<PAGE>

                         SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C.  20549
                                          
                                          
                                     FORM 10-K

(Mark One)

/X/  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 For the Fiscal Year Ended January 3, 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 offices)                       (Zip code)

Registrant's telephone number, including area code:          (612) 873-7000
                                                             ---------------

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

                             Common Stock, $.01 par value
                        --------------------------------
                                (Title of each class)
                                          
     Check whether the registrant:  (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 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  / /

     Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.     /X/

     The aggregate market value of the common equity held by non-affiliates of
the registrant as of March 20, 1998 was $79,358,837, based on a closing price of
$8.375 per share as reported on the Nasdaq National Market on such date.

     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 --
13,027,858 issued and outstanding as of March 20, 1998.

<PAGE>

                                       PART I

          THIS ANNUAL REPORT ON FORM 10-K 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 SUBJECT TO RISKS AND UNCERTAINTIES
AND ACTUAL EVENTS OR RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED. 
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER INCLUDE THE RISKS,
UNCERTAINTIES AND OTHER MATTERS SET FORTH BELOW UNDER THE CAPTION
"FORWARD-LOOKING STATEMENTS" AND THE MATTERS SET FORTH UNDER THE CAPTIONS
"BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS ANNUAL
REPORT ON FORM 10-K.

ITEM 1.   BUSINESS

          The Company, which was incorporated in Minnesota in 1993, is in the
development stage and plans to manufacture, market and sell premium heavyweight
cruiser and touring motorcycles with a brand that evokes an authentic American
motorcycling heritage and lifestyle.  The Company's motorcycle products will
feature current technology but will reflect distinctive designs, styling and
names reminiscent of the motorcycles produced in the early part of this century
by Excelsior Supply Company ("Excelsior Supply") under the brand names Excelsior
and Henderson.  The Company intends to commence mass production of its initial
motorcycle, a heavyweight cruiser named the Excelsior-Henderson Super X, in late
1998.  The Company has developed several generations of prototypes of the
Super X and first unveiled a running prototype at the Sturgis Motorcycle Rally
in Sturgis, South Dakota in August 1996.  The Company relocated its operations
to a new 160,000 square foot manufacturing and administrative facility in Belle
Plaine, Minnesota in November 1997.  

          In 1993, Co-Founders Dan and Dave Hanlon developed a business plan to
pursue a market opportunity they believed existed in the heavyweight motorcycle
market.  They believed that many purchasers of heavyweight motorcycles wanted an
authentic American alternative to the motorcycles produced by Harley-Davidson. 
After researching the market, they believed that the combination of Excelsior
Supply's status as one of the original Big Three motorcycle manufacturers,
available brand name and rich heritage would serve as an excellent marketing
brand and design inspiration for the heavyweight motorcycles they planned to
introduce.  The Company was founded on the strategy to establish itself within
the motorcycle industry by marketing a brand that is based on an authentic
American heritage and to manufacture products and accessories that represent a
distinct alternative to the products of Harley-Davidson.  To achieve such
strategy, the Company has been developing its products, securing its trademarks,
engaging in marketing activities, hiring its management team and its initial
engineering, manufacturing and other personnel and raising capital. 

THE EXCELSIOR-HENDERSON HERITAGE

          It has been estimated that in the early part of this century there
were over 200 American motorcycle manufacturing companies.  Until 1931, the "Big
Three" motorcycle manufacturers were Excelsior Supply, Harley-Davidson and
Indian.  Excelsior Supply ceased operations in 1931 during the Great Depression
and Indian ceased operations in 1953.  Harley-Davidson has been the only
significant manufacturer of American heavyweight cruiser and touring motorcycles
since 1953.

          Founded as a bicycle supply company in Chicago in 1876, Excelsior
Supply was owned by bicycle producer Ignatz Schwinn from 1911 until it ceased
production.  Although the Company is not a successor to Excelsior Supply, it
secured Excelsior Supply's available brand names through usage beginning in
1993.  These brand names had become available after they were abandoned by
Excelsior Supply in 1931.  Excelsior Supply produced, among others, a Big X
motorcycle and a Super X motorcycle, featuring large "X-twin" engines.  In 1917,
Excelsior Supply purchased the Henderson Motorcycle Company ("Henderson") and
continued to manufacture a Henderson DeLuxe Four, which featured an inline four
cylinder engine.  The Company intends to produce motorcycles whose styling is
inspired by those manufactured by Excelsior Supply. 


                                          2

<PAGE>

          The motorcycles manufactured by Excelsior Supply and Henderson were a
significant force on the racetrack and on the road.  These motorcycles set many
performance records, including the first motorcycle to circle the world and the
first to break the 100 m.p.h. speed barrier.  Also, many police departments used
motorcycles manufactured by Excelsior Supply, as did the U.S. government during
World War I.  Several famous personalities of the time owned motorcycles
produced by Excelsior Supply, including aviator Charles Lindbergh and automobile
manufacturer Henry Ford. 

          In 1929, Excelsior Supply restyled its Super X and Henderson DeLuxe
Four motorcycles into its "Streamline" product line.  Several motorcycle
historians have cited these "Streamline" models as among the originators of the
classic American heavyweight motorcycle style.  For the Excelsior Supply
Super X, this classic style included a large displacement "X-twin" engine, a
teardrop shaped split fuel tank, full valanced fenders, a curved front frame
that followed the contour of the front fender, a low slung seat in which the
rider sat into the bike, a leading link front suspension with fork tubes that
passed through the front fender, a tank-mounted instrument panel, balloon tires
and premium single and two-tone paint finishes. 

INDUSTRY AND MARKET

          The heavyweight motorcycle category consists of motorcycles with an
engine displacement of 651cc or greater. Within the heavyweight category, there
are four types of motorcycles: (i) STANDARD, which emphasize simplicity and
cost; (ii) PERFORMANCE, which emphasize handling and speed; (iii) TOURING, which
emphasize comfort and amenities for long-distance travel; and (iv) CRUISER,
which feature the distinctive styling of classic American motorcycles built
during the early years of the motorcycling industry and are designed to
facilitate customization by individual owners.  Touring and cruiser motorcycles
are the only types of heavyweight motorcycles that the Company plans to design
and market.  According to statistics in Harley-Davidson's public reports, in
1996, touring and cruiser models represented approximately 80% of retail unit
sales in the U.S. heavyweight market.  Heavyweight motorcycles, in turn,
represented approximately half of retail motorcycle unit sales in the overall
United States market in 1996.  U.S. registrations of new heavyweight motorcycles
increased in 1996 by approximately 9.6% (to 165,700 units) over 1995
registrations, and U.S. registrations of new heavyweight motorcycles have
increased by 59% from 1992 through 1996.  In 1996, Harley-Davidson reported an
approximate 48% market share of U.S. and a 25% market share of worldwide
(including U.S.) new heavyweight motorcycle registrations representing
approximately $874 million in domestic motorcycle revenue and approximately
$1.2 billion in worldwide (including U.S.) motorcycle revenue.  Trade
publications and dealers have reported that there are substantial waiting lists
at the dealers for certain models of Harley-Davidson motorcycles.

          As recreational products, the Company's motorcycles and related
products are in a growing consumer market.  According to U.S. Government
reports, from 1992 through 1995 spending on recreational products grew at over
five percent per year and from 1994 through 1997 grew at three times the rate of
overall consumer spending.  Based on industry information, the Company believes
that the typical customer for heavyweight American touring and cruiser
motorcycles is a male between the ages of 35 and 65, with a household income of
approximately $65,000.  These customers are generally experienced motorcycle
riders who purchase motorcycles for recreational purposes rather than for
transportation.  According to U.S. Department of Commerce demographic surveys,
the number of Americans that will fall into the targeted age bracket is
projected to increase by approximately 11% over the next five years and by 19%
over the next ten years.  The 35 to 65 year old age group also leads all age
groups in annual spending per consumer on recreational products and generally
has greater disposable income than other age groups.

          The Company believes that customers in its target market are seeking
motorcycles and related products with a brand image associated with an authentic
classic American motorcycling heritage and lifestyle.  The Company also believes
that such customers purchase motorcycles based on a number of other factors
including styling, quality, reliability and product features.


                                          3

<PAGE>

STRATEGY AND DEVELOPMENT PLAN

          The Company's strategy is to establish its brand based on the
authentic American motorcycling heritage of Excelsior Supply and Henderson and
to offer products and accessories that represent a distinct alternative to the
products of Harley-Davidson.  In conjunction with this strategy, the Company has
undertaken marketing efforts to re-establish the legacy of Excelsior Supply and
Henderson in the motorcycling community and build demand for the Company's brand
and motorcycle products.  In addition, the Company has secured its trademarks
and begun using them on its products, raised net proceeds of approximately
$41.2 million in private and public equity, constructed working prototypes of
the Super X, displayed the Super X at rallies, completed construction of its
manufacturing and administrative facility and has commenced establishment of its
dealer network.  The Company also has hired, and continues to add to, its
engineering and manufacturing staff, which has been working with design and
engineering firms to develop the Super X for mass production. 

          Prior to the commencement of production, the Super X will be subject
to continuing track and road testing to ensure reliability, durability, rider
ergonomics and to ensure product and manufacturing process optimization.  In
addition, the Company will have to complete certain certifications with
government entities prior to retail sales.  In order to equip its manufacturing
and administrative facility, the Company must acquire equipment and fixtures for
its production line, finalize agreements with vendors to supply motorcycle
components and continue training and manufacturing system development.  The
Company will need to sign up additional dealers and begin targeted local market
promotional and advertising programs with its dealers.  The Company plans to
conduct a nationwide marketing campaign, which will include participating in
additional rallies, consumer events and trade shows, and promoting the Company's
brand of motorcycle products at Excelsior-Henderson dealer events.  Finally, the
Company will be required to hire additional management, engineering and
manufacturing, and marketing staff as needed to complete the above tasks.  

PRODUCTS

          The Company plans to produce premium heavyweight cruiser and touring
motorcycles.  The Company currently is developing its first motorcycle, the
Super X, for mass production in late 1998.  After commencement of mass
production of the Super X, the Company intends to expand its product line by
developing additional models of motorcycles, including a heavyweight touring
motorcycle and an entry-level cruiser, each with classic American heavyweight
styling.  The Company also sells, and will continue to sell, a wide variety of
apparel products such as hats, T-shirts and jackets to build brand image and
support the lifestyle of American motorcycling.  The Company also intends to
sell additional motorcycle parts and accessories to its customers to customize
the Company's motorcycles.  

          The Super X is a new motorcycle featuring modern engineering and
performance and a design inspired by the classic American heavyweight styling
features of the original Excelsior Supply Super X, including a large
displacement "X-twin" engine, a sleekly styled, teardrop shaped fuel tank, full
valanced fenders, a curved front frame that follows the contour of the front
fender, a low slung seat in which a rider will sit into the bike, a leading link
front suspension with fork tubes that pass through the front fender, a
tank-mounted instrument panel, wide profile tires and modern, high gloss, single
and two-tone paint finishes.  The Super X will also incorporate a proprietary
long-stroke engine designed to produce a distinctive sound, as well as a
proprietary transmission and electronic fuel injection system and computer
controlled-engine management system. 


