Company's currently
available resources included cash and cash equivalents and available restricted
cash. The Company's existing resources and estimated negative cash flow from
operations will not be sufficient to fund its cash requirements during the
remainder of Fiscal 1999. Accordingly, the Company will need to continue to
obtain significant debt and/or equity financing to fund its capital and
operations requirements based on expected operating results. The Company has
retained an investment banking firm to seek the additional financing. There can
be no assurance, however, that sufficient additional debt or equity financing
will be available or, if available, will be on terms favorable to the Company or
its shareholders.
In addition, the Company's debt agreements contain certain restrictive
covenants, among other requirements, relating to the Company's current ratio,
tangible net worth, debt to net worth ratio and debt service coverage ratio. As
of July 3, 1999, the Company was in compliance with all covenants. Because of
its anticipated losses during Fiscal 1999, the Company will likely not comply
with other covenant ratios at various times in Fiscal 1999. The lenders have
previously agreed to waive the current ratio covenant, as necessary, through
January 1, 2000. If the Company violates other covenants, absent a waiver of
such other covenants by the lenders or amendment of the applicable agreements,
such non-compliance would lead to an event of default in the agreements, in
which case the lender(s) could demand immediate repayment of the obligation(s).
ISSUANCE OF SERIES C CONVERTIBLE PREFERRED STOCK
In January 1999, an institutional investor (the "Investor") purchased
3,000 shares of the Company's Series C Convertible Preferred Stock ("Series
C") for a gross purchase price of $3.0 million, from which the Company
received $2.8 million in net proceeds. Until September 1999, the conversion
price of the Series C is fixed (the "fixed conversion price"). After
September 1999, the conversion price will adjust based on a defined average
market price of the
11
<PAGE>
Company's common stock (the "Market Price"), but will never exceed the fixed
conversion price. If the Market Price is less than $5.00 per share on the date
of conversion, then the Series C conversion price will be 105% of such Market
Price. The Company is required to redeem any unconverted Series C (and any
unconverted shares of its Series B Convertible Preferred Stock ("Series B")
issued to the Investor in September 1999) in September 2001 in either cash or
common stock at the option of the Company.
Notwithstanding the foregoing, the holder is not permitted to hold at any
point in time an amount of common stock issued upon conversion of Series B or
Series C that is greater than 4.99% of the then outstanding shares of the
Company's common stock. In addition, if the aggregate amount of shares of common
stock of the Company issued upon conversion of the Series B and/or C exceeds 20%
of the outstanding shares of common stock of the Company, the Company would be
required, at its option, to either (A) submit such issuances of common stock in
excess of 20% for the approval of the Company's shareholders and honor the
conversion of the amounts in excess of 20%; or (B) redeem all of the outstanding
shares of Series B and/or C from the holders at the face amount of the Preferred
Stock ($1,000 per share). The provision in the preceding clause (A) is required
by the Marketplace Rules of the Nasdaq Stock Market.
In addition, warrants to purchase 102,000 shares of the Company's common
stock were issued in connection with the Series C offering. The warrants have an
exercise price of either $11.28 or $8.44 (after repricing, see "Issuance of
Series D Convertible Preferred Stock" below) and expire five years from the date
of the Series C offering.
As of August 1, 1999, the Company has received conversion notices from the
Investor to convert 3,250 shares of the Series B into 435,023 shares of common
stock of the Company. As of August 1, 1999, there were outstanding 6,750 shares
of Series B and 3,000 shares of Series C.
ISSUANCE OF SERIES D CONVERTIBLE PREFERRED STOCK
In May 1999, an institutional investor and the Investor purchased an
aggregate of 10,000 shares of the Company's Series D Convertible Preferred Stock
("Series D") for a gross purchase price of $10.0 million, from which the Company
received $9.5 million in net proceeds. Subject to certain limited restrictions,
the holder of the Series D may convert the Series D to common stock at any time.
Until May 2000, the conversion price of the Series D is fixed. After May 2000,
the conversion price will adjust based on the Market Price, but will never
exceed the fixed conversion price. In addition, the Series D includes a dividend
payable at the rate of 6% per annum. The dividend is payable quarterly in cash
or common stock at the option of the Company. The Company is required to redeem
any unconverted Series D in May 2002 in either cash or common stock at the
option of the Company.
