<PAGE>




                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549


                                     FORM 10-KSB


(Mark One)

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 For the Fiscal Year Ended December 31, 1996
                                    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 333-05060C

                           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.)

    607 West Travelers Trail                        
        Burnsville, Minnesota                          55337       
-----------------------------------------           --------------  
(Address of principal executive offices)              (Zip code)

Registrant's telephone number, including area code:   (612) 894-9229
                                                      ---------------

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

    Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
                             Yes  [X]       No  [ ]

    Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB.   [X]

    The issuer had no revenues in its most recent fiscal year.

    The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 20, 1997 was $20,923,438, based on the price at which
the Company's Series A Convertible Preferred Stock was sold in September 1996.
For purposes of determining this number, all officers and directors of the
registrant are considered to be affiliates of the registrant, as well as
individual stockholders holding more than 20% of the Registrant's outstanding
Common Stock.  This number is provided only for the purpose of this report on
Form 10-KSB and does not represent an admission by either the registrant or any
such person as to the status of such person.

    State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date:  Common Stock, $.01 par value --
8,817,500 issued and outstanding as of March 20, 1997.  Series A Convertible
Preferred Stock, $.01 par value -- 4,600,000 issued and outstanding as of
March 20, 1997.

  Transitional Small Business Disclosure Format (check one): Yes [ ]  No [X]


<PAGE>

                                        PART I

ITEM 1.  BUSINESS

    Excelsior-Henderson Motorcycle Manufacturing Company (the "Company"), which
is in the development stage, is designing and intends to mass produce American
made, proprietary, premium quality, heavyweight cruiser and touring motorcycles.
The Company's motorcycles will have names and designs that are reminiscent
of classic American heavyweight motorcycles manufactured earlier in this century
by the Excelsior Supply Company ("Excelsior Supply").  The Company has developed
several generations of prototypes of its initial motorcycle, a heavyweight
cruiser named the Excelsior-Henderson Super X (the "Super X").  The Company
first publicly unveiled a running prototype of the Super X at the Sturgis
Motorcycle Rally in Sturgis, South Dakota on August 5, 1996.  The Company
anticipates commencing production of the Super X in 1998.*

    The Company has chosen its trademarks to recall motorcycles manufactured
earlier in this century by Excelsior Supply.  Excelsior Supply was one of the
"Big Three" motorcycle manufacturers, which also included Harley-Davidson and
Indian Motocycle Company.  When it ceased production in 1931, Excelsior Supply
was manufacturing a Super X motorcycle and a Henderson DeLuxe Four, both of
which had excellent reputations for quality and performance.  See "The
Excelsior-Henderson Heritage."

    The Company has designed the Super X, and intends to design other
motorcycles, to have a nostalgic appeal by continuing certain distinctive design
features originally used by Excelsior Supply.  The Company's proprietary
motorcycles will be of premium quality, with modern engineering and technology,
and not replicas of the motorcycles made by Excelsior Supply.*  See "Motorcycles
Being Developed."

    To create strong brand identity for its products, the Company intends to
foster a culture and lifestyle that is reminiscent of the classic American
motorcycling heritage.*  To achieve this, the Company intends to design its
motorcycles and make custom parts and accessories available to facilitate
individual owner customization.*  The Company also intends to sell rider apparel
and eventually to license certain of its trademarks on a broad range of consumer
items.*  In addition, the Company intends to sponsor and promote a motorcycle
owners' group and a magazine for owners and enthusiasts.*  See "Marketing.

THE EXCELSIOR-HENDERSON HERITAGE

    In the early part of this century, it has been estimated that there were
over 200 American motorcycle manufacturing companies.  Until 1931, the "Big
Three" motorcycle manufacturers, Excelsior Supply, Harley-Davidson and Indian
Motocycle Company, were dominant with an estimated 90% market share.  Excelsior
Supply ceased operations in 1931 during the Great Depression and Indian
Motocycle Company ceased operations in 1953.  Harley-Davidson has been the only
significant American heavyweight cruiser and touring motorcycle manufacturer
since 1953.  See "Industry and Competition."

    Founded in Chicago in 1876, Excelsior Supply was owned by bicycle producer
Ignatz Schwinn from 1911 until it ceased production.  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") of Detroit, Michigan and continued to manufacture a
Henderson DeLuxe Four, which featured an inline four cylinder engine.

_____________________
*The information presented in this Annual Report on Form 10-KSB under the 
headings "Item 1. Business", "Item 2. Property" and "Item 6. Management's 
Discussion and Analysis of Financial Condition and Results of Operations" 
contains forward-looking statements within the meaning of the safe harbor 
provisions of Section 21E of the Securities Exchange Act of 1934, as amended. 
Such statements are subject to risks and uncertainties, including those 
discussed under "Forward-Looking Statements" below, that could cause actual 
results to differ materially from those projected.  Because actual results 
may differ, readers are cautioned not to place undue reliance on these 
forward-looking statements.  Certain forward-looking statements are indicated 
by an asterisk.


                                         -2-

<PAGE>


    The motorcycles manufactured by Excelsior Supply and Henderson were a
significant force both on the racetrack and for road use.  These motorcycles set
many performance records, including the first motorcycle to circle the world
(the Henderson DeLuxe Four) and the first to break the 100 m.p.h. speed barrier
(the Big X).  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.
Lindbergh later donated his Big X to Ford and the motorcycle currently resides
in the Henry Ford Museum.

    In 1929, Excelsior Supply restyled its Super X and Henderson DeLuxe Four
motorcycles into its "Streamline" product line.  Motorcycle historians have
cited these "Streamline" models as among the originators of the classic American
heavyweight motorcycle look, now commonly associated with other domestic and
foreign motorcycle manufacturers.  For the Excelsior Supply Super X, this
classic look included a large displacement "X-twin" engine, a tear drop 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.

    The Company has chosen its trademarks and is designing its motorcycles to
recall the nostalgic appeal of the motorcycles manufactured by Excelsior Supply.
The Company will further this nostalgic appeal by continuing certain distinctive
design features used by Excelsior Supply.*

 DEVELOPMENTS TO DATE

    Since the Company's inception, it has made considerable progress in
developing and executing its business plan.

    1993      -    Researched Excelsior-Henderson Heritage
              -    Developed Business Plan
              -    Incorporated Company

    1994      -    Filed Trademark Applications
              -    Engaged Engine Development Company
              -    Completed Initial Equity Financing
              -    Engaged Industrial Design Firms
              -    Commenced Market Research

    1995      -    Completed Second Equity Financing
              -    Continued Engine Development
              -    Engaged Chassis Design Engineers
              -    Assembled First Generations of Engineering and Styling
                     Models and Prototypes of Super X
              -    Engaged Market Development Firm

    1996      -    Completed Primary Executive Management Team Recruitment
              -    Successfully Bench Tested Running Proprietary Engine
              -    Completed Search for Location of Manufacturing and
                     Administrative Facility
              -    Integrated Proprietary Engine into Prototype Super X
              -    Publicly Unveiled Four Super X Prototypes at Sturgis
                     Motorcycle Rally
              -    Completed Third Equity Financing

    1997      -    Public Showing and Parade of Prototypes at Daytona Beach
                    1997 Bike Week

    In 1993, Co-Founders Dan and Dave Hanlon researched a market opportunity
they believed existed in the heavyweight motorcycle industry.  After researching
the market, they determined that the trademarks of Excelsior Supply had remained
substantially unused since Excelsior Supply ceased operations.  They decided
that the combination of Excelsior Supply's available trademarks and its rich
heritage would facilitate marketing, and favorably



                                         -3-

<PAGE>

influence the development of, the heavyweight motorcycles they planned to
manufacture.  Since that time, the Company's engineering staff, working with
independent design and engineering firms, has been developing the Super X for
mass production.  Concurrent with its product development efforts, the Company
began securing its trademarks and has been using its trademarks since such time.
Also during such time, the Company began its marketing efforts through educating
the public about the Company's heritage and products.