                                          4

<PAGE>

          The following projected specifications of the Super X are subject to
further testing and are therefore subject to change: 

          Wheelbase                65 Inches
          Length                   95 Inches
          Weight                   675 lbs.
          Seat Height              26.5 Inches
          Engine Size              85 Cubic Inches (1386cc)
          Engine Design            50DEG. "X-twin"
          Engine Cooling           Air and Oil
          Fuel Distribution        Electronic Fuel Injection
          Valves                   4 Valves Per Cylinder, Dual Overhead Cam
          Frame                    Double Wishbone, Full Travel Suspension with 
                                   Leading Link Front End
          Transmission             5 Speed, Constant Mesh
          Fuel Capacity            5 Gallons
          Load Capacity            675 lbs.

MARKETING

          Since inception, the Company's marketing goal has been to re-establish
the legacy of Excelsior Supply and Henderson in the motorcycling community and
build demand for the Company's brand of motorcycle products.  The Company's
marketing strategy is to establish its brand through association with the
heritage of Excelsior Supply and Henderson and to create opportunities for the
public to experience such heritage.  

          The Company's marketing team, together with the services of a
marketing agency, has developed a marketing campaign that has generated many
news articles and other forms of publicity, including articles in most of the
national and international motorcycle publications, as well as many articles and
news telecasts in the non-motorcycle media.  To establish the Company's brand
among the motorcycling public, the Company implemented a marketing campaign for
the August 1996 Sturgis Motorcycle Rally in Sturgis, South Dakota and first
unveiled four prototype Super X motorcycles publicly.  The Company was also an
official sponsor of the Sturgis Rally in 1996 and 1997.  The Company also held
marketing events at the 1997 and 1998 Daytona Beach Bike Week by displaying
prototypes of the Super X and opening the weeks with the first and second Annual
Excelsior-Henderson Motorcycle Parade.  In addition, the Company was the
exclusive sponsor of a two-year exhibition, "Excelsior-Henderson, the Lost
Legend," featuring the largest collection of vintage Excelsior Supply and
Henderson Motorcycles ever assembled, at the American Motorcyclist Association
Motorcycle Heritage Museum.  In the period leading up to the first sale of the
Super X, the Company will continue its marketing efforts including, among other
things, attending additional rallies, consumer events and trade shows, promoting
the Excelsior-Henderson brand of motorcycle products at dealer events, informing
the media about the Super X and the Company, and advertising in trade and
consumer publications.  

          To create a strong brand identity for its motorcycles and related
products and to establish the authenticity of the Company's brand, the Company
intends to foster among consumers and dealers a culture and lifestyle that are
reminiscent of the classic American motorcycling heritage.  Such heritage refers
to the "soul" of the traditional American motorcycling experience, fostered by
motorcycle events, motorcyclists and media, which associates riding motorcycles
with individuality and freedom.  Owner customization of motorcycles is also an
important part of this heritage, and the Company intends to design its
motorcycles to facilitate individual customization by owners and to make custom
parts and accessories available to owners.  In addition, the Company intends to
sponsor and promote a motorcycle owners' group, rallies and a magazine for
owners and enthusiasts.  The Company also sells a wide variety of apparel
products such as hats, T-shirts and jackets with the Company's logos and intends
to license certain of its trademarks on a broad range of consumer items to
increase public exposure and familiarization with its brand and products. 


                                          5

<PAGE>

DISTRIBUTION

          The Company is building its nationwide dealer network.  Through
researching the U.S. motorcycle market, the Company has identified the key areas
in which it believes it must have dealer presence.  In addition, the Company has
identified a dealer profile for the dealers it believes will be successful in
selling its products and is currently soliciting dealers in the key areas who
meet this profile.  The Company held a ceremony to commemorate signing
agreements with its first ten dealers in the second quarter of 1997.  As of
March 20, 1998, the Company had signed agreements with 58 dealers.  Prior to
production, the Company expects to select 80 to 100 dealers from the over 3,000
authorized dealers of new motorcycles in the United States, and will then add
dealers as its production increases.  The Company's sales team is led by the
Company's Co-Founders and the Vice President of Sales who previously has
introduced new product lines for a recreational products manufacturer through an
independent dealer network.

          The Company's network will have dealers in the major population
centers and in the major motorcycling markets.  The Company will also have
dealers along the major motorcycle traveling routes, providing a nationwide
network of dealers to serve the Company's customers.  Within the industry, a
significant percentage of dealers handle more than one line of motorcycle, and
the Company expects that its dealers will also sell other motorcycle product
lines.  The Company intends to select dealers who will have a strong commitment
to the Company's brand of products and its success.  The Company will allocate
its brand of products through a process of determining how many of its
motorcycles a particular dealer can sell in its market, rather than allocating
to dealers on a pro-rata basis.  The Company believes that this will allow it to
have the right number of dealers nationwide who are comfortable with selling the
number of motorcycles allocated. 

          The Company intends to select dealers who have an established
reputation for excellence, professional appearance, profitable operations, a
sales floor sufficient to display the Company's motorcycles and related
products, the ability to maintain adequate inventories of motorcycles, parts,
supplies and other merchandise, a knowledgeable sales staff, the ability to
provide full-service maintenance and who can add value by promoting lifestyle
motorcycle products and events (E.G., customized after-market parts, motorcycle
apparel and accessories, customer appreciation and promotional events, rallies,
etc.).  The Company will provide support for its dealers and customers by
maintaining adequate quantities of repair parts and accessories, training for
service technicians and warranty coverage.  

MANUFACTURING

          The Company will assemble its motorcycles using proprietary and
non-proprietary components in the Company's new manufacturing facility.  The
manufacturing operations will consist of three main manufacturing processes:
welding, painting and assembly. 

WELDING.  The welding area will consist of robotic welding cells and ancillary
equipment, which will be used to manufacture the frame, swing cage, and rigid
front fork assembly.  The resulting accuracy and consistency from using robotics
are intended to ease the task of assembling motorcycles in volume.  Components
completed in the welding area will be fed directly into the paint area. 

PAINTING.  The paint area is being equipped and built to the highest industry
standards.  The Company believes that a high quality finish is extremely
important in marketing its motorcycles, and intends to perform all facets of the
finish work in-house.  The paint area will have a comprehensive range of
processes to ensure the corrosion resistance and surface durability required for
the major cosmetic components of the Company's motorcycles.  From the paint
area, components will be fed directly into the assembly area. 

ASSEMBLY.  The assembly area is being equipped with a moving assembly track.  In
this area, the engine and transmission unit will be assembled and tested.  After
the powertrain has been successfully tested, it will be transferred to the
chassis section.  The whole motorcycle will then be assembled as the powertrain
is built into the chassis.  Once assembled, the motorcycle will be subjected to
a final test and will then be packed and shipped. 


                                          6

<PAGE>

          The Company is obtaining its proprietary and non-proprietary
components from established original equipment manufacturers.  The Company will
strive to engage original equipment manufacturers who have established records
of producing reliable products for the motorcycle industry in a timely manner
and will constantly review such vendors to ensure strict quality control.  For
the critical components, the Company has identified vendors and is in the
process of establishing relationships with such vendors.

          Allan Hurd, the Company's Senior Vice President of Engineering and
Manufacturing, previously worked for Triumph Motorcycles, where he was part of
the management team that designed, developed and produced new motorcycles under
the Triumph name after the original Triumph ceased production.  Mr. Hurd was
directly responsible for establishing and operating all aspects of motorcycle
production, including motorcycle design and development, factory development and
layout, manufacturing equipment specification and acquisition and motorcycle
production. 

          The Company's facility has been designed to have a production capacity
of up to 20,000 motorcycles per year before on-site expansion is necessary.  The
facility has been designed to provide an optimum production environment for the
Company's employees through the use of natural lighting and climate-controlled
heating and air conditioning.  The Company believes that such an environment
will help optimize employee productivity.  

INTELLECTUAL PROPERTY RIGHTS

          The Company believes that it has the exclusive right to use the
trademarks "Excelsior-Henderson," "Super X" and "X-twin", among others, and
certain related word and design trademarks in the United States in connection
with the manufacture and sale of motorcycles and related structural parts.  In
addition, the Company believes that it has the right to use certain of these
marks on ancillary merchandise and apparel.  The Company has secured its rights
to these trademarks, which were abandoned by Excelsior Supply when it ceased
production in 1931. 

          The Company believes that it has obtained common law rights through
the use of these marks on its prototype motorcycles and ancillary merchandise
and apparel that are independent of the United States Patent and Trademark
Office ("USPTO") registration process.  In addition, the Company has obtained
registrations or notices of allowance for a number of these marks ("Excelsior",
"Henderson" and "Super X") for use on motorcycles and has applications pending
approval in the USPTO on other marks. 

          The Company also believes that it has the exclusive right to use
certain of its trademarks in certain foreign countries in connection with the
manufacture and sale of motorcycles and related structural parts.  In some
instances, these rights may be dependent on pending applications to register the
marks in a foreign country.  A failure to obtain such registrations could impair
the Company's rights to use a mark in a particular country. 

          The Company owns copyrights for its designs used as trademarks and
generates documents in the course of its operations that are protected by
copyright.  The Company intends to register its copyrights in its designs and
its promotional materials and other works with the U.S. Copyright Office as such
registrations become appropriate. 

          The Company currently owns no patents but has filed an initial design
patent in connection with the Super X motorcycle.  At appropriate points in the
design and development process, the Company may file additional patent
applications with the USPTO to cover certain features or aspects of its
products. 

          There are no claims of infringement against the Company and the
Company is not and has not been involved in any court proceedings regarding its
intellectual property rights.  From time to time, the Company has been involved
in INTER PARTES opposition proceedings in the USPTO to protect its trademark
rights.  All such proceedings have been resolved to the Company's satisfaction,
and there are no material proceedings pending.  There are no outstanding claims
by the Company against anyone for violation of the Company's intellectual
property rights. 


                                          7

<PAGE>

COMPETITION

          In the U.S. heavyweight motorcycle market, Harley-Davidson, Honda,
Suzuki, Kawasaki and Yamaha have the largest market share.  Other manufacturers
of heavyweight motorcycles include BMW, Buell, Ducati, Moto-Guzzi, and Triumph. 
The Company's primary competitor in the U.S. heavyweight market is expected to
be Harley-Davidson, which has been the only significant American heavyweight
cruiser and touring motorcycle manufacturer since 1953.  According to its public
reports, in 1996 Harley-Davidson had a market share of 48% of new U.S.
heavyweight motorcycle registrations.  In response to demand for its products,
Harley-Davidson has tripled its production capabilities over the past decade and
forecasts doubling its 1995 production capacity by the year 2003.  Several of
the major foreign manufacturers compete against Harley-Davidson in the domestic
market by selling motorcycles with a "nostalgic" American design. 

          Due to recent growth in the market for heavyweight motorcycles, the
Company expects that other manufacturers will attempt to enter the market.  In
1997, Polaris Industries Inc., a manufacturer of snowmobiles, personal
watercraft and all-terrain vehicles, announced that it would begin manufacturing
a cruiser motorcycle to be available in limited quantities in Spring 1998.  Over
the years, the Company has also been aware of several efforts to revive the
"Indian" name on new motorcycles.  Finally, a number of small companies build
and sell motorcycles from non-proprietary parts. 

          The U.S. and worldwide heavyweight motorcycle markets are highly
competitive and all of the Company's existing major competitors have resources
that are substantially greater than those of the Company, have larger overall
sales volumes and are more diversified than the Company. 