Notwithstanding the foregoing, each holder is not permitted to hold at any
point in time an amount of common stock issued upon conversion of Series D that
is greater than 4.99% of the then outstanding shares of the Company's common
stock. In addition, if the aggregate amount of shares of common stock of the
Company issued upon conversion of the Series D exceeds 20% of the outstanding
shares of common stock of the Company, the Company would be required, at its
option, to either (A) submit such issuances of common stock in excess of 20% for
the approval of the Company's shareholders and honor the conversion of the
amounts in excess of 20%; or (B) redeem all of the outstanding shares of Series
D from the holders at the face amount of the Preferred Stock ($1,000 per share).
The provision in the preceding clause (A) is required by the Marketplace Rules
of the Nasdaq Stock Market.
In addition, warrants to purchase 440,000 shares of the Company's common
stock were issued in connection with the Series D offering. One-half of the
warrants have an exercise price of $8.44 and the remaining warrants will have an
exercise price based on a defined average market price of the Company's common
stock on November 30, 1999, and will expire five years from the date of the
Series D offering. The Company also agreed, as a condition to the purchase of
the Series D by the Investor, to reprice the warrant issued to the Investor
pursuant to the Series C offering.
As of August 1, 1999, there were outstanding 10,000 shares of Series D.
YEAR 2000 ISSUE
The Company has assessed the impact of the year 2000 on the Company's
significant internal systems and software, which include information
technology (IT) and non-IT, or embedded technology, systems. The Company
12
<PAGE>
believes that its internal systems and software are year 2000 compliant. The
Company's internal year 2000 assessment is based in large part on the recent
acquisition and installation of substantially all of the Company's internal
systems and software, which began in 1997. The Company also has initiated
discussions with and has sent questionnaires to its significant vendors to
ensure that those parties have appropriate plans to remediate year 2000
issues. The Company is assessing the extent to which its operations are
vulnerable should those vendors fail to properly remediate their computer
systems. If certain vendors are unable to deliver product on a timely basis,
due to their own year 2000 issues, the Company's production would be
interrupted, which would materially adversely affect its results of
operations. During 1999, the Company will attempt to identify, if possible,
multiple vendor sources to address such contingency.
The Company's year 2000 initiative is being completed by a team of internal
staff with consultation from outside advisors. The team's mission is to ensure
that there is no material adverse effect on the Company's business operations.
The anticipated costs of the year 2000 initiatives are not considered material
by the Company. While the Company believes its efforts are adequate to address
its year 2000 concerns, there can be no guarantee that the systems of other
companies will be converted on a timely basis and will not have a material
adverse effect on the Company.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Quarterly Report on Form 10-Q, including those
summarized next to the bullet points 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. Any forward-looking statements
are made only as of the date of this report and the Company undertakes no
obligation to update any forward-looking statement to reflect subsequent events.
- - The Company is transitioning from the development stage to an operating
company; the Company expects to incur continued operating losses during
Fiscal 1999 and expects its net loss for Fiscal 1999 will exceed $23
million; the Company anticipates that overall expense levels for the
remainder of Fiscal 1999 will be lower as the Company adjusts expenses to
expected sales of its motorcycles; the Company expects to maintain
motorcycle production volume for each of the third and fourth quarters of
Fiscal 1999 near the production volume levels of the second quarter; the
Company believes that it is best to allow production volume to stabilize
while it focuses on expanding and improving its dealer distribution network
and sales process, continuing to create demand for its motorcycles,
reducing component costs and recruiting and developing a new senior
management team; the Company anticipates that the negative gross margin
will improve over the remainder of Fiscal 1999.