    The Company's plan is to continue to develop the Super X for mass
production in 1998.*  Concurrent with such development, the Company will begin
construction of its administrative and manufacturing facility, acquire tooling
for its production line, continue developing its initial dealer network by
soliciting dealer applications and secure governmental certification for the
Super X.*  The Company will step up its marketing efforts with a nationwide
publicity campaign, including participating at consumer events and trade shows
to build demand for the Super X and will continue its market research efforts
through consumer and dealer focus groups.*  The Company intends to hire
additional management, professional engineering, production and marketing staff
as needed.*

MOTORCYCLES BEING DEVELOPED

    The Company is developing premium quality motorcycles in the heavyweight
motorcycle category.*  A "heavyweight" motorcycle is typically understood to
mean motorcycles having engine displacements of 751cc or greater.

    The new Super X is inspired by many of the distinctive design features of
the original Excelsior Supply Super X, including a large displacement "X-twin"
engine, a sleekly styled, tear drop 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, however, is a new motorcycle featuring modern
engineering and performance, and is not a replica of the original Excelsior
Supply Super X.  Further design, engineering and testing of the Super X are
expected before mass production is commenced in 1998.*  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, Overhead Cam
                                       Driven
                   Frame               Double Wishbone, Full Travel
                                       Suspension with Leading Link Front End
                   Transmission        5 Speed, Constant Mesh
                   Fuel Capacity       5 Gallons
                   Load Capacity       675 lbs.

    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.*




                                         -4-

<PAGE>


MANUFACTURING PLAN

    As the Company moves toward mass production of the Super X, anticipated to
occur in 1998, it expects to engage experienced original equipment manufacturers
to produce various components of the Super X.*  The Company will constantly
review such vendors to ensure strict quality control.*  The Company will then be
the final assembler of the Company's proprietary and non-proprietary
components.*  The Company believes that this is a common practice in the
industry.  In addition to final assembly, the Company anticipates that the
assembly and testing of the powertrain, welding of frames and final painting
will occur in the Company's manufacturing facility to control quality.*  The
Company believes that these processes are critical to the success of the
Company's products.

    Based on current projections, the Company believes that it will initially
need approximately 175,000 square feet for its manufacturing and administrative
facility.*  The Company is in the process of designing the floor plan for its
production line and preparing specifications for the engineering of such
production line. After the Company builds and relocates to its facility,
currently anticipated to occur in Fall 1997, the Company believes it will take
an additional six to nine months of preparation before production of the Super X
commences.*

MARKET

    The Company anticipates that the average customer for its proposed
motorcycle products will be a male in his forties, with a household income of
approximately $65,000, who purchases the Company's motorcycles for recreational
purposes rather than for transportation and who will be an experienced
motorcycle rider.*  The Company believes that such purchasers will purchase the
Company's products based on the heritage of the Company's name, the styling of
the Company's products and the fact that the Company's products are American
made.*  According to recent demographic surveys, the number of Americans that
will fall into the 45-65 age bracket, a substantial portion of the Company's
anticipated target market, is projected to increase by 30% over the next five
years.*

MARKETING

    Concurrent with its product development, the Company engaged the services
of a marketing agency whose personnel are experienced in the marketing of
heavyweight motorcycles and initiated a marketing campaign to educate the public
about the Company's heritage and to build demand for the Company's products.
The Company has also developed its in-house sales and marketing team by adding
personnel who are experienced in dealer recruitment and retail marketing.  The
Company has conducted both consumer and motorcycle dealer focus groups to aid in
its market research.  This campaign has generated many news articles, including
articles in most of the national and international motorcycle magazines, as well
as many articles and news telecasts in the non-motorcycle media.  The Company
implemented an extensive marketing campaign for the first public unveiling of a
prototype of the Super X at the Sturgis Motorcycle Rally in Sturgis, South
Dakota on August 5, 1996.  The Company was an official sponsor of the 1996
Sturgis Rally, along with other companies such as Coca-Cola, BMW,
Harley-Davidson and R.J. Reynolds.  The Company also held marketing events at
the Daytona Beach 1997 Bike Week by displaying prototypes of the Super X and
opening the week by holding the first Annual Excelsior-Henderson Motorcycle
Parade.

    In the period leading up to the first sale of the Super X, the Company will
step up its marketing efforts and intends to implement a nationwide marketing
campaign to foster further awareness of the Company and to build demand for the
Super X.*

    In addition to its marketing specific to the Super X, and to create strong
brand identity for all of its products, the Company intends to foster a culture
and lifestyle that are reminiscent of the classic American motorcycling
heritage.*  The Company will do this through sales of motorcycle parts and
accessories and rider apparel, and through sponsoring and promoting a motorcycle
owners' group, rallies and a magazine for owners and enthusiasts.*  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 near Columbus,
Ohio.

    The Company sells a wide variety of apparel products such as hats, T-shirts
and jackets with the Company's logos to increase public exposure and
familiarization with its products.  The Company believes that its marketing



                                         -5-

<PAGE>

efforts to date have led to the development of a substantial non-binding waiting
list of persons who have indicated an interest in buying a Super X.

DISTRIBUTION

    The Company currently is developing its motorcycle dealer network from
among the more than 3,000 authorized dealers of new motorcycles in the United
States.  The Company has established criteria for selecting dealers of the
Company's products and is implementing its strategy to solicit key, well
established dealers of other motorcycle product lines that fit the Company's
criteria, but has not yet entered into any agreements with dealers.  Through
market research and dealer focus groups, the Company has determined the factors
that it believes are necessary to ensure a high quality, service oriented dealer
network.  These factors include location near key population centers, excellent
industry reputation, professional appearance, profitable operations, a sales
floor sufficient to display the Company's products, the ability to maintain
adequate inventories of motorcycles, parts, supplies and other merchandise, a
knowledgeable sales staff and the ability to provide full-service maintenance
(including at least one Company trained, full time technician responsible for
the maintenance and repair of the Company's products).  The Company intends that
its dealers will add value by emphasizing customer service, product knowledge
and the promotion of lifestyle motorcycle products and events (E.G., customized
after-market parts, motorcycle apparel and accessories, customer appreciation
and promotional events, rallies, etc.) to sell the Company's products.*

INDUSTRY AND COMPETITION

    Within the motorcycle industry, there are four types of heavyweight (751cc
or greater) motorcycles:  (i) Standard, which emphasizes simplicity and cost;
(ii) Performance, which emphasizes handling and speed; (iii) Touring, which
emphasizes comfort and amenities for long-distance travel; and (iv) Cruiser,
which features the distinctive styling of classic American motorcycles built
during the early years of the motorcycling industry and is designed to
facilitate individual owner customization.  Touring and cruiser models comprise
approximately 75% of the U.S. heavyweight market and are the only types of
heavyweight motorcycles that the Company plans to design and market.  In 1995,
U.S. registrations of heavyweight motorcycles increased by approximately 11%
over 1994 registrations, and U.S. registrations of heavyweight motorcycles
increased by 74% from 1990 through 1995.

    The heavyweight motorcycle industry currently has only one established
American motorcycle manufacturer, Harley-Davidson, and eight established
foreign-owned motorcycle manufacturers:  BMW, Ducati, Honda, Kawasaki,
Moto-Guzzi, Suzuki, Triumph and Yamaha.  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.  In 1997, Polaris Industries Inc., an established
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 been
aware of several efforts to revive the "Indian" brand motorcycle name on new
motorcycles, which efforts may or may not continue. Due to the growing market
for heavyweight motorcycles, the Company expects that other manufacturers will
attempt to enter the industry.

    According to its 1995 Annual Report, in 1995, Harley-Davidson had a 55.8%
share of the U.S. heavyweight motorcycle market and had revenue of approximately
$956 million from the sale of motorcycles and related products in such market.
In 1995, Harley-Davidson estimates that it had a market share of approximately
31% of worldwide heavyweight motorcycle registrations.  Trade publications and
dealers have estimated that there are waiting lists from 12 to 24 months on some
of Harley-Davidson's models, with an average waiting list as high as 18 months.
In response to such demand, Harley-Davidson has tripled its production
capabilities over the past decade and forecasts doubling its 1995 production
capacity by 2003.