GOVERNMENT REGULATION

          Commercial sales of the Company's motorcycles depends upon compliance
with certain government regulations and the Company is designing its motorcycles
to comply with all such regulations.  The Company's motorcycles will be subject
to the emissions and noise standards of the U.S. Environmental Protection Agency
and the more stringent emissions standards of the State of California Air
Resources Board.  The Company's motorcycles also will be subject to the National
Traffic and Motor Vehicle Safety Act and the rules promulgated thereunder by the
National Highway Traffic Safety Administration.  Furthermore, the European Union
and other foreign governmental entities have regulations to which the Company's
motorcycles will be subject.  Finally, federal, state and local authorities have
adopted various standards relating to air, water and noise pollution that will
affect the Company's manufacturing operations.  The Company expects that its
facilities will comply with all such regulations and 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. 

EMPLOYEES

          As of March 20, 1998, the Company had 82 full-time employees, of whom
46 work in engineering and manufacturing.  The Company is not subject to any
collective bargaining agreement.  The Company anticipates adding supervisory,
engineering and manufacturing, marketing and administrative staff as the Company
moves from the development stage to the production stage.  The timing and extent
of the Company's hiring will depend on the pace of development of the Super X
and equipping of the Company's manufacturing and administrative facility. 

ITEM 2.  PROPERTIES

          The Company's manufacturing and administrative facility in Belle
Plaine, Minnesota consists of approximately 160,000 square feet of leased space.


                                          8

<PAGE>

ITEM 3.   LEGAL PROCEEDINGS

          Not applicable.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          No matters were submitted to a vote of security holders by the
registrant during the fourth quarter of the fiscal year covered by this report.


                                      PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

          The Company's Common Stock trades on the Nasdaq National Market under
the symbol BIGX.  The following table sets forth, for the fiscal quarters
indicated, a summary of the high and low closing prices of the Common Stock as
reported by the Nasdaq National Market. 

<TABLE>
<CAPTION>
                                                       High          Low
                                                       ----          ---
<S>                                                   <C>           <C>
Fiscal Year Ended January 3, 1998
Third Quarter (from 7/24/97) . . . . . . . .          $9.00         $5.625
Fourth Quarter . . . . . . . . . . . . . . .          $7.75         $4.50
</TABLE>

          As of March 20, 1998, the Company had 812 shareholders of record and
approximately 6,500 beneficial holders of its Common Stock.

          The Company has never declared or paid any dividends on its Common
Stock.  The Company currently intends to retain any earnings for use in its
business and therefore does not anticipate paying any dividends in the
foreseeable future.


                                          9

<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

          The statement of operations data for the years ended December 31, 1995
and 1996, January 3, 1998 (fiscal 1997) and cumulative for the period from
inception (December 22, 1993) to January 3, 1998, and the balance sheet data as
of December 31, 1996 and January 3, 1998 are derived from and are qualified by
reference to, and should be read in conjunction with the more detailed Financial
Statements of the Company and the Notes thereto, which have been audited by
Arthur Andersen LLP, independent public accountants, whose report is included
elsewhere in this Annual Report on Form 10-K, and the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which follows this section.  The statement of operations data for
the year ended December 31, 1994 and the balance sheet data as of December 31,
1994 and 1995 are derived from audited financial statements not included in this
Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                                                       CUMULATIVE FOR
                                                                                                         THE PERIOD
                                                                                                            FROM
                                                                                                          INCEPTION
                                                     YEAR ENDED DECEMBER 31,             YEAR ENDED    (DECEMBER 22,
                                             ---------------------------------------     JANUARY 3,       1993) TO
                                                 1994         1995          1996           1998        JANUARY 3, 1998
                                             -----------   ------------   ------------   ------------  ---------------
<S>                                          <C>           <C>           <C>             <C>           <C>
STATEMENT OF OPERATIONS DATA:
Preoperating Expenses:
  Research and development . . . . . . .     $  110,082    $   702,345    $ 1,271,276    $ 2,648,964   $  4,732,667
  Marketing. . . . . . . . . . . . . . .         32,133        106,974        694,239      1,673,680      2,507,026
  General and administrative . . . . . .        241,630        460,793        716,154      2,180,848      3,600,600
                                             -----------   ------------   ------------   ------------  ---------------
     Total preoperating expenses . . . .        383,845      1,270,112      2,681,669      6,503,492     10,840,293
Interest Income. . . . . . . . . . . . .              -         43,522        174,226        810,058      1,027,806
Interest Expense . . . . . . . . . . . .         (5,346)        (7,301)        (4,088)      (179,297)      (196,032)
                                             -----------   ------------   ------------   ------------  ---------------
Net Loss . . . . . . . . . . . . . . . .     $ (389,191)   $(1,233,891)   $(2,511,531)   $(5,872,731)  $(10,008,519)
                                             -----------   ------------   ------------   ------------  ---------------
                                             -----------   ------------   ------------   ------------  ---------------

Basic and diluted net loss per share(1).     $     (.11)   $      (.25)   $      (.43)   $      (.65)  $      (1.71)
                                             -----------   ------------   ------------   ------------  ---------------
                                             -----------   ------------   ------------   ------------  ---------------

Basic and diluted weighted average 
     shares outstanding(1) . . . . . . .       3,529,417      4,989,058      5,859,977      9,073,839      5,854,898
                                             -----------   ------------   ------------   ------------  ---------------
                                             -----------   ------------   ------------   ------------  ---------------
</TABLE>


                                      10

<PAGE>

<TABLE>
<CAPTION>
                                                            DECEMBER 31,                 JANUARY 3,
                                           ------------------------------------------   ------------
                                                 1994          1995          1996           1998
                                                 ----          ----          ----           ----
BALANCE SHEET DATA:
<S>                                        <C>            <C>            <C>            <C>
Working capital. . . . . . . . . . . . .   $    188,025   $  1,550,914   $  9,038,639   $ 21,104,052
Total assets . . . . . . . . . . . . . .        373,926      1,882,588     10,023,400     48,185,467
Current maturities . . . . . . . . . . .         25,015         24,351         70,086        675,372
Long-term debt and capital lease
  obligations. . . . . . . . . . . . . .              -              -              -     13,738,615
Total stockholders' equity . . . . . . .        254,123      1,728,858      9,631,327     31,188,216
</TABLE>

-----------

     (1)  See Note 2 to Financial Statements for determination of weighted
          average shares outstanding. 

ITEM 7.   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 primarily of the operating expenses described below in
"Results of Operations," the Company's deficit accumulated during the
development stage was $10.0 million at January 3, 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 increase
staffing and other general operating expenses.  For these reasons, the Company
believes its expenses, losses, and deficit accumulated during the development
stage will increase significantly before any material product sales are
generated.  

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1995 AND 1996 AND JANUARY 3, 1998

RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses increased
to $2.6 million in fiscal 1997 from $1.3 million in fiscal 1996 and $702,000 in
fiscal 1995.  The increases were primarily due to staffing increases and
increased product design and development costs, as well as expenses for
developing prototypes.  

MARKETING EXPENSES.  Marketing expenses increased to $1.7 million in fiscal 1997
from $694,000 in fiscal 1996 and $107,000 in fiscal 1995.  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 $2.2 million in fiscal 1997 from $716,000 in 1996 and $461,000 in
fiscal 1995.  The increases were primarily due to staffing increases and other
general operating expenses.  

INTEREST INCOME.  Interest income increased to $810,000 in fiscal 1997 from
$174,000 during fiscal 1996 and $44,000 during fiscal 1995.  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 in fiscal
1997 and the proceeds of the sale of Series A Convertible Preferred Stock (which
has now converted into Common Stock) during fiscal 1996.


                                          11

<PAGE>

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 $2,600,000.  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 of $27.4 million for funding research and
development costs (including pre-production manufacturing and completion of the
design, engineering and testing of the Super X); sales and marketing costs
(including increased marketing activity prior to the commercial introduction of
the Super X and dealer network development); capital expenditures (including
completing and equipping the manufacturing and administrative facility,
acquiring tooling and motorcycle components and supplies); and general and
administrative costs.  Based upon its current estimates, the Company believes
that its available cash resources, including the proceeds received from the
initial public offering of Common Stock, as well as the proceeds received from
the Minnesota Department of Trade and Economic Development (see below), will be
sufficient to fund the pre-production operations of the Company and the capital
expenditures necessary to start production of the Super X.  The Company may
require additional fixed asset and working capital financing prior to
commencement of production.  Upon commencement of production, the Company will
need to obtain substantial amounts of fixed asset and working capital financing 
However, if any of the anticipated sources of funds are not available, the
Company will have to look to other means of financing.  In addition, if the
Company's estimates of the amount of financing needed to commence production of
the Super X are incorrect due to unanticipated additional costs of equipping the
Company's manufacturing facility, unanticipated problems in the development of
the Super X for production, increased labor costs, increased costs of motorcycle
parts and raw materials, increased marketing and dealer network development
expenses, increased rates of consumption of available cash resources, or other
unanticipated events, then the Company may need additional equity or debt
financing in excess of the proceeds of its initial public offering of Common
Stock prior to or shortly after commencement of production of the Super X.

          On April 21, 1997, the Company signed a Construction Agreement and a
Lease Agreement (the "Lease Agreement") with a real estate development company
for construction of its approximately 160,000 square foot manufacturing and
administrative facility which was completed in November 1997 at a total cost of
approximately $11.0 million, exclusive of equipment costs.  The project was
financed by the real estate development company with $2.3 million of tax
increment financing bonds issued by the City of Belle Plaine, Minnesota,
$5.75 million (including a $750,000 deposit) of mortgage-backed debt arranged by
the developer and the balance of approximately $3.7 million was provided by the
Company.  To finance repayment of the tax increment financing, the Company has
guaranteed the underlying real estate tax payments on the property.  The Company
recorded the transaction as a capital lease upon acceptance of the facility in
November 1997.

          The lease for the facility has an initial term of 20 years with two
additional 10-year renewal options.  Rent for the first 20 years is equal to the
debt service on the $5.75 million mortgage-backed debt, using a 20 year
amortization, plus a 10 percent premium (escalating during the lease term to
roughly offset inflation).  Rent for the 10 year renewal options is based on the
greater of fair market value at the date of renewal or formula rent, as defined
in the Lease Agreement.  The Lease Agreement contains an option to purchase the
facility at the five year anniversary for $6.25 million less any principal
reduction in the $5.0 million debt (and application of the $750,000 deposit).

          In October 1997, the Company signed a construction agreement with a
third-party vendor for the construction of the Company's paint and finishing
facility.  The cost of the facility will be approximately 


                                          12

<PAGE>

$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 paint facility.  Through January 3, 1998, the Company
had made payments totaling $1.6 million on the paint and finishing facility
construction agreement.  In order to finance a portion of the paint and
finishing facility and other equipment, the Company has entered into a loan
agreement with the State of Minnesota, through the Minnesota Agriculture and
Economic Development Board, providing 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 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.  The loan was
financed by the issuance of the Board's revenue bonds.

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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

          The Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), changes the way
companies calculate their earnings per share ("EPS").  SFAS 128 replaces primary
EPS with basic EPS.  Basic EPS is computed by dividing reported earnings by
weighted average shares outstanding, excluding potentially dilutive securities. 
Fully diluted EPS, termed diluted EPS under SFAS 128, is also disclosed.  The
Company adopted SFAS 128 for the quarter and year ended January 3, 1998, at
which time all prior year EPS data was restated in accordance with SFAS 128.