The Company commenced revenue-producing operations in the first quarter of
Fiscal 1999. There can be no assurance that the Company will generate
significant motorcycle sales or become profitable. As of July 3, 1999, the
Company had an accumulated deficit of $47.8 million. During the transition
to an operating company, the Company must successfully increase the
production volume of the Super X, produce a high-quality motorcycle,
control production costs, and sell all of the motorcycles it produces. In
addition, the Company must successfully lower overall expense levels during
the remainder of Fiscal 1999. The amount of the Company's net loss for
Fiscal 1999 will be directly dependent on the Company's ability to
successfully address the foregoing factors.
The ability of the Company to sell all of the motorcycles it produces is
dependent on the effectiveness of the Company's dealer network, internal
sales team, the success of the Company's new sales and marketing programs
to assist dealers in selling motorcycles, and ultimately market demand for
the Company's motorcycle products. The Company must also attract additional
dealers to sell its brand of products at the anticipated production levels.
In addition, the Company must support its dealers through, among other
things, providing continuing education about the Company's brand of
products, adding additional qualified sales personnel, providing warranty
support, supplying parts and accessories, and training sales and service
personnel. The Company does not have a significant history in such dealer
support. If the Company is unable to maintain its dealer network, sales
and distribution of the Company's products will be adversely affected.
13
<PAGE>
Market demand depends upon the ability of the Company to continue to
establish its intended brand image, establish a reputation for high
quality, to differentiate its brand of products from its competitors and to
establish marketing programs that effectively communicate the Company's
message to retail purchasers. In addition, the Company operates in a highly
competitive environment and competes 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 1998 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. The Company's
established competitors have greater resources than the Company.
Factors that may affect production costs and the resulting gross margin
include the ability of the Company to purchase motorcycle components and
supplies at reasonable costs and to efficiently utilize personnel. Factors
that may affect the volume of production include the ability of the Company
to maintain adequate quantities of high-quality components and supplies, to
refine its manufacturing processes and to solve unanticipated manufacturing
problems. The Company has tried to produce high-quality products through
the design, construction and equipping of its manufacturing line, the
design of the Super X, its choice of vendors, testing of components and
supplies received, and testing of motorcycles in the production process;
however, the Company has not yet manufactured a sufficient number of
motorcycles to properly assess the effect of increasing production volume
on product quality.
Factors that may affect the ability of the Company to lower overall expense
levels include the ability of the Company to improve its management
capabilities, and improve its sales, marketing and production processes.
The Company relies on original equipment suppliers to supply most of the
proprietary and non-proprietary components that are used to manufacture its
motorcycles, which practice the Company believes to be common in the
industry. Although most of the components have multiple suppliers
available, for most of the components the Company relies on a sole source
of supply. Such reliance, however, involves a number of significant risks,
including the unavailability of or interruptions in delivery of such
components, manufacturing delays caused by such unavailability or
interruptions, and fluctuations in the quality and price of such
components. Any significant adverse variation in the quantity, quality or
cost of such components manufactured by suppliers, especially single-source
suppliers, could materially and adversely affect the volume of production
and the cost of the Company's product, until an additional source of supply
is identified.
The Company purchases certain components from foreign suppliers. In
addition to the risks of dependence on suppliers described above, the risks
of dependence on foreign suppliers include currency fluctuations affecting
the value of goods purchased, trade restrictions, changes in tariffs and
difficulty of enforcing supply arrangements.
- - The Company's existing resources and estimated negative cash flow from
operations will not be sufficient to fund its cash requirements during the
remainder of Fiscal 1999; the Company will need to continue to obtain
significant additional debt and/or equity financing to fund its capital and
operations requirements based on expected operating results.
There can be no assurance that additional debt or equity financing will be
available or, if available, will be on terms favorable to the Company or
its shareholders. Any additional equity financing may cause substantial
dilution to existing equity holders. In addition, if the Company's
estimates of the amount of cash to be received from operations during the
remainder of Fiscal 1999, or the amount of debt and equity financing
needed, are incorrect due to the inability of the Company to produce
quality motorcycles at an increasing volume, reduce per unit production
costs, lower overall expenses, manage inventory effectively, or sell its
motorcycles, or other unanticipated events, then the Company would be
required to obtain additional financing beyond its current estimates.