    The Company expects that buying decisions in the heavyweight motorcycle
market will be based on a number of factors including American heritage,
quality, styling, reliability, product features, price and warranties.*  The
Company intends to design its motorcycles to be of high quality, with strong
emphasis on styling, reliability and American heritage.*  The Company intends to
price its products at a slight premium to its primary competitor and
differentiate its products in the areas of engine size and design (including
four valves per cylinder, dual overhead camshafts and a computer controlled
engine management system), styling, exterior finishing and suspension.*



                                         -6-

<PAGE>

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

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 and in certain foreign
countries in connection with the manufacture or sale of motorcycles.  The
Company has registrations of these marks pending approval in the United States
Patent and Trademark Office and in certain foreign countries.  The Company also
believes that it has the right to use these marks on ancillary merchandise and
apparel.  The Company has secured such trademarks upon the abandonment by
Excelsior Supply of such trademarks over 60 years ago, and the subsequent use of
and applications to register such trademarks by the Company.

    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
registration becomes appropriate.*

    The Company currently owns no patents, nor has it filed or been assigned
any patent applications.  At an appropriate point in the design process of its
motorcycles, the Company may file patent applications with the U.S. Patent and
Trademark Office to cover certain features or aspects of its motorcycles.*

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

GOVERNMENT REGULATIONS

    Both federal and state authorities have various environmental control
requirements relating to air, water and noise pollution that will affect the
business and operations of the Company.  The Company expects that its facilities
and products will comply with all environmental regulations and standards.*

    The Company's motorcycles will be subject to certification by the U.S.
Environmental Protection Agency for compliance with applicable emissions and
noise standards.  In addition, the Company expects that its motorcycles will
also be subject to the more stringent emissions standards of the State of
California Air Resources Board that may require the Company to modify its
motorcycles for California.  The Company expects that it will obtain
certification of full compliance with all such applicable standards as needed.*

    The Company's motorcycles also will be subject to the National Traffic and
Motor Vehicle Safety Act and the rules promulgated thereunder by the National
Highway Traffic Safety Administration.  The Company expects that its motorcycles
will fully comply with all applicable federal motor vehicle safety standards and
regulations.*

    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 intends to comply with all federal, state
and local environmental regulations as appropriate for its manufacturing
operations.*

    In addition, the European Union and other foreign governmental entities
have governmental regulations to which the Company's motorcycles will be subject
and the Company expects to comply with such regulations as applicable.*

RESEARCH AND DEVELOPMENT

    The Company has incurred research and development expenses of $2.1 million
through December 31, 1996.  The Company is a development stage company, and
since the Company's formation in December 1993 through


                                         -7-

<PAGE>



December 31, 1996, the Company has accumulated a deficit of $4.1 million in
connection with its formation and initial development operations.

INCOME TAXES

    The Company has reported net operating loss carryforwards of approximately
$3.2 million as of December 31, 1996.  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.  See Note 5 to the Notes
to the Financial Statements.

ITEM 2.  PROPERTY

    The Company leases 12,895 square feet of space located at 607 West
Travelers Trail, Burnsville, Minnesota, which the Company uses for offices, a
shop area, a museum and retail display showroom and a warehouse.  The lease for
this facility expires on December 31, 1997, or, at the Company's option, on
October 31, 1997 or November 30, 1997 with 90 days' written notice, and provides
for a monthly rent of $8,384 through June 30, 1997 and $9,148 through
December 31, 1997.

    The Company currently is negotiating arrangements with certain governmental
entities and Ryan Companies US, Inc. ("Ryan"), an experienced project
construction company for financing and construction of its manufacturing and
administrative facility.  The cost of the facility is estimated to be
approximately $10 million.*  The facility is currently estimated to be 175,000
square feet and will be located in Belle Plaine, Minnesota.  The Company
anticipates relocation to the facility in Fall 1997.*  The Company has signed a
development agreement with the City of Belle Plaine to provide incentives for
partial funding of the construction of the facility.  The development agreement
contemplates that the City of Belle Plaine will issue government obligation tax
increment financing bonds with net proceeds of approximately $2.3 million.  The
Company has guaranteed the underlying real estate tax payment through a fixed
minimum market value upon which the property tax assessment will be made, and if
the real estate tax payments are insufficient to allow the City to make
principal and interest payments on the bonds, then the Company is obligated to
pay any such difference.  With respect to the remaining balance of approximately
$7.7 million, it is anticipated that Ryan will arrange for mortgage-backed debt
financing in the amount of approximately $5.0 million, with the remaining
estimated $2.7 million provided by the Company.*  Such amounts are subject to
further negotiation.

    In addition, the Minnesota Department of Trade and Economic Development has
offered, subject to further approvals, to loan approximately $7.0 million for
equipment financing through its Small Business Development Loan Program, with
terms subject to further negotiation.

ITEM 3.  LEGAL PROCEEDINGS

    None.

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

    There is no public trading market for the Company's common or preferred
equity securities.



                                         -8-

<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

    The Company, which is in the development stage, is designing and intends to
mass produce American made, proprietary, premium quality, heavyweight cruiser
and touring motorcycles.*  The Company has developed several generations of
prototypes of its initial motorcycle, a heavyweight cruiser named the
Excelsior-Henderson Super X (the "Super X").

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

    GENERAL.  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 absence of any material operating history.  The
Company does not anticipate having motorcycle sales revenue until 1998 and then
only if significant additional financing is obtained.  The Company's accumulated
deficit was $4.1 million at December 31, 1996, an increase of 156% compared to
$1.6 million at December 31, 1995, which in turn was an increase of 310%
compared to $390,000 at December 31, 1994.  Net losses increased by 108% to
$2.5 million in 1996 from $1.2 million in 1995 and by 208% in 1995 from $389,000
in 1994.  Historic spending levels are not indicative of anticipated future
spending levels because the Company is entering a period of increased spending
on product research and development, expanded marketing and dealer network
development expenses and increased staffing and other general operating
expenses.  For these reasons, the Company believes its expenses and losses, and
accumulated deficit will increase significantly before any material product
revenues are generated.*

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses
increased by 85% to $1.3 million in 1996 from $702,000 in 1995 and by 538% in
1995 from $110,000 in 1994.  The increases were primarily due to increased
product design and development costs, as well as the costs of prototype
development.

    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
increased by 55% to $716,000 in 1996 from $461,000 in 1995 and by 90% in 1995
from $242,000 in 1994.  The increases were primarily due to staffing increases
and other general operating expenses.

    MARKETING EXPENSES.  Marketing expenses increased by 549% to $694,000 in
1996 from $107,000 in 1995 and by 234% in 1995 from $32,000 in 1994.  The
increases were primarily due to staffing increases, increased advertising and
promotion costs and, during 1996, expenses associated with the unveiling of the
prototype Super-X at the Sturgis Motorcycle Rally in Sturgis, South Dakota.

    INTEREST INCOME.  Interest income increased by 295% to $174,000 in 1996
from $44,000 during 1995.  The Company received no interest income during 1994.
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 sale of the Company's Preferred Stock during 1996 (See
Note 4 of Notes to Financial Statements) and from the proceeds of the sales of
Common Stock during 1994, 1995 and 1996 (See Statements of Stockholders' Equity
in the Financial Statements).  Unless the Company raises additional funds in
1997, interest income is expected to decline as a result of a decrease in
invested funds because of the use of such funds to finance the Company's
development efforts.*

    INTEREST EXPENSE.  Interest expense decreased by 43% to $4,000 in 1996 from
$7,000 in 1995 and increased by 40% in 1995 from $5,000 in 1994.  Interest
expense is primarily related to certain notes payable to banks (See Note 3 of
Notes to Financial Statements).

LIQUIDITY AND CAPITAL RESOURCES

    The Company's operations since inception have been funded primarily by
proceeds from sales of its capital stock.  As of December 31, 1996, the Company
had cash, cash equivalents and short-term investments of $9.4 million and
working capital of $9.0 million.  Cash used in operations increased by $1.1
million in 1996 to $2.3 million from $1.2 million in 1995, an increase of 92%,
and by $901,000 in 1995 from $299,000 in 1994, an increase of 301%.