FORWARD-LOOKING STATEMENTS

Certain statements made in this Annual Report on Form 10-K, 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 INTENDS TO
     PRESENT A DISTINCT ALTERNATIVE TO HARLEY-DAVIDSON --  The Company has not
     had sales to date and does not anticipate motorcycle sales until late 1998.
     As of January 3, 1998, the Company had an accumulated deficit of
     $10.0 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 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 48% share of the U.S. market for
     new heavyweight motorcycle registrations in 1996 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 


                                          13

<PAGE>

     watercraft and all-terrain vehicles, which announced that it would begin
     manufacturing a cruiser motorcycle to be available in limited quantities in
     Spring 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 INTENDS TO COMMENCE MASS PRODUCTION OF THE SUPER X IN LATE 1998
     AND DOES NOT ANTICIPATE HAVING MOTORCYCLE SALES UNTIL SUCH TIME   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 58 dealers as of March 20, 1998. 
     Prior to production, the Company will 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,
     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, WILL BE SUFFICIENT
     TO FUND THE PRE-PRODUCTION OPERATIONS OF THE COMPANY AND THE CAPITAL
     EXPENDITURES NECESSARY TO START PRODUCTION OF THE SUPER X.   If the
     Company's estimates of the amount of financing needed to commence
     production of the Super X are incorrect due to unanticipated additional
     costs of equipping the Company's manufacturing facility, unanticipated
     problems in the development of the Super X for production, increased labor
     costs, increased costs of motorcycle parts and raw materials, increased
     marketing and dealer network development expenses, increased rates of
     consumption of available cash resources, the unavailability of commercial
     fixed asset and working capital financing, or other unanticipated events,
     then the Company may need additional equity or debt financing prior to or
     shortly after commencement of production of the Super X.  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.


                                          14

<PAGE>

-    RELIANCE ON ORIGINAL EQUIPMENT MANUFACTURERS ("OEMS")   The Company will
     rely on OEMs to supply most of the proprietary and non-proprietary
     components that will be used to manufacture its motorcycle products. For
     certain of the components, the Company intends to rely on single sources of
     supply. Such reliance 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 OEMs, especially single-source vendors, could materially
     and adversely affect the Company's results of operations.

          The Company anticipates that it will purchase certain of its
     components from foreign OEMs. 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 MAY REQUIRE ADDITIONAL FIXED ASSET AND WORKING CAPITAL
     FINANCING PRIOR TO COMMENCEMENT OF PRODUCTION; UPON COMMENCEMENT OF
     PRODUCTION, THE COMPANY WILL NEED TO OBTAIN SUBSTANTIAL AMOUNTS OF FIXED
     ASSET AND WORKING CAPITAL FINANCING   The 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 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          Not applicable.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                           INDEX TO FINANCIAL STATEMENTS

                                                            Page Number
                                                            -----------

          Report of Independent Public Accountants               16

          Balance Sheets as of December 31, 1996
               and January 3, 1998                               17

          Statements of Operations for the Years Ended
               December 31, 1995 and 1996, January 3, 1998 
               and Cumulative for the Period from Inception
               (December 22, 1993) to January 3, 1998            18

          Statements of Stockholders' Equity for the Period 
               from Inception (December 22, 1993) to 
               January 3, 1998                                   19

          Statements of Cash Flows for the Years Ended
               December 31, 1995 and 1996, January 3, 1998
               and Cumulative for the Period from Inception
               (December 22, 1993) to January 3, 1998            20

          Notes to Financial Statements                          21


                                          15

<PAGE>

                      REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Excelsior-Henderson Motorcycle Manufacturing Company:

We have audited the accompanying balance sheets of Excelsior-Henderson
Motorcycle Manufacturing Company (a Minnesota corporation in the development
stage) as of December 31, 1996 and January 3, 1998, and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended January 3, 1998 and cumulative for the period from inception
(December 22, 1993) to January 3, 1998.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Excelsior-Henderson Motorcycle
Manufacturing Company as of December 31, 1996 and January 3, 1998, and the
related statements of operations and cash flows for each of the three years in
the period ended January 3, 1998 and cumulative for the period from inception
(December 22, 1993) to January 3, 1998, in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  The Company is a development stage
enterprise with no significant operating results to date.  The factors discussed
in Note 1 to the financial statements raise a substantial doubt about the
ability of the Company to continue as a going concern.  Management's plans in
regard to these factors are also described in Note 1.  The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

                                   ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
February 19, 1998


                                          16

<PAGE>

                EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
                           (A DEVELOPMENT STAGE COMPANY)
                                          
                                   Balance Sheets
 
<TABLE>
<CAPTION>
                                                           December 31, 1996   January 3, 1998
                                                           -----------------  ---------------
                      ASSETS
CURRENT ASSETS:
<S>                                                             <C>            <C>
  Cash and cash equivalents                                     $ 5,376,601    $12,484,502
  Short-term investments                                          4,044,992     11,764,689
  Other current assets                                                9,119        113,497
                                                                -----------    -----------

       Total current assets                                       9,430,712     24,362,688

PROPERTY, PLANT AND EQUIPMENT, net of accumulated 
  depreciation of $76,250 and $255,529                              453,961     13,353,897

INTELLECTUAL PROPERTY, to be amortized                              135,384        200,545

RESTRICTED CASH                                                           -      7,275,569

DEPOSITS                                                              3,343      2,670,675

OTHER ASSETS, net of accumulated amortization of $2,656                   -        322,093
                                                                -----------    -----------

                                                                $10,023,400    $48,185,467
                                                                -----------    -----------
                                                                -----------    -----------

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                              $   123,236    $ 1,997,783
  Accrued liabilities                                               198,751        585,481
  Current maturities of long-term debt and capital 
     lease obligations                                               70,086        675,372
                                                                -----------    -----------

       Total current liabilities                                    392,073      3,258,636

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, 
  less current maturities                                                 -     13,738,615
                                                                -----------    -----------

COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS' EQUITY:
  Series A Convertible Preferred Stock, par value $0.01; 
     3,342,666 shares authorized and 3,066,527 shares issued 
     and outstanding at December 31, 1996, no shares 
     authorized, issued or outstanding at January 3, 1998            30,665              -
  Common stock, par value $0.01; 16,666,666 shares 
     authorized; 5,870,231 and 13,026,191 shares issued and 
     outstanding                                                     58,702        130,262
  Additional paid-in capital                                     13,677,748     41,066,473
  Deficit accumulated during the development stage               (4,135,788)   (10,008,519)
                                                                -----------    -----------

       Total stockholders' equity                                 9,631,327     31,188,216
                                                                -----------    -----------
                                                                $10,023,400    $48,185,467
                                                                -----------    -----------
                                                                -----------    -----------
</TABLE>

  The accompanying notes are an integral part of these balance sheets.


                                          17

<PAGE>

                 EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
                            (A DEVELOPMENT STAGE COMPANY)

                               Statement of Operations

         For the Years Ended December 31, 1995 and 1996, January 3, 1998, and
             Cumulative for the Period From Inception (December 22, 1993)
                                  to January 3, 1998
 
<TABLE>
<CAPTION>
                                                                 1995          1996           1997       Cumulative
                                                          -------------  -------------  -------------  -------------

<S>                                                       <C>            <C>            <C>            <C>
PREOPERATING EXPENSES:
  Research and development                                $    702,345   $  1,271,276   $  2,648,964   $  4,732,667
  Marketing                                                    106,974        694,239      1,673,680      2,507,026
  General and administrative                                   460,793        716,154      2,180,848      3,600,600
                                                          -------------  -------------  -------------  -------------

       Total preoperating expenses                           1,270,112      2,681,669      6,503,492     10,840,293

INTEREST INCOME                                                 43,522        174,226        810,058      1,027,806

INTEREST EXPENSE                                                (7,301)        (4,088)      (179,297)      (196,032)
                                                          -------------  -------------  -------------  -------------

       Net loss                                           $ (1,233,891)  $ (2,511,531)  $ (5,872,731)  $(10,008,519)
                                                          -------------  -------------  -------------  -------------
                                                          -------------  -------------  -------------  -------------

BASIC AND DILUTED NET LOSS PER SHARE                      $       (.25)  $       (.43)  $       (.65)  $      (1.71)
                                                          -------------  -------------  -------------  -------------
                                                          -------------  -------------  -------------  -------------

BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING        4,989,058      5,859,977      9,073,839      5,854,898
                                                          -------------  -------------  -------------  -------------
                                                          -------------  -------------  -------------  -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                          18

<PAGE>

                 EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
                            (A DEVELOPMENT STAGE COMPANY)

                          Statement of Stockholders' Equity

<TABLE>
<CAPTION>

                                                               Series A Convertible
                                                                  Preferred Stock                 Common Stock
                                                             --------------------------      ------------------------
                                                               Shares          Amount         Shares         Amount
                                                              --------        ---------      ---------      ---------
<S>                                                          <C>              <C>            <C>            <C>
BALANCE AT INCEPTION, December 22, 1993                                -      $       -              -       $      -
  Issuance of common stock, $0.01 per share                            -              -      3,366,667         33,667
  Excess of par value over issuance price                              -              -              -        (28,617)
  Net loss                                                             -              -              -              -
                                                             -----------      ---------      ---------      ---------

BALANCE, December 31, 1993                                             -              -      3,366,667          5,050
  Proceeds from sale of common stock, $0.75 per share,
     net of offering costs of $23,059                                  -              -         86,667         29,483
  Proceeds from sale of common stock, $0.90 per share,
     net of offering costs of $14,919                                  -              -        594,433          5,944
  Issuance of common stock in settlement of construction
     payable, $0.90 per share                                          -              -          5,567             56
  Issuance of common stock from conversion of promissory
     note to investor, $0.60 per share, net of conversion
       costs of $2,583                                                 -              -        125,000          1,250
  Net loss                                                             -              -              -              -
                                                             -----------      ---------      ---------      ---------

BALANCE, December 31, 1994                                             -              -      4,178,334         41,783
  Proceeds from sale of common stock, $1.88 per share,
     net of offering costs of $363,874                                 -              -      1,605,231         16,053
  Issuance of common stock for research and development
     services, $1.88 per share                                         -              -         33,333            333
  Net loss                                                             -              -              -              -
                                                             -----------      ---------      ---------      ---------

BALANCE, December 31, 1995                                             -              -      5,816,898         58,169
  Proceeds from sale of Series A Convertible Preferred
    Stock, $3.75 per share, net of offering costs 
     of $1,186,000                                             3,066,527         30,665              -              -
  Issuance of common stock for marketing services, $1.88
     per share                                                         -              -         33,333            333
  Proceeds from exercise of stock options, $1.88 per share             -              -         20,000            200
  Net loss                                                             -              -              -              -
                                                             -----------      ---------      ---------      ---------

BALANCE, December 31, 1996                                     3,066,527         30,665      5,870,231         58,702
  Conversion of Series A Convertible Preferred Stock to
     common stock                                             (3,066,527)       (30,665)     3,066,527         30,665
  Cash paid for fractional shares in reverse stock split               -              -              -              -
  Proceeds from sale of common stock, $7.50 per share, net
     of offering costs of $2,600,000                                   -              -      4,000,000         40,000
  Proceeds from exercise of stock options and warrants,
     $1.88 per share                                                   -              -         16,800            168
  Cashless exercise of stock options and warrants                      -              -         72,633            727
  Net loss                                                             -              -              -              -
                                                             -----------      ---------      ---------      ---------