- - The Company believes that its internal systems and software are year 2000
compliant; during 1999, the Company will attempt to identify, if possible,
multiple vendor sources to address year 2000 contingencies
14
<PAGE>
The Company's assessment of its internal year 2000 status may be incorrect
or incomplete. If such assessment is incorrect or incomplete, the Company's
production of its motorcycles may be interrupted. In addition, the Company
has not yet completed its assessment of the effect the year 2000 problem
may have on the Company's vendors. If certain vendors for a particular
product are unable to supply such product because of year 2000 problems,
other vendors who supply such product may not be able to meet the increased
demand for such product, which could cause an interruption in the Company's
production. Due to the complex nature of the year 2000 problem, it is even
possible that all vendors for a particular item could have year 2000
compliance problems and be unable to supply goods to the Company, which
would materially affect the Company's ability to continue production until
such product could be obtained. Any interruption in production caused by
year 2000 problems could materially adversely affect the Company's
operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company anticipates that it will be exposed to market risk from changes
in foreign exchange and interest rates with respect to its components obtained
from foreign sources. The Company is currently analyzing such risk and will
attempt to reduce such risk through the use of certain financial instruments. In
addition, the Company has entered into an import letter of credit in the amount
of $625,000 for the benefit of a foreign vendor.
In addition, the Company's earnings would be affected by changes in
short-term interest rates as a result of its borrowings under its multi-advance
working capital loan. Based on Fiscal 1998 year-end balances, it is estimated
that a one-percent increase in short-term interest rates would not have a
material impact on interest expense or net loss.
PART II -- OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
In May 1999, the Company issued 10,000 shares of Series D to two
institutional investors in a private placement under Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 promulgated under
Section 4(2). The aggregate purchase price for the Series D was $10.0
million, with net proceeds to the Company of $9.5 million. Shoreline
Pacific Advisors acted as placement agent for the Company in the
transaction and received $500,000 in cash compensation and a warrant to
purchase 90,000 shares of the Company's common stock. The transaction
and the conversion feature of the Series D are described in Part I of
this Quarterly Report on Form 10-Q under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations
--Liquidity and Capital Resources." For additional terms of the Series
D, see the Company's Statement of Designation of Rights, Preferences
and Limitations of Series D Convertible Preferred Stock, incorporated
by reference as Exhibit 4.8 to this Quarterly Report on Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of the Company was held on June
5, 1999. At such meeting, the following matters were voted on:
15
<PAGE>
1. The five individuals listed below were elected to the Company's
Board of Directors, with each receiving the number of shares set
forth opposite his name.
a. Daniel L. Hanlon 12,015,497 for nominee and 100,786 withheld
b. David P. Hanlon 12,015,577 for nominee and 100,706 withheld
c. John B. Donahue 11,337,365 for nominee and 778,918 withheld
d. Wayne M. Fortun 12,015,352 for nominee and 100,931 withheld
e. David R. Pomije 11,955,616 for nominee and 160,667 withheld
2. An Amendment to the Company's Amended and Restated 1995 Stock
Plan was approved with 6,843,020 votes cast for the motion,
372,247 votes cast against the motion, 51,727 votes abstaining
and 4,849,289 broker non-votes.
3. The appointment of Arthur Andersen LLP as independent public
accountants of the Company for the 1999 fiscal year was ratified
with 12,064,427 votes cast for the motion, 27,851 votes cast
against the motion, 24,005 votes abstaining and no broker
non-votes.
For further information respecting all such matters reference is
made to the Company's definitive proxy statement dated April 28,
1999 (File No. 000-22765).