                                         -9-

<PAGE>

    The Company completed the sale of $11.5 million of its Series A Convertible
Preferred Stock on September 17, 1996.  The Company will require significant
additional financing, currently estimated to be in excess of $45 million, to
complete the activities described above and begin mass production.  Such
additional financing, if raised, is currently expected to be used for
acquisition of real property for and construction of the Company's manufacturing
and administrative facility; the establishment of an assembly system, tooling
and manufacturing lines for the Super X; finishing the final development details
for the Super X; marketing; public relations; hiring and training additional
personnel; launching the production and delivery to dealers of the Super X; and
general operating expenses and working capital.*  The use of the proceeds from
such future financings, and the estimated cash required for acquisition of real
property for and construction of the manufacturing facility and the
establishment of an assembly system, tooling and manufacturing lines are current
estimates only, and are subject to change at any time.

    The Company anticipates raising such additional financing through a
combination of (i) additional equity financing (including private placements
and/or an initial public offering of the Company's Common Stock), (ii) long- or
short-term debt financing (including loans from banks or other financial
entities or debt instruments issued by the Company), (iii) equipment leasing
arrangements and (iv) incentives from local and state government entities
(including grants and debt financing).*  Debt financing may involve restrictive
covenants that address interests different than those of the Company's
shareholders.  There can be no assurance that the Company will be able to obtain
such financing if and when it is needed or that, if available, such financing
will be on terms acceptable to the Company or its shareholders.

    The Company is currently negotiating arrangements with certain governmental
entities and Ryan for financing and construction of its manufacturing and
administrative facility, which is estimated to cost approximately $10 million.
The Company has signed a development agreement with the City of Belle Plaine,
Minnesota to provide incentives for partial funding of the construction of the
facility.  The development agreement contemplates that the City of Belle Plaine
will issue government obligation tax increment financing bonds with net proceeds
of approximately $2.3 million.  The Company has guaranteed the underlying real
estate tax payment through a fixed minimum market value upon which the property
tax assessment will be made, and if the real estate tax payments are
insufficient to allow the City to make principal and interest payments on the
bonds, then the Company is obligated to pay any such difference.  With respect
to the remaining balance of approximately $7.7 million, it is anticipated that
Ryan will arrange for mortgage-backed debt financing in the amount of
approximately $5.0 million, with the remaining estimated $2.7 million provided
by the Company.*  Such amounts are subject to further negotiation.

    In addition, the Minnesota Department of Trade and Economic Development has
offered, subject to further approvals, to loan approximately $7.0 million for
equipment financing through its Small Business Development Loan Program, with
terms subject to further negotiation.

    The Company contemplates that its available cash resources, together with
its planned additional facility, equipment and tooling financing needs
(currently estimated to be in excess of $45 million), will finance the Company's
business plan for the next 12 to 18 months.*  If such additional financing is
not received, or smaller amounts are received, then the pace of development of
the Super-X will be significantly slowed, and, if the Company is unable to ever
secure such financing, the Company is ultimately expected to fail.

EMPLOYEES

    As of December 31, 1996, the Company had 11 full-time employees.  The
Company anticipates adding administrative, supervisory, engineering, production
and marketing staff as the Company's needs for such personnel increase due to
progress on the Company's business plan.*  Such needs will depend on the pace of
development of the Super X and the construction of the Company's manufacturing
and administrative facility.  The Company expects to hire an increasing number
of technical, administrative and motorcycle production workers as the Company
proceeds towards production of the Super X.*  The Company is not subject to any
collective bargaining agreement.



                                         -10-

<PAGE>

FORWARD-LOOKING STATEMENTS

Certain statements made in this Annual Report on Form 10-KSB, including those
indicated by an asterisk above (some of which are summarized below), are
forward-looking statements within the meaning of the safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties, and actual results may differ.  Factors that could
cause actual results to differ include those identified below.

-   COMPANY INTENDS TO COMMENCE PRODUCTION OF THE SUPER X IN 1998--
    Production of the Super X, and any additional motorcycles the Company may
    produce, is dependent upon the successful completion of many items of the
    Company's business plan, including obtaining the additional financing
    described in "Management's Discussion and Analysis of Financial Condition
    and Results of Operations--Liquidity and Capital Resources", the
    construction of the Company's administrative and manufacturing facility,
    establishing a motorcycle production line, engaging suppliers to
    manufacture components of the Company's products, hiring additional
    engineering and production personnel and the ability of the Company's
    engineering and production staff to successfully design and mass produce
    the prototype Super X.  Factors that may affect the successful completion
    of such items include the inability to raise the amount of additional
    financing needed, delays in the construction of, or other problems with the
    Company's administrative and manufacturing facility, problems in
    establishing the motorcycle production line, the inability of the Company
    to locate competent suppliers or obtain adequate quantities of supplies,
    the inability to hire qualified additional personnel and the inability of
    the Company's engineering and production staff to design, engineer and
    produce the Super X.  In addition, production of the Super X will require
    certain governmental certifications and approvals, which the Company may
    not be able to obtain within the contemplated time period.

-   CONSTRUCTION AND EQUIPPING OF THE COMPANY'S ADMINISTRATIVE AND
    MANUFACTURING FACILITY ANTICIPATED TO OCCUR BY FALL 1997--The
    construction of the Company's administrative and manufacturing facility by
    Fall 1997, and establishing the motorcycle production line are dependent on
    the ability of the Company to complete the facility financing described
    under "Property" and "Management's Discussion and Analysis of Financial
    Condition and Results of Operations--Liquidity and Capital Resources"
    and the ability of Ryan to complete the facility within such time frame.
    Such financing is subject to further negotiation.  If such financing is
    delayed or not received, the construction of the facility will be similarly
    delayed, or may not occur at all.

-   MARKETING OF PREMIUM QUALITY MOTORCYCLES--The marketing of the Super X
    and any additional motorcycles the Company may produce as premium quality
    motorcycles is dependent upon the ability of the Company's marketing and
    sales personnel to convince motorcycle dealers and the public that such
    motorcycles are of premium quality and are distinguishable from the
    products of the Company's competitors.  Such efforts may not be successful
    if the Company's products are perceived by dealers or the public as being
    of lesser quality or indistinguishable from products of the Company's
    competitors.

-   SOLICITATION OF KEY, WELL-ESTABLISHED DEALERS--The Company's ability to
    solicit the type of dealers that it anticipates will be key in selling its
    products is dependent upon the ability of the Company's sales personnel to
    convince such dealers that the Company's products will be a successful and
    profitable line for such dealers.  If the Company's products are not so
    perceived, the Company may be forced to select dealers that it otherwise
    would not desire, or may not be able to solicit dealers at all, which would
    result in a delay in marketing of the Super X, and any additional
    motorcycles the Company may produce.

-   ESTIMATED NEED OF $45 MILLION OF ADDITIONAL FINANCING; AVAILABLE CASH
    RESOURCES, TOGETHER WITH PLANNED ADDITIONAL FACILITY, EQUIPMENT AND TOOLING
    FINANCING NEEDS, WILL FINANCE THE COMPANY'S BUSINESS PLAN FOR THE NEXT 12
    TO 18 MONTHS--The Company has estimated the amount of additional
    financing it needs to begin production of the Super X based on current
    projections of the Company.  If such projections are incorrect due to
    unanticipated additional costs of construction and equipping of the
    Company's manufacturing and administrative facility, 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 financing in excess of $45 million.  There can be no
    assurance that the Company will be able to obtain such additional
    financing, or that, if available, such financing will be on terms
    acceptable to the Company or its shareholders.  Any need for such
    additional financing would delay production of the Super X.



                                         -11-

<PAGE>



ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    See Financial Statements and Notes thereto comencing on page F-1.

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

    Not applicable.