BALANCE, January 3, 1998                                               -      $       -     13,026,191      $ 130,262
                                                             -----------      ---------      ---------      ---------
                                                             -----------      ---------      ---------      ---------

<CAPTION>

                                                                             Deficit 
                                                                            Accumulated
                                                              Additional     During the        Total
                                                               Paid-In      Development      Stockholders'
                                                               Capital         Stage           Equity
                                                            ------------    ------------     -------------
<S>                                                         <C>           <C>             <C>
BALANCE AT INCEPTION, December 22, 1993                     $          -  $           -   $          -
  Issuance of common stock, $0.01 per share                       16,833              -         50,500
  Excess of par value over issuance price                        (16,833)             -        (45,450)
  Net loss                                                             -         (1,175)        (1,175)
                                                            ------------  -------------   ------------

BALANCE, December 31, 1993                                             -         (1,175)         3,875
  Proceeds from sale of common stock, $0.75 per share,
     net of offering costs of $23,059                             12,458              -         41,941
  Proceeds from sale of common stock, $0.90 per share,
     net of offering costs of $14,919                            514,127              -        520,071
  Issuance of common stock in settlement of construction
     payable, $0.90 per share                                      4,954              -          5,010
  Issuance of common stock from conversion of promissory
     note to investor, $0.60 per share, net of conversion
       costs of $2,583                                            71,167              -         72,417                            
  Net loss                                                             -       (389,191)      (389,191)
                                                            ------------  -------------   ------------

BALANCE, December 31, 1994                                       602,706       (390,366)       254,123
  Proceeds from sale of common stock, $1.88 per share,
     net of offering costs of $363,874                         2,630,073              -      2,646,126
  Issuance of common stock for research and development
     services, $1.88 per share                                    62,167              -         62,500
  Net loss                                                             -     (1,233,891)    (1,233,891)
                                                            ------------  -------------   ------------

BALANCE, December 31, 1995                                     3,294,946     (1,624,257)     1,728,858
  Proceeds from sale of Series A Convertible Preferred
     Stock, $3.75 per share, net of offering costs 
     of $1,186,000                                            10,283,335              -     10,314,000
  Issuance of common stock for marketing services, $1.88
     per share                                                    62,167              -         62,500
  Proceeds from exercise of stock options, $1.88 per share        37,300              -         37,500
  Net loss                                                             -     (2,511,531)    (2,511,531)
                                                            ------------  -------------   ------------

BALANCE, December 31, 1996                                    13,677,748     (4,135,788)  $  9,631,327
  Conversion of Series A Convertible Preferred Stock to
     common stock                                                      -              -              -
  Cash paid for fractional shares in reverse stock split          (1,880)             -         (1,880)
  Proceeds from sale of common stock, $7.50 per share, net
     of offering costs of $2,600,000                          27,360,000              -     27,400,000
  Proceeds from exercise of stock options and warrants,
     $1.88 per share                                              31,332              -         31,500
  Cashless exercise of stock options and warrants                   (727)             -              -
  Net loss                                                             -     (5,872,731)    (5,872,731)
                                                            ------------  -------------   ------------

BALANCE, January 3, 1998                                    $ 41,066,473  $ (10,008,519)  $ 31,188,216
                                                            ------------  -------------   ------------
                                                            ------------  -------------   ------------

</TABLE>

The accompanying notes are an integral part of these financial statements.


                                          19
<PAGE>

                EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
                           (A DEVELOPMENT STAGE COMPANY)

                              Statement of Cash Flows

For the Years Ended December 31, 1995 and 1996, January 3, 1998, and Cumulative
for the Period From Inception (December 22, 1993) to January 3, 1998

<TABLE>
<CAPTION>

                                                                           1995            1996            1997        Cumulative
                                                                         ------------  ------------   -------------  -------------
<S>                                                                      <C>           <C>            <C>            <C>     
OPERATING ACTIVITIES:

  Net loss                                                               $(1,233,891)  $(2,511,531)   $ (5,872,731)  $(10,008,519)
  Adjustments to reconcile net loss to net cash used in operating                                                    
     activities-                                                                                                     
       Depreciation and amortization                                          21,561        49,495         229,323        305,573
       Change in current assets and liabilities:                                                                     
          Other current assets                                                   780        (5,524)       (104,378)      (113,497)
          Accounts payable                                                    39,611         5,902       1,874,547      1,997,783 
          Accrued liabilities                                                 (5,020)      186,706         386,730        585,481 
                                                                         -----------    ----------    ------------    -----------

          Net cash used in operating activities                           (1,176,959)   (2,274,952)     (3,486,509)    (7,233,179)
                                                                         -----------    ----------    ------------    -----------

INVESTING ACTIVITIES:
  Purchases of short-term investments, net                                  (912,630)   (3,132,362)     (7,719,697)   (11,764,689)
  Property and equipment additions                                           (77,917)     (414,153)     (7,912,324)    (8,437,525)
  Purchases of intellectual property                                         (55,490)      (46,743)        (65,161)      (200,545)
  Payments of equipment deposits                                                   -        (3,343)     (2,667,332)    (2,670,675)
  Purchases of restricted cash                                                     -             -        (130,569)      (130,569)
                                                                         -----------    ----------    ------------    -----------

          Net cash used in investing activities                           (1,046,037)   (3,596,601)    (18,495,083)   (23,204,003)
                                                                         -----------    ----------    ------------    -----------

FINANCING ACTIVITIES:
  Proceeds from long-term debt                                                30,055        75,025       2,300,000      2,505,095 
  Repayment of capital lease and long-term debt obligations                  (30,719)      (29,290)       (315,378)      (375,387)
  Payments incurred for other assets                                               -             -        (324,749)      (324,749)
  Proceeds from issuance of common stock, net of offering expenses         2,708,626       100,000      27,429,620     30,802,725
  Proceeds from issuance of Series A Convertible Preferred Stock, 
    net of offering expenses                                                       -    10,314,000               -     10,314,000
                                                                         -----------    ----------    ------------    -----------

          Net cash provided by financing activities                        2,707,962    10,459,735      29,089,493     42,921,684
                                                                         -----------    ----------    ------------    -----------

          Net increase in cash and cash equivalents                          484,966     4,588,182       7,107,901     12,484,502

CASH AND CASH EQUIVALENTS:
  Beginning of period                                                        303,453       788,419       5,376,601              -
                                                                         -----------    ----------    ------------    -----------

  End of period                                                          $   788,419    $5,376,601    $ 12,484,502    $12,484,502
                                                                         -----------    ----------    ------------    -----------
                                                                         -----------    ----------    ------------    -----------

SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid                                                          $     7,301    $    4,088    $    148,631    $   164,676
  Noncash transactions-
     Property and equipment acquired under capital lease obligations               -             -       5,214,279      5,214,279
     Restricted cash recorded from long-term debt                                  -             -       7,145,000      7,145,000
     Conversion of note payable into common stock                                  -             -               -         75,000
     Issuance of common stock for services                                    62,500        62,500               -        125,000
     Issuance of common stock in settlement of construction payable                -             -               -          5,010

</TABLE>

      The accompanying notes are an integral part of these financial statements.


                                          20
<PAGE>

                 EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
                            (A DEVELOPMENT STAGE COMPANY)

                            Notes to Financial Statements

                        December 31, 1996 and January 3, 1998

1.   NATURE OF BUSINESS:

Excelsior-Henderson Motorcycle Manufacturing Company (the Company) is a
development stage company incorporated on December 22, 1993 in the state of
Minnesota for the purpose of developing, manufacturing, selling and distributing
motorcycles.  Effective January 3, 1998, the Company adopted a 52-/53-week
fiscal year ending on the Saturday closest to December 31.  Fiscal 1997 ended
January 3, 1998.

The Company is subject to all of the risks inherent in the establishment of a
new business enterprise, including the absence of any material operating
history.  The Company has sustained losses since inception and may require
additional fixed asset and working capital financing prior to commencement of
production.  Upon commencement of production, the Company will need to obtain
substantial amounts of fixed asset and working capital financing.  However, if
any of the anticipated sources of funds are not available, the Company will have
to look to other means of financing.  In addition, if the Company's estimates of
the amount of financing needed to commence production of the Super X are
incorrect due to unanticipated additional costs of equipping the Company's
manufacturing facility, unanticipated problems in the development of the Super X
for production, increased labor costs, increased costs of motorcycle parts and
raw materials, increased marketing and dealer network development expenses,
increased rates of consumption of available cash resources, or other
unanticipated events, then the Company may need additional equity or debt
financing in excess of the proceeds of its initial public offering of common
stock prior to or shortly after commencement of production of the Super X.  Even
if the Company is successful in completing the above activities, significant
revenues might not be realized.  The aforementioned factors raise substantial
doubt about the Company's ability to continue as a going concern.  The Company's
ability to continue motorcycle development and operate as a going concern is
contingent upon obtaining additional financing that might not be available to
it.  The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH EQUIVALENTS

Cash equivalents consist of money market instruments with original maturities of
three months or less and are recorded at cost, which approximates fair value.

SHORT-TERM INVESTMENTS

The Company's short-term investments, which consist of U.S. government and
corporate debt securities, are considered to be available for sale and are
carried at fair value, which approximates cost.

                                          21
<PAGE>

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>

                                      December 31, 1996       January 3, 1998
                                      ------------------      ----------------
     <S>                              <C>                     <C>
     Land                               $        -             $  1,200,000
     Building and improvements             224,879                9,767,798
     Machinery and equipment               276,886                2,046,940
     Furniture and fixtures                 28,446                  594,688
                                        ----------             ------------
                                           530,211               13,609,426
     Less- Accumulated depreciation        (76,250)                (255,529)
                                        ----------             ------------
                                      
     Total                              $  453,961             $ 13,353,897
                                        ----------             ------------
                                        ----------             ------------

</TABLE>

Property, plant and equipment are stated at cost.  Additions and improvements
are capitalized, while maintenance and repairs are charged to operations as
incurred. Depreciation is calculated using the straight-line method over the
estimated useful lives as follows:

<TABLE>
<CAPTION>

                                                                   Useful Life
                                                                   ------------
          <S>                                                      <C>
          Building and improvements                                  35 years
          Machinery and equipment                                  5-10 years
          Furniture and fixtures                                   3-10 years

</TABLE>

INTELLECTUAL PROPERTY

Intellectual property represents amounts incurred to prepare and file for United
States and international patents and federal trademarks.  These amounts are
stated at cost and will be amortized over 5 to 17 years beginning at the earlier
of commencement of operations or receipt of patents and trademark protection.

RESTRICTED CASH

Restricted cash consists of cash held in a trust from the issuance of the Series
1997 B Revenue Bonds which are scheduled to be released when the Company's paint
and finishing facility is completed.

DEPOSITS

Deposits consist of down payments made for manufacturing and finishing equipment
that is not yet installed in the Company's facility.

OTHER ASSETS

Other assets consist primarily of deferred financing costs associated with the
debt financing in 1997 and are being amortized over the lives of the related
instruments.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to expense as incurred.


                                          22
<PAGE>

INCOME TAXES

The Company follows the liability method of accounting for income taxes. 
Deferred taxes are based on the estimated future tax effects of differences
between the financial statement and tax bases of assets and liabilities given
the provisions of the enacted tax laws.