ITEM 5. OTHER INFORMATION
Not applicable
16
<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 October 3, 1998:
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Restated Articles of Incorporation of Company, as Amended.(1)
3.3 By-Laws of the Company.(11)
4.1 Securities Purchase Agreement dated as of September 3, 1998, by and
among Excelsior-Henderson Motorcycle Manufacturing Company and the
Buyers listed therein.(5)
4.2 Registration Rights Agreement dated as of September 3, 1998, by and
between Excelsior-Henderson Motorcycle Manufacturing Company and the
Buyers listed therein.(5)
4.3 Amended Statement of Designation of Rights, Preferences and Limitations
of Series B Convertible Preferred Stock as filed with the Secretary of
State of the State of Minnesota on September 3, 1998.(5)
4.4 Form of Common Stock Purchase Warrant Certificate dated September 3,
1998.(5)
4.5 Statement of Designation of Rights, Preferences and Limitations of
Series C Convertible Preferred Stock as filed with the Secretary of
State of the State of Minnesota on January 20, 1999.(6)
4.6 Promissory Note, dated December 1, 1997, from the Company to Minnesota
Agricultural and Economic Development Board.(6)
4.7 Specimen Taxable Industrial Development Revenue Bond
(Excelsior-Henderson Project) Series 1998. (6)
4.8 Statement of Designation of Rights, Preferences and Limitations of
Series D Convertible Preferred Stock, filed on May 3, 1999.(7)
4.9 Registration Rights Agreement, dated as of April 30, 1999, by and among
Excelsior-Henderson Motorcycle Manufacturing Company and the Buyers
listed therein.(8)
4.10 Form of Common Stock Purchase Warrant Certificate for the
purchase of shares of Common Stock of Excelsior-Henderson
Motorcycle Manufacturing Company.(9)
4.11 Securities Purchase Agreement, dated as of April 30, 1999, by and among
Excelsior-Henderson Motorcycle Manufacturing Company and the Buyers
listed therein.(10)
10.1 Loan Agreement, dated as of November 1, 1997, by and between Minnesota
Agricultural and Economic Development Board and the Company.(6)
10.2 Loan Agreement, dated as of July 1, 1998, by and between Economic
Development Authority of the City of Belle Plaine, Minnesota and the
Company.(6)
10.3 Assignment of Loan Agreement, dated as of July 1, 1998, by and between
Economic Development Authority of the City of Belle Plaine, Minnesota,
Finova Public Finance, Inc. and the Company.(6)
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.(3)
10.6 Lease Agreement between Ryan Belle Plaine, LLC and the Company dated
April 21, 1997.(3)
10.7 Construction Agreement by and between Ryan Belle Plaine, LLC and the
Company dated April 21, 1997.(3)
10.8 Guaranty by Ryan Companies US, Inc. in favor of the Company dated April
21, 1997.(3)
10.9 Amended and Restated 1995 Stock Option Plan.(3)
10.10 Loan Agreement, dated as of December 22, 1998, by and between the
Company and Dakota Bank.(6)
10.11 Form of Employee Agreement.(4)
27 Financial Data Schedule for the quarterly period ended July 3, 1999.
- ----------
(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.
000-22765).
17
<PAGE>
(3) 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).
(4) 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 (Registration No. 333-27789).
(5) Incorporated by reference to the like numbered Exhibit to the Company's
Current Report on Form 8-K filed with the Commission on September 18, 1998
(File No. 000-22765).
(6) Incorporated by reference to the like numbered Exhibit to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended January 2, 1999 (File
No. 000-22765).
(7) Incorporated by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K filed with the Commission on May 17, 1999 (File No. 000-22765).
(8) Incorporated by reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K filed with the Commission on May 17, 1999 (File No. 000-22765).
(9) Incorporated by reference to Exhibit 4.3 to the Company's Current Report on
Form 8-K filed with the Commission on May 17, 1999 (File No. 000-22765).
(10) Incorporated by reference to Exhibit 10 to the Company's Current Report on
Form 8-K filed with the Commission on May 17, 1999 (File No. 000-22765).
(11) Incorporated by reference to the like numbered Exhibit to the Company's
Quarterly Report on Form 10-Q for the period ended April 3, 1999 (File No.
000-22765).
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
On May 17, 1999, the Company filed a Current Report on Form 8-K for the
purpose of announcing that the Company had sold and issued 10,000 shares of
Series D Convertible Preferred Stock at a purchase price of $1,000 per share.