                                       PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

    Name               Age   Position
    ----               ---   --------

    Daniel L. Hanlon    40   Director, Co-Founder, Co-Chairman of the Board of
                               Directors and Chief Executive Officer

     David P. Hanlon    44   Director, Co-Founder, Co-Chairman of the Board of
                               Directors and Chief Operating Officer

     Alan D. Benz       46   Vice President of Engineering

     Allan C. Hurd      49   Vice President of Manufacturing and
                               Operations

    Thomas M. Rootness  49   Vice President of Finance and Chief
                               Financial Officer


    DANIEL L. HANLON, a founder of the Company, has been Co-Chairman of the
Board and Chief Executive Officer of the Company since May 1996 and a Director
from the Company's inception in December 1993.  Mr. Hanlon was President from
December 1993 to April 1996 and was Secretary from December 1993 to August 1994.
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.
From 1985 to 1986, Mr. Hanlon served as Controller of Midwest Importers, and
from 1986 to 1990 in sales branch management positions with Knutson Mortgage
Corporation and Marquette Banks.  Prior to 1985, Mr. Hanlon served in various
accounting and strategic planning positions for Eco-Labs (1979) and Honeywell
Inc. (1979 to 1984).  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.  In addition to his
college degrees he attended a regional vocational school and received a
certificate in Automotive Repair.  He was also employed for six years as a lead
production and machinery mechanic, repairing or rebuilding manufacturing and
processing equipment, including hydraulic, pneumatic and mechanically operated
equipment.  He currently owns one heavyweight American motorcycle.  Mr. Hanlon
is a brother of David P. Hanlon.

    DAVID P. HANLON, a founder of the Company, has been Co-Chairman of the
Board and Chief Operating Officer of the Company since May 1996, Secretary since
August 1994 and a Director from the Company's inception in December 1993.  For
17 years, Mr. Hanlon was employed in the commercial truck leasing industry and
most recently was the General Manager of the Michigan District for Rollins
Leasing Corporation.  Prior to 1984, Mr. Hanlon worked for three years as the
District Manager of Gelco Truck Leasing in the Memphis, Tennessee district.
Prior to 1981, Mr. Hanlon was employed at United Truck Leasing both in sales and
general management in Minneapolis, Minnesota, Kansas City, Kansas and Billings,
Montana.  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.  He has built two custom motorcycles and
has won trophies at shows where these motorcycles were displayed.  He has also



                                         -12-

<PAGE>

been active within the industry as a motorcycle consumer and immediate past
President of a Harley-Davidson motorcycle club in Michigan, and has attended
various rallies and meetings for 23 years.  He currently owns four heavyweight
American motorcycles.  Mr. Hanlon is a brother of Daniel L. Hanlon.

    ALAN D. BENZ has been Vice President of Engineering since January 1996.
From March 1995 to the present, Mr. Benz has been the Chief Executive Officer of
KIT Engineering Corporation ("KIT"), was President from 1986 to February 1995
and was Vice President from 1983 to 1986.  From March 1995 to December 1995, Mr.
Benz was on assignment from KIT to work full-time at the Company.  KIT was a
high-technology engineering company that focused on the optimization of product
design through integrating software and services for design, analysis, and
testing prior to the sale of its assets in June 1996.  KIT no longer has
operations and is in the process of being liquidated.  KIT was a contractor of
the Company and has provided engineering services to Harley-Davidson, General
Motors, Ford, Chrysler, John Deere, Caterpillar, Outboard Marine Corporation,
and Mercury Marine, among others.  From 1972 to 1983, Mr. Benz was a Principal
Engineer for Control Data Corporation in the Government Systems Division.  Mr.
Benz was responsible for technical leadership and support of mechanical design
analysis, including providing guidance to junior engineers, marketing support,
new project conceptual design, customer interface, and the integration of
computer methods for design analysis.  In 1982, Mr. Benz was awarded the
Technical Excellence Award, Control Data's highest technical engineering award.
Mr. Benz received a Bachelor of Aeronautics and Engineering Mechanics degree
from the University of Minnesota in 1972.  Mr. Benz currently owns one
heavyweight American motorcycle.

    ALLAN C. HURD has been Vice President of Manufacturing and Operations since
May 1996.  From 1987 through May 1996, Mr. Hurd has been employed by Triumph
Motorcycles, LTD, the British motorcycle manufacturer.  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.  Prior to 1987, Mr. Hurd held production
engineering and management positions with other British manufacturing companies,
including Unipart Industries, Glynwed Domestic Appliances, Wraxall Hydraulics,
Eaton Corporation and Cosworth Engineering.  Mr. Hurd has several engineering
certificates granted in England and is a member of the Institute of Electrical
Engineers (Manufacturing Section) and the Institute of Management.  Mr. Hurd
currently owns several European motorcycles.

    THOMAS M. ROOTNESS has been Vice President of Finance and Chief Financial
Officer since March 1996.  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.  Mr.
Rootness was Chief Financial Officer of LaBounty Manufacturing from August 1990
until such purchase.  From 1989 to August 1990, Mr. Rootness was President and
Chief Financial Officer of National Screenprint, Inc., a manufacturer and
distributor of imprinted sportswear.  From 1988 to 1989, Mr. Rootness was the
President and Chief Executive Officer of The Barbers, Inc., a publicly held
company that franchises the "Cost Cutters" and "City Looks" hair care salons and
formulates and distributes hair care products.  From 1986 to 1988, Mr. Rootness
was President and Chief Operating Officer of Dahlberg, Inc., then a publicly
held company that manufactured and distributed hearing health care products and
services, and was Chief Financial Officer and Executive Vice President of
Finance from 1980 to 1987.  From 1976 to 1980, Mr. Rootness was a Senior Manager
in the Tax and Private Business Division of KPMG Peat Marwick, one of the six
largest public accounting firms in the world.  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 currently owns four
heavyweight American motorcycles.



                                         -13-

<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

    EXECUTIVE COMPENSATION

    The following table sets forth certain information regarding compensation
earned by the executive officers of the Company.

 
<TABLE>
<CAPTION>

                         SUMMARY COMPENSATION TABLE

         NAME AND                                                    OPTION AWARDS
    PRINCIPAL POSITION                 YEAR             SALARY       (# OF SHARES)
    ------------------                 ----             ------       --------------
<S>                                    <C>              <C>          <C>
Daniel L. Hanlon,                      1996             $75,865           0
    Co-Founder, Co-Chair and CEO       1995              65,000           0
                                       1994              55,000           0

David P. Hanlon,                       1996              75,865           0
    Co-Founder, Co-Chair and COO       1995              65,000           0
                                       1994              55,000           0

</TABLE>

 
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of March 20, 1997, 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 (including the shares of the Company's
Series A Convertible Preferred Stock which are convertible into 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, and as adjusted
to reflect the sale of the shares offered hereby and the conversion of the
shares to Common Stock.  All persons have sole voting and dispositive power over
such shares unless otherwise indicated.

                                                                PERCENTAGE OF
NAME AND ADDRESS                                 NUMBER          OUTSTANDING
OF BENEFICIAL OWNER:                           OF SHARES             SHARES
--------------------                         --------------      -------------
Directors and executive officers
  Daniel L. Hanlon(1)                          2,748,000(2)           20.5%
  David P. Hanlon(1)                           2,252,000(3)           16.8%
  Directors and Officers, as a group
  (5 persons, including those named above)(4)   5,110,625             38.1%

Other beneficial owners:
 Heartland Small Cap Contrarian Fund,
  a series of Heartland Group, Inc.(5)          690,000(6)             5.1%

-------------------
(1) 607 West Travelers Trail, Burnsville, MN 55337.
(2) Includes 46,000 shares of Common Stock held in trusts for which Mr.
    Hanlon's spouse acts as custodian.
(3) Includes 2,000 shares of Common Stock owned by Mr. Hanlon's son.
(4) Includes options to purchase up to 62,500 shares of Common Stock
    exercisable within 60 days of March 20, 1997.
(5) 790 N. Milwaukee Street, Milwaukee, WI 53202
(6) Shares of Series A Convertible Preferred Stock of the Company, of which
    class such investor owns 15.0% of the outstanding shares.