BASIC AND DILUTED NET LOSS PER SHARE

Basic and diluted net loss per share was computed by dividing net loss by the
weighted average shares outstanding.  Basic weighted average shares outstanding
includes common shares outstanding and the conversion of Series A Convertible
Preferred Stock into common stock.  If dilutive, diluted weighted average shares
outstanding includes the basic weighted average shares outstanding and dilutive
common stock equivalents.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period.  Ultimate results
could differ from those estimates.

RECLASSIFICATIONS

Certain amounts in the 1996 financial statements have been reclassified to
conform to the fiscal 1997 presentation.  These reclassifications had no effect
on previously reported net loss or stockholders' equity.

NEW ACCOUNTING PRONOUNCEMENT

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share," for the year ended January 3, 1998.  SFAS No. 128 changes
the way companies calculate their earnings per share (EPS), and replaces primary
EPS with basic EPS.  Basic EPS is computed by dividing reported earnings (loss)
by weighted average shares outstanding, excluding potentially dilutive
securities.  Fully diluted EPS, termed diluted EPS under SFAS No. 128, is also
to be disclosed if the result is dilutive.  All prior year EPS data has been
restated in accordance with SFAS No. 128.


                                          23
<PAGE>

3.   LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:

LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>

                                                                                        December 31,                January 3,
                                                                                            1996                       1998
                                                                                        --------------              -----------
<S>                                                                                     <C>                         <C>
Series 1997 B Revenue Bonds, interest rate at 9.5%, escalating annual 
  principal payments through August 1, 2007                                              $         -                $6,915,000
Tax Increment Financing Obligation, imputed interest rate of 7.9%, 
  payments made through future property taxes, remaining balance due no 
  later than February 1, 2012                                                                      -                 2,300,000
Other                                                                                         70,086                    57,372
                                                                                        --------------              -----------

                                                                                              70,086                 9,272,372
Less- Current maturities                                                                     (70,086)                 (517,372)
                                                                                        --------------              -----------
                                                                                          $        -                $8,755,000
                                                                                        --------------              -----------
                                                                                        --------------              -----------

</TABLE>

The Series 1997 B Revenue Bonds (the Bonds) are collateralized by a security
interest in the property, plant and equipment to be acquired with the proceeds
of the Bonds.  The Company is required to make monthly sinking fund installments
in amounts sufficient to redeem on August 1 of each year the respective
principal amount.  Annual principal payments increase from $460,000 in fiscal
1998 to $1,040,000 in fiscal 2007.

Proceeds from the City of Belle Plaine's (the City) Tax Increment Financing
Obligation (TIF) were used to acquire land and construct the Company's
manufacturing facility.  The Company's future property taxes will be used to
repay both the TIF principal and interest.  In the event that future property
taxes are not sufficient to make the scheduled principal and interest payments,
the Company is liable for any payment deficiency.

Future maturities of long-term debt are as follows:

<TABLE>
               <S>           <C>
               1998          $  517,372
               1999             500,000
               2000             768,000
               2001             840,000
               2002             914,000
               Thereafter     5,733,000
                             ----------
                             $9,272,372
                             ----------
                             ----------

</TABLE>


                                          24
<PAGE>

CAPITAL LEASE OBLIGATIONS

The Company has capital leases that expire at various times over the next twenty
years.  Property, plant and equipment included the following leased property
under capital leases by major classes as of January 3, 1998:

<TABLE>
<CAPTION>
          <S>                           <C>
          Building and improvements     $5,000,000
          Machinery and equipment          214,279
                                        ----------
                                         5,214,279
          Less- Accumulated depreciation   (48,046)
                                        ----------
                          Total         $5,166,233
                                        ----------
                                        ----------

</TABLE>

During 1997, the Company entered into a twenty-year capital lease with an
imputed interest rate of 11.6% for its manufacturing facility.  Rent for the
life of the lease is equal to the debt service on the lessor's debt ($5,750,000)
using a 20-year amortization plus a 10% premium (escalating during the lease
term to offset inflation).  The $5,750,000 includes a $750,000 deposit being
held in a reserve fund by a servicing agent of the lessor's debt.  Earnings on
the reserve fund accrue to the lessor, but will be paid to the Company.  The
reserve fund may be released to the Company at the first to occur:  lessor
permission, loan maturity or the purchase of the building by the Company.  The
lease includes a purchase option at the end of the fifth year for $6,250,000
less principal payments made and application of the $750,000 deposit.


The following is a schedule of future minimum capital lease principal payments
as of January 3, 1998:


<TABLE>
       <S>                                                        <C>
       1998                                                        $  158,000
       1999                                                           154,785
       2000                                                           171,437
       2001                                                           143,351
       2002                                                           118,390
       Thereafter                                                   4,395,652
                                                                  -----------
       Total minimum capital lease principal payments               5,141,615

       Less- Current maturities                                      (158,000)
                                                                  -----------

       Noncurrent portion of minimum capital lease principal
        payments                                                   $4,983,615
                                                                  -----------
                                                                  -----------

</TABLE>

4.   STOCKHOLDERS' EQUITY:

AUTHORIZED SHARES

The Company's Articles of Incorporation, as amended, authorize the aggregate
issuance of 23,333,332 shares of stock.  The shares are classified into two
classes consisting of 6,666,666 shares of Preferred Stock, $.01 par value, and
16,666,666 shares of $.01 par value common stock.

REVERSE STOCK SPLIT

Effective May 22, 1997, the Company's board of directors approved a 2-for-3
reverse stock split of the Company's outstanding stock.  All share and per share
data have been restated for all periods presented to reflect the reverse stock
split.


                                          25
<PAGE>

COMPANY STOCK OFFERING

During 1997, the Company completed an initial public offering of 4,000,000
shares of common stock.  Net proceeds of approximately $27.4 million are being
used primarily to complete and equip the facility; design and develop a
motorcycle production line; finalize engineering and design of the Super X; and
fund marketing costs, general operating expenses and working capital.

SERIES A CONVERTIBLE PREFERRED STOCK

During 1996, the Company completed a restricted offering to the public of
3,066,527 shares of Series A Convertible Preferred Stock.  Net proceeds of
approximately $10.3 million were used for further industrial design, engineering
and testing of the Company's Super X motorcycle; manufacturing site analysis and
development; motorcycle production line design, product development and tooling
costs; marketing; general operating expenses; and working capital.

The Series A Convertible Preferred Stock was converted into shares of common
stock concurrent with the closing of the Company's initial public offering in
July 1997.

STOCK-BASED COMPENSATION

The Company has a stock option plan (the Plan), under the terms of which it is
authorized to issue incentive stock options to employees, directors, advisors
and officers.  The incentive options allow the holder to purchase shares of the
Company's common stock at fair market value on the date of the grant.  For
options granted to holders of more than 10% of the outstanding common stock, the
option price at the date of the grant must be at least equal to 110% of the fair
market value of the stock.  Currently, 666,667 shares have been reserved for
issuance under the Plan.  Stock options granted expire between four and ten
years from the date of grant and vest at various rates over five years.

Nonqualified stock options have also been granted to outside service providers
under the Plan as stand-alone agreements.  The stock options were granted at
fair market value as determined by the board of directors at the date of the
grant.  Stock options granted expire between four and ten years from the date of
grant and vest at various rates over two years.


                                          26
<PAGE>

Information regarding stock options is as follows:

<TABLE>
<CAPTION>

                                               1995                               1996                            1997
                                    ---------------------------        ---------------------------        -----------------------
                                                      Weighted                            Weighted                     Weighted
                                                       Average                             Average                      Average
                                                      Exercise                            Exercise                     Exercise
                                    Shares             Price            Shares             Price           Shares       Price
                                    -------           ---------        --------          ---------        ---------    ---------
<S>                                 <C>              <C>              <C>               <C>              <C>          <C>
Outstanding, beginning of year
                                          -          $      -           17,667            $  1.49         410,934     $   1.86
  Granted                            17,667              1.49          413,267               1.88         311,338         4.72
  Exercised                               -                 -          (20,000)              1.88         (43,666)        1.72
  Canceled                                -                 -                -                  -        (159,833)        2.41
                                     ------          --------         --------            -------        --------     --------
Outstanding, end of year             17,667          $   1.49          410,934            $  1.86         518,773     $   3.40
                                     ------          --------         --------            -------        --------     --------
                                     ------          --------         --------            -------        --------     --------

Exercisable, end of year                  -          $      -          148,267            $  1.83         248,936     $   2.44
                                     ------          --------         --------            -------        --------     --------
                                     ------          --------         --------            -------        --------     --------

Weighted average fair value of 
  options granted                    $  .66                           $   1.08                           $   3.43
                                     ------                           --------                           --------    
                                     ------                           --------                           --------   

</TABLE>

In 1997, 12,000 options were exercised through the exchange of 3,000 shares
which were held by the shareholder in excess of six months.  Options outstanding
at January 3, 1998 have an exercise price per share ranging between $1.88 and
$7.00, a weighted exercise price of $3.40, and a weighted average remaining
contractual life of 8.4 years.

The Company accounts for the options under APB Opinion No. 25, under which no
compensation cost has been recognized.  Had compensation cost for the options
been determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and net loss per share would have been the
following pro forma amounts:

<TABLE>
<CAPTION>
 
                                                                                Cumulative for the Period From
                                                                                 Inception (December 22, 1993)
                                                   1996             1997             to January 3, 1998
                                               -----------      -----------    -------------------------------
<S>                                            <C>              <C>            <C>
Net loss:
  As reported                                  $2,511,531       $5,872,731                $10,008,519
  Pro forma                                     2,696,083        6,060,375                 10,386,816
Basic and diluted net loss per share:
  As reported                                  $      .43       $      .65                $      1.71
  Pro forma                                           .46              .67                       1.77

</TABLE>

Pro forma net loss and pro forma net loss per share for the year ended
December 31, 1995 would have been substantially unchanged from the amounts as
reported.

The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995, 1996 and 1997, respectively:  risk-free
interest rates of 5.78%, 5.95% and 6.47%; expected lives of 5, 7 and 10 years;
and expected volatility of 40% in 1995 and 1996 and 57% in 1997.


                                          27
<PAGE>

WARRANTS

In connection with its 1995 sale of common stock, the Company issued warrants to
purchase 209,540 shares of common stock at a price of $1.88 per share
exercisable through August 2, 2000.  During the year ended January 3, 1998,
warrants to purchase 70,706 common shares were exercised with cash and through
the exchange of common shares with net proceeds to the Company of $16,500.

In 1996, the Company issued warrants to purchase 262,667 shares of Series A
Convertible Preferred Stock at $4.50 per share.  During 1997, these warrants
were converted to common stock warrants exercisable at $4.50 per share through
September 2001.

5.   INCOME TAXES:

As of January 3, 1998, the Company had net operating loss carryforwards of
approximately $8,800,000 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 $2,600,000.  The calculated annual limitation is approximately
$600,000.

6.   COMMITMENTS AND CONTINGENCIES:

CONSTRUCTION AGREEMENT

In October 1997, the Company entered into an agreement for the construction of
its paint and finishing facility with an anticipated cost of approximately
$7.3 million.  As of January 3, 1998, the Company has recorded approximately
$1.5 million of deposits paid for certain equipment in Deposits in the
accompanying balance sheet.