18
<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 18, 1999 By: /S/ Daniel L. Hanlon
---------------------------------------------
Daniel L. Hanlon,
Co-Founder and Co-Chief Executive Officer
(Duly authorized officer and Principal Financial
Officer)
By: /S/ David P. Hanlon
---------------------------------------------
David P. Hanlon,
Co-Founder and Co-Chief Executive Officer
(Duly authorized officer)
19
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
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
4.1 Securities Purchase Agreement dated as of September 3, 1998, by and
among Excelsior-Henderson Motorcycle Manufacturing Company and
the Buyers listed therein................................................. Incorporated by Reference
4.2 Registration Rights Agreement dated as of September 3, 1998,
by and between Excelsior-Henderson Motorcycle Manufacturing
Company and the Buyers listed therein..................................... Incorporated by Reference
4.3 Amended Statement of Designation of Rights, Preferences and
Limitations of Series B Convertible Preferred Stock as filed with
the Secretary of State of the State of Minnesota on September 3, 1998..... Incorporated by Reference
4.4 Form of Common Stock Purchase Warrant Certificate dated
September 3, 1998......................................................... Incorporated by Reference
4.5 Statement of Designation of Rights, Preferences and Limitations of
Series C Convertible Preferred Stock as filed with the Secretary of
State of the State of Minnesota on January 20, 1999....................... Incorporated by Reference
4.6 Promissory Note, dated December 1, 1997, from the Company
to Minnesota Agricultural and Economic Development Board.................. Incorporated by Reference
4.7 Specimen Taxable Industrial Development Revenue Bond
(Excelsior-Henderson Project) Series 1998................................. Incorporated by Reference
4.8 Statement of Designation of Rights, Preferences and Limitations
of Series D Convertible Preferred Stock, filed on May 3, 1999............. Incorporated by Reference
4.9 Registration Rights Agreement, dated as of April 30, 1999, by and
among Excelsior-Henderson Motorcycle Manufacturing Company
and the Buyers listed therein............................................. Incorporated by Reference
4.10 Form of Common Stock Purchase Warrant Certificate for the purchase of
shares of Common Stock of Excelsior-Henderson
Motorcycle Manufacturing Company.......................................... Incorporated by Reference
4.11 Securities Purchase Agreement, dated as of April 30, 1999, by and
among Excelsior-Henderson Motorcycle Manufacturing Company
and the Buyers listed therein............................................. Incorporated by Reference
10.1 Loan Agreement, dated as of November 1, 1997, by and
between Minnesota Agricultural and Economic Development Board
and the Company........................................................... Incorporated by Reference
10.2 Loan Agreement, dated as of July 1, 1998, by and between Economic
Development Authority of the City of Belle Plaine, Minnesota
and the Company........................................................... Incorporated by Reference
10.3 Assignment of Loan Agreement, dated as of July 1, 1998, by
and between Economic Development Authority of the City of
Belle Plaine, Minnesota, Finova Public Finance, Inc. and 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, LLC
and the Company dated April 21, 1997...................................... Incorporated by Reference
<PAGE>
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 Loan Agreement, dated as of December 22, 1998, by and
between the Company and Dakota Bank....................................... Incorporated by Reference
10.11 Form of Employee Agreement................................................ Incorporated by Reference
27 Financial Data Schedule for the quarterly period ended April 3, 1999...... Filed Electronically
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JUL-03-1999
<CASH> 4,795,911
<SECURITIES> 0
<RECEIVABLES> 2,227,840
<ALLOWANCES> 30,000
<INVENTORY> 6,124,697
<CURRENT-ASSETS> 13,615,854
<PP&E> 34,455,804
<DEPRECIATION> 2,625,715
<TOTAL-ASSETS> 51,091,449
<CURRENT-LIABILITIES> 12,025,867
<BONDS> 0
0
18,642,734
<COMMON> 136,371
<OTHER-SE> (2,728,141)
<TOTAL-LIABILITY-AND-EQUITY> 51,091,449
<SALES> 13,216,874
<TOTAL-REVENUES> 13,216,874
<CGS> 17,477,168
<TOTAL-COSTS> 17,477,168
<OTHER-EXPENSES> 8,189,780
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 1,535,002
<INCOME-PRETAX> (13,843,651)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,843,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,843,651)
<EPS-BASIC> (1.03)
<EPS-DILUTED> (1.03)
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