                                         -14-

<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Not applicable.

ITEM 13. FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K

(a)                                                        Page Number
                                                             in this
    Financial Statements                                   Form 10-KSB
    --------------------                                   ------------

    Report of Independent Public Accountants                    F-1

    Balance Sheets as of December 31, 1995 and 1996             F-2

    Statements of Operations for the Years Ended
      December 31, 1994, 1995 and 1996 and
      Cumulative for the Period from Inception
      (December 22, 1993) to December 31, 1996                  F-3

    Statements of Shareholders' Equity for the Years
      Ended December 31, 1994, 1995 and 1996 and
      Cumulative for the Period from Inception
      (December 22, 1993) to December 31, 1996                  F-4

    Statements of Cash Flows for the Years Ended
      December 31, 1994, 1995 and 1996 and
      Cumulative for the Period from Inception
      (December 22, 1993) to December 31, 1996                  F-5

    Notes to Financial Statements                               F-6

(b) The following exhibits are filed as part of this Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996:

Exhibit            Description
-------            -----------
   3.1   Restated Articles of Incorporation of Company.(1)
   3.2   Amended and Restated Certificate of Designation of Series A
         Convertible Preferred Stock.
   3.3   By-Laws of the Company.(2)
  10.1   Lease Agreement between Kraus-Anderson, Incorporated and the Company
         dated March 1, 1994.(1)
  10.2   First Amendment to Lease between Kraus-Anderson, Incorporated and the
         Company dated January 18, 1996.
  10.3   Second Amendment to Lease between Kraus-Anderson, Incorporated and the
         Company dated December 6, 1996.
  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.
  27.1   Financial Data Schedule

____________________
(1) Incorporated by reference to the like numbered Exhibit to the Company's
    Registration Statement on Form SB-2 filed with the Commission on June 17,
    1996 (Registration No. 333-05060C).
(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).



                                         -15-

<PAGE>

(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 December 31, 1996.











                                         -16-

<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.

Date:  March 25, 1997

                             EXCELSIOR-HENDERSON MOTORCYCLE
                                MANUFACTURING COMPANY


                             By           Daniel L. Hanlon
                                  -----------------------------------
                              Daniel L. Hanlon, 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 and on the dates indicated.


Date: March 25, 1997                      Daniel L. Hanlon
                               ------------------------------------------
                               Daniel L. Hanlon, Co-Founder,
                                Director, Co-Chairman of the Board of Directors
                                and Chief Executive Officer
                                (Principal Executive Officer)


Date: March 25, 199                           David P. Hanlon
                               ------------------------------------------
                               David P. Hanlon, Co-Founder,
                                Director, Co-Chairman of the Board of Directors
                                and Secretary


Date: March 25, 1997                     Thomas M. Rootness
                               ------------------------------------------
                               Thomas M. Rootness, Vice President of
                                Finance and Chief Financial Officer
                                (Principal Financial and Accounting Officer)


                    SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
                    REPORTS FILED PURSUANT TO SECTION 15(D) OF THE
                        EXCHANGE ACT BY NON-REPORTING ISSUERS

    The registrant does not intend to send any annual report regarding fiscal
year 1996 or proxy statements to its security holders at this time.



                                         -17-

<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, 1995 and 1996, and the related statements of 
operations, stockholders' equity and cash flows for each of the three years 
in the period ended December 31, 1996 and cumulative for the period from 
inception (December 22, 1993) to December 31, 1996. 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, 1995 and 1996, and the 
related statements of operations, stockholders' equity and cash flows for 
each of the three years in the period ended December 31, 1996 and cumulative 
for the period from inception (December 22, 1993) to December 31, 1996, 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.  The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.


                                       ARTHUR ANDERSEN LLP


Minneapolis, Minnesota,
   January 17, 1997

                                         F-1


<PAGE>

                 EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY

                            (A DEVELOPMENT STAGE COMPANY)

                                    BALANCE SHEETS

                                  AS OF DECEMBER 31


                                                        1995           1996
                                                     ----------    -----------
                           ASSETS
 
CURRENT ASSETS:
  Cash and cash equivalents                            $  788,419   $ 5,376,601
  Short-term investments                                  912,630     4,044,992
  Other current assets                                      3,595         9,119
                                                       ----------   -----------
         Total current assets                           1,704,644     9,430,712

PROPERTY AND EQUIPMENT, net of accumulated
  depreciation of $26,755 and $76,250                      85,960       229,082

INTELLECTUAL PROPERTY, to be amortized                     88,641       135,384

OTHER ASSETS                                                3,343       228,222
                                                       ----------   -----------
                                                       $1,882,588   $10,023,400
                                                       ----------   -----------
                                                       ----------   -----------

             LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                     $  117,334   $   123,236
  Accrued liabilities                                      12,045       198,751
  Notes payable                                            24,351        70,086
                                                       ----------   -----------
         Total current liabilities                        153,730       392,073
                                                       ----------   -----------

COMMITMENTS AND CONTINGENCIES (Note 6)

STOCKHOLDERS' EQUITY:
  Series A Convertible Preferred Stock, 10,000,000 
   shares authorized, par value of $.01; 
   4,600,000 shares issued and outstanding at 
   December 31, 1996                                            -        46,000
  Common stock, 25,000,000 shares authorized,
   par value of $.01; 8,725,500 and 8,805,500
   shares issued and outstanding                           82,446        83,246
  Additional paid-in capital                            3,270,669    13,637,869
  Deficit accumulated during the development stage     (1,624,257)   (4,135,788)
                                                       ----------   -----------

         Total stockholders' equity                     1,728,858     9,631,327
                                                       ----------   -----------
                                                       $1,882,588   $10,023,400
                                                       ----------   -----------
                                                       ----------   -----------

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

                                         F-2

<PAGE>

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

                               Statements of Operations


               For the Years Ended December 31, 1994, 1995 and 1996 and
            Cumulative for the Period From Inception (December 22, 1993)
                                 To December 31, 1996

<TABLE>
<CAPTION>


                                                  1994              1995           1996          Cumulative
                                               ----------       ----------      ----------      ------------
<S>                                            <C>              <C>             <C>              <C>
PREOPERATING EXPENSES:
 General and administrative                    $   241,630      $   460,793      $  716,154      $  1,419,752
 Research and development                          110,082          702,345       1,271,276         2,083,703
 Marketing                                          32,133          106,974         694,239           833,346
                                               -----------       ----------      ----------      ------------
         Total preoperating expenses               383,845        1,270,112       2,681,669         4,336,801

INTEREST INCOME                                          -           43,522         174,226           217,748
INTEREST EXPENSE                                    (5,346)          (7,301)         (4,088)          (16,735)
                                               -----------       ----------      ----------      ------------

         Net loss                              $  (389,191)     $(1,233,891)     (2,511,531)     $ (4,135,788)
                                               -----------      -----------      ----------      ------------
                                               -----------      -----------      ----------      ------------

         Net loss per common share             $      (.07)     $      (.16)     $     (.29)     $       (.58)
                                               -----------      -----------      ----------      ------------
                                               -----------      -----------      ----------      ------------

         Weighted average common shares
          outstanding                            5,294,125        7,483,588       8,789,966         7,181,348
                                               -----------      -----------      ----------      ------------
                                               -----------      -----------      ----------      ------------

</TABLE>

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

                                         F-3


<PAGE>

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

                          Statements 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                       -     $    -               -    $       -
  Common shares issued at $.01 per share                      -          -       5,050,000       50,500
  Excess of par value over issuance price                     -          -               -      (45,450)
  Net loss                                                    -          -               -            -
                                                      ---------    -------      ----------   ----------

BALANCE, December 31, 1993                                     -          -      5,050,000        5,050
  Proceeds from sales of common stock,                                                                                            
   $.50 per share, net of offering costs of $23,059            -          -        130,000       41,941  
  Proceeds from sales of common stock,                                                                   
   $.60 per share, net of offering costs of $14,919            -          -        891,650        8,916  
  Issuance of common stock in settlement of                                                              
   construction payable, $.60 per share                        -          -          8,350           84  
  Issuance of common stock from conversion of                                                            
   promissory note to investor, $.40 per share,                                                          
   net of conversion costs of $2,583                           -          -        187,500        1,875  
  Net loss                                                     -          -              -            -
                                                       ---------    -------     ----------   ----------