OPERATING LEASES

The Company leases office space and certain office equipment under noncancelable
operating leases.  Future minimum payments under these leases as of January 3,
1998 are as follows:

<TABLE>
<CAPTION>
          <S>                                                 <C>
          1998                                                $153,000
          1999                                                 162,000
          2000                                                 161,000
          2001                                                 131,000
          2002                                                 120,000
          Thereafter                                           193,000
                                                             ---------
                                                              $920,000
                                                             ---------
                                                             ---------

</TABLE>

Under the terms of these operating leases, the Company is also responsible for
certain operating expenses.  Total lease expense was $19,000, $33,000, $99,000
and $163,000 for the years ended December 31, 1995 and 1996 and January 3, 1998,
and cumulative for the period from inception (December 22, 1993) to January 3,
1998, respectively.

LIFE INSURANCE

The Company is the owner and beneficiary of four $1,000,000 term life insurance
policies covering the lives of its founders and majority shareholders.


                                          28
<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

          Not applicable.


                                      PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The Directors and Executive Officers of the Company are as follows:

<TABLE>
<CAPTION>

Name                            Age         Position
------------------              -----       ------------------------------------
<S>                             <C>         <C>
 Daniel L. Hanlon                41         Director, Co-Founder, Co-Chairman of the Board of
                                            Directors and Co-Chief Executive Officer

 David P. Hanlon                 45         Director, Co-Founder, Co-Chairman of the Board of
                                            Directors and Co-Chief Executive Officer

 Allan C. Hurd                   50         Senior Vice President of Engineering and
                                            Manufacturing

 Thomas M. Rootness              50         Senior Vice President of Finance and
                                            Administration and Chief Financial Officer

 David L. Auringer               42         Vice President of Sales

 John B. Donahue                 54         Director

 Wayne M. Fortun                 49         Director

 David R. Pomije                 41         Director

</TABLE>

     DANIEL L. HANLON, a Co-Founder of the Company, is Co-Chief Executive
Officer and Co-Chairman of the Board of the Company.  Immediately prior to
founding the Company in 1993, Mr. Hanlon worked as founder, President and Chief
Executive Officer of EverGreen Solutions Inc., a manufacturer of degradable
packaging materials, from 1990 to December 1993.  Prior to 1990, Mr. Hanlon
served as Controller of Midwest Importers, in sales branch management positions
with Knutson Mortgage and Marquette banks, and in various accounting and
strategic planning positions with EcoLab Inc. and Honeywell Inc.  Mr. Hanlon
received his B.A. and M.B.A. degrees from the University of St. Thomas, St.
Paul, Minnesota.  Mr. Hanlon has been an avid automotive and motorcycle
enthusiast for over 20 years and currently owns one heavyweight American
motorcycle.  Mr.  Hanlon is a brother of David P. Hanlon. 

     DAVID P. HANLON, a Co-Founder of the Company, is Co-Chief Executive Officer
and Co-Chairman of the Board of the Company.  From 1984 to November 1993,
Mr. Hanlon was the General Manager of the Michigan District for Rollins Leasing
Corporation, a truck leasing company.  Prior to 1984, Mr. Hanlon worked for
three years as the District Manager of Gelco Truck Leasing in the Memphis,
Tennessee district.  Mr. Hanlon attended the University of St. Thomas, St. Paul,
Minnesota and studied Business Administration.  Mr. Hanlon has been an avid
motorcycle builder and rider for over 23 years and owns four heavyweight
American motorcycles.  Mr. Hanlon is a brother of Daniel L. Hanlon. 


                                          29
<PAGE>

     ALLAN C. HURD has been Senior Vice President of Engineering and
Manufacturing since May 1997 and was Vice President of Manufacturing and
Operations from May 1996 to May 1997.  From 1987 through May 1996, Mr. Hurd was
employed by Triumph Motorcycles, LTD ("Triumph"), a motorcycle manufacturer
located in England.  At Triumph, Mr. Hurd was part of the management team
responsible for establishing and operating all aspects of motorcycle production,
including motorcycle design and development, factory development and layout,
manufacturing equipment specification and acquisition and motorcycle production.
From March 1991 to May 1996, Mr. Hurd was Production Engineering Manager, from
July 1989 to February 1991, he was Design and Production Coordinating Manager
and from May 1987 to July 1989, he was Chief Production Engineer.  Mr. Hurd has
a degree in Engineering from Kingston-upon-Hull College of Technology and is a
member of the Institute of Electrical Engineers (Manufacturing Section) and the
Institute of Management.  Mr. Hurd owns several European motorcycles. 

     THOMAS M. ROOTNESS has been Senior Vice President of Finance and
Administration since May 1997, has been Chief Financial Officer since March 1996
and was Vice President of Finance from March 1996 to May 1997.  From September
1993 to March 1996, Mr. Rootness was Chief Financial Officer, Treasurer and
Executive Vice President of Luigino's Inc., a large, multi-national manufacturer
of frozen food entrees.  From January 1992 to August 1993, Mr. Rootness was
General/Plant Manager of the LaBounty Manufacturing division of The Stanley
Works after The Stanley Works purchased LaBounty Manufacturing, Inc., a heavy
construction equipment manufacturer and was the Chief Financial Officer of
LaBounty Manufacturing from August 1990 until such purchase.  Prior to 1990, Mr.
Rootness served as President and Chief Financial Officer of National
Screenprint, Inc., President, Chief Executive Officer and a director of The
Barbers Hairstyling for Men and Women, Inc., a publicly traded company, and as
President, Chief Operating Officer and a director of Dahlberg, Inc., at the time
a publicly traded company.  Mr. Rootness is a Certified Public Accountant and
received a Bachelor of Arts in Accounting from the University of
Minnesota-Duluth in 1969.  Mr. Rootness owns four heavyweight American
motorcycles. 

     DAVID L. AURINGER has been Vice President of Sales since January 1997. 
From January 1988 to January 1997, Mr. Auringer was Regional Sales Manager for
Bombardier Corporation, a publicly traded manufacturer of snowmobiles and
personal watercraft.  At Bombardier, Mr. Auringer was part of the original eight
member team that launched the Sea Doo personal watercraft in the United States. 
Prior to January 1988, Mr. Auringer held positions as District Sales Manager for
Ski-Doo Snowmobiles, District Sales Manager for Suzuki Motorcycle Corporation
and Sales Manager for Wright Suzuki Motorcycle Dealership.  Mr. Auringer is a
former motocross competitor.

     JOHN B. DONAHUE was elected as a director of the Company in April 1997. 
Mr. Donahue is an owner and President of Donahue Harley-Davidson and Delano
Sports Center, a motorcycle and recreational product dealership in suburban
Minneapolis, Minnesota.  In 1995, Mr. Donahue was President of the
Harley-Davidson Dealers Council, and has been on the Harley-Davidson Dealer
Advisory Council since 1992.  In addition, Mr. Donahue was on the Arctic Cat
Advisory Board from 1984 to 1993 and the Kawasaki National Dealer Advisory Board
from 1975 to 1980.  Mr. Donahue has been involved with motorcycles since 1956. 

     WAYNE M. FORTUN was elected as a director of the Company in April 1997. 
Mr. Fortun has been the Chief Executive Officer of Hutchinson Technology
Incorporated since May 1996, President, Chief Operating Officer and a director
since 1983.  Hutchinson Technology, a publicly traded company, is the world's
leading supplier of suspension assemblies for rigid magnetic disk drives. 
Mr. Fortun is also a director of G&K Services, Inc., a publicly held company,
which provides and maintains commercial, institutional and industrial garments
and other textile products for a variety of businesses and institutions. 
Mr. Fortun owns two heavyweight American motorcycles. 

     DAVID R. POMIJE was elected as a director of the Company in April 1997. 
Since April 1995, Mr. Pomije has been the Chairman of the Board and Chief
Executive Officer of Funco, Inc., which he founded in 1988.  From 1988 to April
1995, Mr. Pomije also served as President, Chief Financial Officer and
Secretary.  Funco, a publicly traded company, is a specialty retailer of
interactive entertainment products. 


                                          30
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

          EXECUTIVE COMPENSATION

          The following table sets forth certain information regarding
compensation earned by the executive officers of the Company for the fiscal
years ended January 3, 1998 and December 31, 1996 and 1995. 

                             SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                                                               LONG-TERM
                                                                                              COMPENSATION
                                                                                                 AWARDS
                                                                    ANNUAL                   --------------
                                                                 COMPENSATION                     SHARES                
                                                         ----------------------------           UNDERLYING             ALL OTHER
     NAME AND PRINCIPAL POSITION              YEAR        SALARY(1)             BONUS           OPTIONS(2)         COMPENSATION(3)
-----------------------------------           ----       ----------             -----       ----------------      ---------------
<S>                                           <C>        <C>                 <C>            <C>                   <C>
Daniel L. Hanlon,                             1997       $115,000                 -                -                    -
  Co-Founder, Co-Chairman and                 1996         75,865                 -                -                    -
   Co-Chief Executive Officer                 1995         65,000                 -                -                    -

David P. Hanlon,                              1997        115,000                 -                -                    -
   Co-Founder, Co-Chairman and                1996         75,865                 -                -                    -
   Co-Chief Executive Officer                 1995         65,000                 -                -                    -

Allan C. Hurd,                                1997        110,000            10,000           30,000                  152
   Senior Vice President of                   1996         50,080                 -           66,667               10,000
   Engineering and Manufacturing

Thomas M. Rootness,                           1997        110,000            10,000           30,000                  460
   Senior Vice President of Finance           1996         69,420                 -           66,667               24,800
   and Administration and Chief    
   Financial Officer

David L. Auringer                             1997         92,981            15,000           53,333                  547
   Vice President of Sales

</TABLE>

-----------------
(1)  Mr. Auringer was not employed for all of 1997.  If he had been employed for
     the full year, his salary would have been $98,462.  Messrs. Hurd and
     Rootness were not employed for all of 1996.  If they had been employed for
     the full year, their respective salaries would have been $93,000 and
     $95,000.
(2)  Represents options to purchase Common Stock granted under the Company's
     1995 Stock Plan.
(3)  Amounts reported for 1997 represent the Company match on the Company's
     401(k) plan in the following amounts:  Mr. Hurd, $152; Mr. Rootness, $460;
     and Mr. Auringer, $547.  Amounts reported for 1996 represent payments made
     to Messrs. Hurd and Rootness for reimbursement of moving and temporary
     living expenses. 


                                          31
<PAGE>

                         OPTION GRANTS IN LAST FISCAL YEAR

          The following table summarizes option grants made during 1997 to the
executive officers of the Company. 

<TABLE>
<CAPTION>

                                                INDIVIDUAL GRANTS     
                               ----------------------------------------------------------------
                                                  PERCENTAGE                                          POTENTIAL REALIZABLE VALUE
                               NUMBER OF           OF TOTAL                                             AT ASSUMED ANNUAL RATES
                                 SHARES             OPTIONS                                            OF STOCK APPRECIATION FOR
                               UNDERLYING         GRANTED TO         EXERCISE                               OPTION TERM(1)
                                OPTIONS          EMPLOYEES IN       PRICE PER        EXPIRATION       ---------------------------
        NAME                   GRANTED(2)         FISCAL YEAR         SHARE             DATE                 5%             10%
----------------------        -----------        ------------       ---------        ----------       ---------------------------
<S>                           <C>                <C>                <C>              <C>              <C>             <C>
Allan C. Hurd                   30,000               9.6%            $3.75           12/31/06           $70,751       $179,296

Thomas M. Rootness              30,000               9.6%             3.75           12/31/06            70,751        179,296

David L. Auringer               26,666               8.6%             7.00           08/29/07           117,391        297,491
                                26,666               8.6%             3.75           01/12/07            62,888        159,370

</TABLE>

---------------------
(1)  The potential realizable value is based on a 10-year term of each option at
     the time of grant.  Assumed stock price appreciation of 5% and 10% is
     mandated by rules of the Securities and Exchange Commission and is not
     intended to forecast actual future financial performance or possible future
     appreciation.  The potential realizable value is calculated by assuming
     that the fair market value of the Company's Common Stock on the date of
     grant appreciates at the indicated rate for the entire term of the option
     and that the option is exercised at the exercise price and sold on the last
     day of its term at the appreciated price. 
(2)  Options granted pursuant to the Company's 1995 Stock Plan are exercisable
     at an exercise price equal to the fair market value on the date of grant. 
     The 30,000 share options granted to Messrs. Hurd and Rootness and the
     26,666 share option granted to Mr. Auringer at $7.00 per share vest in
     three equal increments on the day prior to the eighth, ninth and tenth
     anniversaries of the date of grant, subject to accelerated vesting in such
     amounts and on such dates as the Compensation Committee of the Board of
     Directors determines that an individual's performance criteria for the
     applicable period have been met.  The 26,666 share option granted to Mr.
     Auringer at $3.75 per share vests as to 3,333 shares on each of January 13,
     1998, 1999 and 2000, as to 6,666 shares on January 11, 2005, and as to
     5,000 shares on each of January 11, 2006 and 2007; provided, however, that
     the portions scheduled to vest in 2005, 2006 and 2007 are subject to the
     accelerated vesting described in the previous sentence.  Each option has a
     maximum term of 10 years, subject to earlier termination in the event of
     the optionee's cessation of service with the Company.  In December 1997,
     the Compensation Committee vested 10,000 shares each of the 30,000 share
     options granted to Messrs. Hurd and Rootness and the 26,666 share option
     granted to Mr. Auringer at $3.75 per share based on a determination that
     such individuals had met the performance criteria for the applicable
     period.


                                          32
<PAGE>

                                 AGGREGATED OPTION
                              EXERCISES IN FISCAL 1997
                         AND FISCAL YEAR-END OPTION VALUES

          The purpose of the following table is to report exercise of stock
options by the executive officers during 1997 and the value of their unexercised
stock options as of January 3, 1998. 

<TABLE>
<CAPTION>

                                                                     NUMBER OF SHARES                   VALUE OF UNEXERCISED
                                                                  UNDERLYING UNEXERCISED                IN-THE-MONEY OPTIONS
                                                                OPTIONS AT FISCAL YEAR-END              AT FISCAL YEAR-END(1)
                                SHARES                       --------------------------------      ------------------------------
                               ACQUIRED          VALUE                                                                
           NAME               ON EXERCISE      REALIZED       EXERCISABLE       UNEXERCISABLE      EXERCISABLE      UNEXERCISABLE
----------------------        -----------     ---------      -------------      -------------      -----------      -------------
<S>                           <C>             <C>            <C>                <C>                <C>              <C>

Allan C. Hurd                      -            $  -            26,667             70,000            $79,598           $220,660

Thomas M. Rootness(2)         12,000          67,500            14,667             50,000             35,342            146,900

David L. Auringer                  -               -            10,000             43,332             18,130             30,217

</TABLE>

-------------------
(1)  Value is based on the per share closing price of the Company's Common Stock
     on January 2, 1998, which was $5.563.
(2)  Mr. Rootness exercised an option to purchase 12,000 shares of Common Stock
     on August 14, 1997 by using 3,000 shares of Common Stock held in excess of
     six months to pay the exercise price and receiving a net of 9,000 shares. 
     The exercise price of such option was $1.875 per share, the fair market
     value of a share of Common Stock on the date of grant, as determined by the
     Board of Directors.  Value Realized is based on the per share closing price
     of the Company's Common Stock on August 13, 1997, which was $7.50.


CONFIDENTIALITY AGREEMENTS; LIFE INSURANCE

     The Company does not have any employment or non-competition agreements with
any members of its executive management team but has entered into
confidentiality and non-solicitation agreements with such persons.  Such
agreements provide that the executive will not solicit any other employee of the
Company to leave the Company during the executive's employment with the Company
and for one year following such employment, will not compete with the Company
during the executive's employment and will protect the proprietary information
of the Company during and following such executive's employment. 

     The Company is the owner and beneficiary of $2,000,000 of term life
insurance policies covering the lives of each of the Co-Founders, Daniel L.
Hanlon and David P. Hanlon.  The Company does not maintain any life insurance
policies on any other executive officer. 

DIRECTOR COMPENSATION

     The Company's 1995 Stock Plan provides that a new outside director of the
Company will be issued an option to purchase 10,000 shares of Common Stock upon
joining the Board of Directors, with an exercise price equal to the fair market
value of a share on the date of grant.  Such options will vest one year from the
date of grant and expire ten years from the date of grant.  In addition, outside
directors who have been in office more than six months receive an option to
purchase 6,667 shares of Common Stock at each annual meeting of the Company's
shareholders with an exercise price equal to the fair market value of a share on
the date of grant.  Such options vest at the next annual meeting of shareholders
and expire ten years from the date of grant.


                                          33
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of March 20, 1998, the number of shares
of Common Stock beneficially owned by each person who is a beneficial owner of
more than 5% of the Common Stock issued and outstanding, by each officer named
in the Summary Compensation Table, by each director, and by all officers and
directors as a group.  All persons have sole voting and dispositive power over
such shares unless otherwise indicated.

<TABLE>
<CAPTION>

         NAME AND ADDRESS                        NUMBER                  PERCENTAGE OF
       OF BENEFICIAL OWNER:                     OF SHARES             OUTSTANDING SHARES
------------------------------------         ----------------        --------------------
<S>                                          <C>                     <C>
Directors and executive officers
  Daniel L. Hanlon(1)                        1,791,998(2)                    13.8%
  David P. Hanlon(1)                         1,468,000(3)                    11.3
  Allan C. Hurd                                 26,667(4)                      *
  Thomas M. Rootness                            63,334(5)                      *
  David L. Auringer                             13,333(6)                      *
  John B. Donahue                               27,801(7)                      *
  Wayne M. Fortun                               23,267(7)                      *
  David R. Pomije                              252,444(8)                     1.9
  Directors and Officers, as a group 
  (8 persons)                                3,666,844(9)                    27.9

</TABLE>

-------------------
*    Less than one percent. 
(1)  The address of Daniel and David Hanlon is 805 Hanlon Drive, Belle Plaine,
     MN  56011. 
(2)  Includes 30,665 shares of Common Stock held in trusts for which
     Mr. Hanlon's spouse acts as custodian. 
(3)  Includes 1,333 shares of Common Stock owned by Mr. Hanlon's son. 
(4)  Includes options to purchase 26,667 shares of Common Stock exercisable
     within 60 days of March 20, 1998.
(5)  Includes options to purchase 31,334 shares of Common Stock exercisable
     within 60 days of March 20, 1998.
(6)  Includes options to purchase 13,333 shares of Common Stock exercisable
     within 60 days of March 20, 1998.
(7)  Includes options to purchase 16,667 shares of Common Stock exercisable
     within 60 days of March 20, 1998. 
(8)  Includes options to purchase 10,000 shares of Common Stock exercisable
     within 60 days of March 20, 1998.
(9)  Includes options to purchase up to 114,668 shares of Common Stock
     exercisable within 60 days of March 20, 1998. 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     John B. Donahue, a director of the Company, is the owner of Donahue
Harley-Davidson and Delano Sports Center (the "Dealer"), which executed the
Company's standard form Authorized Dealership Agreement (the "Dealership
Agreement") on May 16, 1997. Pursuant to the Dealership Agreement, the Dealer is
an authorized dealer of the Company for the sale and service of the Company's
products. 


                                          34
<PAGE>

ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K

(a)  FINANCIAL STATEMENTS

     See Index to Financial Statements on page 15.

(b)  The following exhibits are filed as part of this Annual Report on Form 10-K
for the fiscal year ended January 3, 1998:

<TABLE>
<CAPTION>

EXHIBIT                               DESCRIPTION
--------                              -----------
<S>         <C>
    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.(4)
   10.11    Form of Employee Agreement.(5)
   23       Consent of Arthur Andersen LLP.
   24       Powers of Attorney.
   27.1     Financial Data Schedule for the year ended January 3, 1998.
   27.2     Restated Financial Data Schedule for the year ended December 31,
            1996 and the three-month period ended September 30, 1996.
   27.3     Restated Financial Data Schedule for the three-month periods ended
            March 31, June 30 and September 30, 1997.
</TABLE>
----------------------
(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 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).

(c)  REPORTS ON FORM 8-K

     No reports on Form 8-K were filed by the registrant during the fourth
quarter of the fiscal year ended January 3, 1998.


                                          35
<PAGE>

                                      SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) 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 on April 3, 1998.

                                 EXCELSIOR-HENDERSON MOTORCYCLE
                                   MANUFACTURING COMPANY


                                 By      /s/ Daniel L. Hanlon
                                   -------------------------------------------
                                   Daniel L. Hanlon, Co-Chief Executive Officer


                                 By      /s/ David P. Hanlon
                                   -------------------------------------------
                                   David P. Hanlon, Co-Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 3, 1998.

     /s/ Daniel L. Hanlon                             
----------------------------------------
Daniel. L. Hanlon, Director, Co-Founder,
Co-Chairman of the Board of Directors and
Co-Chief Executive Officer
(Principal Executive Officer)

     /s/ David P. Hanlon                              
----------------------------------------
David. L. Hanlon, Director, Co-Founder,
Co-Chairman of the Board of Directors and
Co-Chief Executive Officer

     /s/ Thomas M. Rootness                 
----------------------------------------
Thomas M. Rootness, Senior Vice President of
Finance and Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)

John B. Donahue*         Director

Wayne M. Fortun*         Director

David R. Pomije*         Director

--------------------
*    Daniel L. Hanlon, by signing his name hereto, does hereby sign this
     document on behalf of each of the above named Directors of the registrant
     pursuant to powers of attorney duly executed by such persons.


                                /s/ Daniel L.  Hanlon   
                        ----------------------------------------
                         Daniel L. Hanlon, Attorney-in-Fact


                                          36
<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, LLC
            and the Company dated April 21, 1997......................................    Incorporated by Reference
  10.8      Guaranty by Ryan Companies US, Inc. in favor of the Company
            dated April 21, 1997......................................................    Incorporated by Reference
  10.9      Amended and Restated 1995 Stock Option Plan...............................    Incorporated by Reference
  10.11     Form of Employee Agreement................................................    Incorporated by Reference
  23        Consent of Arthur Andersen LLP............................................    Filed Electronically
  24        Powers of Attorney........................................................    Filed Electronically
  27.1      Financial Data Schedule for the year ended January 3, 1998................    Filed Electronically
  27.2      Restated Financial Data Schedule for the year ended December 31, 1996
            and the three-month period ended September 30, 1996.......................    Filed Electronically
  27.3      Restated Financial Data Schedule for the three-month periods ended 
            March 31, June 30 and September 30, 1997..................................    Filed Electronically

</TABLE>