BALANCE, December 31, 1994                                     -          -      6,267,500       57,866  
  Proceeds from sales of common stock,                                                     
   $1.25 per share, net of offering costs of $363,874          -          -      2,408,000       24,080  
  Issuance of common stock for research                                                    
   and development services, $1.25 per share                   -          -         50,000          500  
  Net loss                                                     -          -              -            -  
                                                       ---------    -------     ----------  ----------
 
BALANCE, December 31, 1995                                     -          -      8,725,500       82,446  
  Proceeds from sales of Series A                                                          
   Convertible Preferred Stock, $2.50 per share,
   net of offering costs of $1,186,000                 4,600,000     46,000              -            -  
  Issuance of common stock for marketing                                                   
   services, $1.25 per share                                   -          -         50,000          500  
  Proceeds from exercise of stock options,                                                
   $1.25 per share                                             -          -         30,000          300  
  Net loss                                                     -          -              -            - 
                                                       ---------    -------     ----------   ---------- 

BALANCE, December 31, 1996                             4,600,000    $46,000      8,805,500   $   83,246  
                                                       ---------    -------     ----------   ----------
                                                       ---------    -------     ----------   ----------

<CAPTION>
                                                                         Deficit
                                                                      Accumulated
                                                         Additional     During the 
                                                          Paid-In      Development
                                                           Capital        Stage          Total
                                                         ----------   -------------  ------------
<S>                                                     <C>           <C>            <C>
BALANCE AT INCEPTION, December 22, 1993                   $      -       $     -        $      -
  Common shares issued at $.01 per share                         -             -          50,500
  Excess of par value over issuance price                        -             -         (45,450)
  Net loss                                                       -         (1,175)        (1,175)
                                                        ----------     ----------     ----------

BALANCE, December 31, 1993                                       -         (1,175)         3,875
  Proceeds from sales of common stock,
   $.50 per share, net of offering costs of $23,059              -              -         41,941
  Proceeds from sales of common stock,                                                       
   $.60 per share, net of offering costs of $14,919        511,155              -        520,071
  Issuance of common stock in settlement of                                                  
   construction payable, $.60 per share                      4,926              -          5,010
  Issuance of common stock from conversion of                                                   
   promissory note to investor, $.40 per share,                                                 
   net of conversion costs of $2,583                        70,542              -         72,417
  Net loss                                                       -       (389,191)      (389,191)
                                                        ----------     ----------     ----------

BALANCE, December 31, 1994                                 586,623       (390,366)       254,123
  Proceeds from sales of common stock,
    $1.25 per share, net of offering costs of $363,874   2,622,046              -      2,646,126
  Issuance of common stock for research                                                      
    and development services, $1.25 per share               62,000              -         62,500
  Net loss                                                       -     (1,233,891)    (1,233,891)
                                                        ----------     ----------     ----------

BALANCE, December 31, 1995                               3,270,669     (1,624,257)     1,728,858
  Proceeds from sales of Series A                                                               
   Convertible Preferred Stock, $2.50 per share,                                                
   net of offering costs of $1,186,000                  10,268,000              -     10,314,000
  Issuance of common stock for marketing                                                        
   services, $1.25 per share                                62,000              -         62,500
  Proceeds from exercise of stock options,                                                      
   $1.25 per share                                          37,200              -         37,500
  Net loss                                                       -     (2,511,531)    (2,511,531)
                                                        ----------     ----------     ----------
BALANCE, December 31, 1996                             $13,637,869    $(4,135,788)    $9,631,327
                                                        ----------     ----------     ----------
                                                        ----------     ----------     ----------
</TABLE>

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

                                      F-4
<PAGE>




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

                              Statements of Cash Flows

          For the Years Ended December 31, 1994, 1995 and 1996 and
                    Cumulative for the Period From Inception
                    (December 22, 1993) To December 31, 1996

<TABLE>
<CAPTION>
                                                                1994          1995           1996           Cumulative
                                                            -----------    -----------    ------------     -------------
<S>                                                          <C>          <C>             <C>              <C>
OPERATING ACTIVITIES:
  Net loss                                                  $ (389,191)   $ (1,233,891)   $ (2,511,531)    $ (4,135,788)
  Adjustments to reconcile net loss to net cash used in
  operating activities-
   Depreciation                                                  5,194          21,561          49,495           76,250
   Change in current assets and liabilities:
     Other current assets                                       (4,375)            780          (5,524)          (9,119)
     Accounts payable                                           72,548          39,611           5,902          123,236
     Accrued liabilities                                        17,065          (5,020)        186,706          198,751
                                                           -----------     -----------     -----------      -----------
         Net cash used in operating activities                (298,759)     (1,176,959)     (2,274,952)      (3,746,670)
                                                           -----------     -----------     -----------      -----------

INVESTING ACTIVITIES:
  Purchases of short-term investments, net                           -        (912,630)     (3,132,362)      (4,044,992)
  Property and equipment additions                             (29,788)        (77,917)       (192,617)        (300,322)
  Payments incurred for intellectual property                  (29,151)        (55,490)        (46,743)        (135,384)
  Change in other assets                                        (3,343)              -        (224,879)        (228,222)
                                                           -----------      -----------     -----------      -----------

         Net cash used in investing activities                 (62,282)      (1,046,037)    (3,596,601)      (4,708,920)
                                                           -----------      -----------     -----------      -----------
FINANCING ACTIVITIES:
   Proceeds from notes payable                                 100,015           30,055         75,025          205,095
   Repayment of notes payable                                        -          (30,719)       (29,290)         (60,009)
   Proceeds from issuance of Series A Convertible
     Preferred Stock, net of offering expenses                       -                -     10,314,000       10,314,000
   Proceeds from issuance of common stock,
     net of offering expenses                                  564,479        2,708,626        100,000        3,373,105
                                                           -----------      -----------    -----------      -----------
         Net cash provided by financing activities             664,494        2,707,962     10,459,735       13,832,191
                                                           -----------      -----------    -----------      -----------
         Net increase in cash and cash equivalents             303,453          484,966      4,588,182        5,376,601

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


SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid                                             $    4,656    $    7,301       $     4,088     $    16,045
  Noncash transactions-
    Conversion of note payable into common stock                75,000             -                 -          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             -                 -           5,010

</TABLE>
The accompanying notes are an integral part of these financial statements.

 
                                         F-5


<PAGE>
                 EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
                            (A DEVELOPMENT STAGE COMPANY)

                            Notes to Financial Statements

                              December 31, 1995 and 1996

1.   BACKGROUND:

Excelsior-Henderson Motorcycle Manufacturing Company (the Company) is a
development stage company incorporated on December 22, 1993 in the state of
Minnesota, formerly known as Hanlon Manufacturing Company, for the purpose of
developing, manufacturing, selling and distributing motorcycles.

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 operating losses since inception and
currently requires substantial working capital for motorcycle development,
acquisition of manufacturing facilities, development of a dealer network and
consumer awareness.  Even if the Company is successful, 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 and certificates of deposit
with original maturities of three months or less.  Cash equivalents are recorded
at cost, which approximates fair value.

SHORT-TERM INVESTMENTS

The Company accounts for its short-term investments in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."  The
Company's short-term investments, U.S. government securities, are considered to
be available-for-sale and accordingly, are carried at fair value which
approximates cost.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated for financial and
income tax reporting purposes using the straight-line method over three to five
years.  Additions and improvements are capitalized, while maintenance and
repairs which do not improve or extend the useful lives of the respective assets
are expensed as incurred.

                                         F-6


<PAGE>

INTELLECTUAL PROPERTY

Intellectual property represents amounts incurred to prepare and file for United
States and international trademark applications.  These amounts are presented at
cost in the accompanying balance sheets and will be amortized over 5 to 17
years, beginning at the earlier of commencement of operations or receipt of
trademark protection.

OTHER ASSETS

Other assets consist primarily of deferred costs associated with the
construction of the Company's manufacturing and headquarters facility.  These
amounts are presented at cost in the accompanying balance sheets, will be
capitalized as part of property and equipment and will be amortized over the
life of the facility.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to expense as incurred.

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.

NET LOSS PER COMMON SHARE

Net loss per common share for all periods presented is computed using the
weighted average number of common shares outstanding.  Shares reserved for the
conversion of Series A Convertible Preferred Stock, warrants or stock options
are not considered because the impact of the incremental shares is antidilutive.

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.

3.   NOTE PAYABLE:

Note payable as of December 31, 1996 consists of a promissory note due to a bank
with interest at 9.9%.  The note requires combined monthly payments of principal
and interest of $1,590, is collateralized by certain assets of the Company and
is due on demand no later than July 2, 2001.

4.   STOCKHOLDERS' EQUITY:

AUTHORIZED SHARES

The Company's Articles of Incorporation, as amended, authorize the aggregate
issuance of 35,000,000 shares of stock.  The shares are classified into two
classes consisting of 10,000,000 shares of Preferred Stock, $.01 par value, of
which 5,014,000 shares have been designated as

                                         F-7


<PAGE>


Series A Convertible Preferred Stock and 4,986,000 undesignated shares, and 
25,000,000 shares of $.01 par value common stock.

SERIES A CONVERTIBLE PREFERRED STOCK OFFERING

During 1996, the Company completed an offering (the Offering) to the public of
4,600,000 shares of Series A Convertible Preferred Stock, par value $.01 per
share, at an offering price of $2.50 per share.  The Company received net
proceeds of approximately $10,314,000 from the Offering, with the proceeds to be
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.

STOCK COMPENSATION PLANS

Effective December 15, 1995, the Company implemented a stock option plan (the
Plan).  Under the terms of the Plan, the Company 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 (as determined by the board of directors) 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.  One million shares
have been reserved for issuance under the Plan.  The stock options expire
between a range of 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 and as stand-alone agreements.  The stock options have been
granted at fair market value as determined by the board of directors at the date
of the grant.  The stock options expire between a range of four and ten years
from the date of grant and vest at various rates over two years.

The Company applies APB Opinion 25 and related interpretations in accounting for
its plans.  Accordingly, no compensation cost has been recognized for its fixed
stock option plans.  Had compensation cost for the Company's plans been
determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's results of operations and loss per share would
reflect the pro forma amounts indicated below:


                                      1995          1996       Cumulative
                                  ---------     ----------     ----------
 Net loss:
   As reported                    $1,233,891     $2,511,531     $4,135,788
   Pro forma                       1,239,992      2,767,950      4,398,308

 Net loss per common share:
   As reported                    $      .16     $      .29     $      .58
   Pro forma                             .16            .31            .61


                                         F-8


<PAGE>

A summary of the status of the Company's plans as of December 31, 1995 and 1996,
and changes during the years then ended is presented below:


                                         1995                    1996
                                   -------------------      -------------------
                                            Weighted                   Weighted
                                             Average                   Average
                                             Exercise                  Exercise
                       Options     Shares     Price         Shares       Price
                                   -------   --------       -------   ---------

Outstanding, beginning of year          -    $    -          26,500    $  .99
   Granted                         26,500       .99         619,900      1.25
   Exercised                            -         -         (30,000)     1.25
                                   ------                   -------
Outstanding, end of year           26,500       .99         616,400      1.24
                                   ------                   -------
                                   ------                   -------     

Options exercisable at year-end         -         -         222,400      1.22
                                   ------                   -------
                                   ------                   -------

Weighted average fair value of
  options granted during the year  26,500       .44         619,900       .72
                                   ------                   -------
                                   ------                   -------


Options outstanding at December 31, 1995 and 1996 have an exercise price per
share ranging between $.60 and $1.25 and a weighted average remaining
contractual life of 6.6 and 7.7 years, respectively.

In determining the compensation cost of the options granted during 1995 and
1996, as specified by SFAS No. 123, the fair value of each option grant has been
estimated on the date of grant using the Black-Scholes option pricing model.
The weighted average assumption used in these calculations are summarized below:


                                             1995             1996
                                           --------         --------
Risk-free interest rate                      5.78%            5.95%
Expected life of options granted           5.2 years        7.4 years
Expected volatility of options granted        40%              40%

WARRANTS

In connection with its 1995 sale of common stock, the Company issued warrants to
purchase 314,310 shares of common stock at a price of $1.25 per share
exercisable through August 2, 2000.

In connection with the Offering, the Company issued warrants to purchase 394,000
shares of Series A Convertible Preferred Stock at $3.00 per share, exercisable
through September 2001.

5.   INCOME TAXES:

As of December 31, 1996, the Company had net operating loss carryforwards of
approximately $3,228,000 for federal income tax purposes that are available to
offset future taxable income through the year 2011.  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 the change in ownership resulting from sales of the
Company's stock, may limit annual utilization of these net operating loss
carryforwards.


                                         F-9
<PAGE>

6.   COMMITMENTS AND CONTINGENCIES:

OPERATING LEASES

The Company leases office space and certain office equipment under noncancelable
operating leases.  Future minimum payments under these leases as of December 31,
1996 are $105,000.  Under the terms of these leases, the Company is also
responsible for certain operating expenses.  Total lease expense was $12,000,
$19,000, $33,000 and $64,000 for the years ended December 31, 1994, 1995 and
1996 and cumulative for the period from inception to December 31, 1996,
respectively.

RESEARCH AND DEVELOPMENT CONTRACTS

The Company has entered into cancelable agreements with design and engineering
firms.  Pursuant to the agreements, the Company issued 50,000 shares of common
stock to one of the firms and will issue an additional 25,000 shares or options
if the contract is completed within specifications.  The contracts are expected
to be completed during 1997 with an estimated remaining cost of approximately
$228,000 as of December 31, 1996.

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 stockholders.

7.   EVENT SUBSEQUENT TO DECEMBER 31, 1996:

The Company currently is negotiating arrangements with certain governmental
entities and Ryan Companies US, Inc. (Ryan), a project construction company, for
financing and construction of its manufacturing and administrative facility.
The cost of the facility is estimated to be approximately $10 million.  The
Company has signed a development agreement with the City of Belle Plaine to
provide incentives for partial funding of the construction of the facility.  The
development agreement contemplates that the City of Belle Plaine will issue
government obligation tax increment financing bonds with net proceeds of
approximately $2.3 million.  With respect to the remaining balance of
approximately $7.7 million, it is anticipated that Ryan will arrange for
mortgage-backed debt financing in the amount of approximately $5.0 million, with
the remaining estimated $2.7 million provided by the Company.  There can be no
assurance that the above financing will occur or remain in the same terms as
described above.  If consummated, the Company anticipates recording the
transaction as a capital lease.

                                         F-10





<PAGE>


                                  INDEX TO EXHIBITS

<TABLE>
<CAPTION>


Exhibit            Description                                                                     Page
-------            -----------                                                                     -----
<S>      <C>                                                                             <C>
    3.1  Restated Articles of Incorporation of Company..........................         Incorporated by Reference
    3.2  Amended and Restated Certificate of Designation of Series A
         Convertible Preferred Stock............................................         Filed Electronically
    3.3  By-Laws of the Company.................................................         Incorporated by Reference
   10.1  Lease Agreement between Kraus-Anderson, Incorporated and the Company 
         dated March 1, 1994....................................................         Incorporated by Reference
   10.2  First Amendment to Lease between Kraus-Anderson, Incorporated and the 
         Company dated January 18, 1996.........................................         Incorporated by Reference
   10.3  Second Amendment to Lease between Kraus-Anderson, Incorporated 
         and the Company dated December 6, 1996.................................         Filed Electronically
   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........         Filed Electronically
   27.1  Financial Data Schedule................................................         Filed Electronically



</TABLE>